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Letter from the editor CLOSE friends spent a lot of time arguing with the municipality over the municipal valuation of their home. It was way over what it should be, they argued – and lost – with the consequence they were forced to pay higher municipal rates than they regarded as necessary. And the home is now on the market for at least 35% less than the municipal valuation because, as we all know, real value is based on what a buyer is willing and able to pay. Estate agents with a keen eye and who know the areas in which they work, are easily able to tell a seller what they can expect in the market. In some cases I’ve known some sellers to stick to their guns, and refuse to lower the asking price to what the agent says their property is worth. For sellers the issue is critical. They may need a certain amount of money to buy something else, or they may truly believe their home is worth more than the agent’s assessment because of all they have put into it. Some may have overcapitalised on renovations and others may find it hard to part with a beloved property. Hard-headed sellers can be the bane of estate agents’ lives, with properties languishing on the market until the seller lowers the price. Sadly, in today’s economy many sellers need to make a quick sale, and buyers may be surprised that their cheeky offers are accepted. And then there is also the subjective valuation that happens when a prospective buyer walks into a place and falls in love, willing to sign on the dotted line even if they have to pay a whopping price. It takes all types to buy a home, and while valuations are vital, sometimes no matter what you think something is worth, the heart wants what the heart wants – and it’s not always a bad thing as property has often been shown to be one of the best investments you can make. Warm regards
Vivian Warby vivian.warby@inl.co.za
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Assessing what a home is worth can be complicated There is often a yawning gap between the market and municipal values of the same property. Experts explain why BY BONNY FOURIE bronwyn.fourie@inl.co.za
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ROPERTY values are often a contentious issue, not only insofar as how rates are calculated but also the price a home sells for and what a buyer might be prepared to pay for it. There can also be differences in the value assigned to a property by the local municipality and the value given by an estate agent. Erwin Rode, managing director Rode & Associates, says in terms of the Municipal Property Rates Act, the municipal value of a property must reflect the market value. However, as these are mass valuations, one would “not expect an accurate estimate at all times”. Residential estate agents arrive at their valuations by gut feel which, he says, could result in fairly accurate value estimates if they have been specialising in a particular area or they use comparable sales as a guide. “Often, they use a combination of the two.” How closely aligned the market and municipal valuations are depends on a few factors, Rode says, one of which is the quality of municipal valuations. “These are often far below market value because the valuer wants to avoid appeals against the valuations. An important metro in the north of South Africa was a case in point until its latest general valuation, when this discrepancy was set right. “Also, where a valuation is done by an outside firm, the municipality’s supply chain committee normally has no experience in valuations and tends to award the tender to the cheapest bid.” The quality of the estate agent’s valuation is also a factor to consider. “Valuation is not an exact science and even where both the municipality – or its outsourced service provider – and the estate agent are competent, differences
The neighbourhood in which a property is situated has a significant impact on its value.
in opinion are inevitable.” David Jacobs, Gauteng regional sales manager for the Rawson Property Group, says agents arrive at their valuations via various means, the most important of which are: • Size of the property. • The property’s fixtures and finishes. • The property’s location – proximity to schools, public transport routes, hospitals, police stations and other amenities. • Comparative market analysis. “Estate agents’ values are determined by a physical viewing of the property, and the understanding of the property’s offering, combined with a comparative market analysis,
whereas a municipal valuation is not based on a viewing but on a standard number of square meterage and does not include the quality of furnishing and fittings.” Jacobs says that, more often than not, the real estate valuation is “slightly higher”, as it takes into account more of the property’s characteristics than does the municipal valuation. Echoing this, Kgomotso Sebakwane, head of analytics and valuations at FNB private bank lending, says municipalities do not have the luxury of visiting homes individually to measure the size or number of bedrooms or judge the quality of the finishes inside them. “Municipalities use the data
sources of sales available to them and apply an average property rate to each property within a suburb. And so the average homeowner will find that their property’s market value can be very different from the municipality’s.” An estate agent, on the other hand, has access to the property data in the suburbs that they operate in and, as part of their work, they intimately understand the characteristics of a home, whether it’s the size of the kitchen, the number of rooms or the quality of the finishes. “Given that they observe what people are willing to pay, they have the ability to gauge the value at which a property will sell,” Sebakwane says.
What factors determine value? FOR RESIDENTIAL property, the most important drivers of value are location; floor area; quality or age of the building and finishes and the condition of the building, says Rode & Associate’s Erwin Rode. Negative factors include noise, for example if the property is near a busy road or under the flight path of an airport. “Location would include the local crime situation and proximity to work opportunities. In low-cost areas, one presumes proximity to reliable public transport is also a factor. “When using the comparablesales method it is, of course, crucial to use sales that are truly
comparable.” The neighbourhood makes a “huge difference” to the value and growth prospects of a property investment, Rawson’s David Jacobs says, adding that proximity to schools, public transport routes, hospitals, police stations and other amenities is also considered. “This is usually incorporated when an agent does a comparative market analysis” Factors that can drive down a property’s value include the quality of the property’s infrastructure – such as if it is old and unmaintained and needs a lot of work, or situated in a notorious neighbourhood, an inconvenient
location, a remote or crime-filled area or even on a busy road with constant traffic noise. “One thing modern buyers are unwilling to compromise on is security. If there is no basic security, or the security system is not up to date, that can also contribute to lessening the property value,” Jacobs says. The factors that contribute the most to a property’s value, though, says Kgomotso Sebakwane of FNB, is the amount of living space available. “Different people value different things, but having the option of an extra bedroom will always add value.
“Beyond just the pure functional aspect of a home, the quality of finishes adds extra appeal to a property.” Any major structural or cosmetic defects, however, detract from the property’s value. “Whether it’s a crack in the wall, rising damp or peeling paint, the potential home buyer lands up staring at a potential problem that they will need to fix. “Whatever the quoted cost of repair, the potential home buyer will always subtract more from the value of a property based on the uncertainty of even more repairs. People tend to double discount when they see anything wrong.”
DISCLAIMER: The publisher and editor of this magazine give no warranties, guarantees or assurances and make no representations regarding any goods or services advertised within this edition. Copyright ANA Publishing. All rights reserved. No portion of this publication may be reproduced in any form without prior written consent from ANA Publishing. The publishers are not responsible for any unsolicited material. Publisher Vasantha Angamuthu vasantha@africannewsagency Executive Editor Property Vivian Warby vivian.warby@inl.co.za Features Writer Property Bonny Fourie bronwyn.fourie@inl.co.za Design Kim Stone kim.stone@inl.co.za
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