Estie le Roux : Manager Valuation Strategy: Secured Lending Cluster at Absa, discusses the importance of a residential property valuation and the processes and procedures followed.
Q: Please define how property valuations are undertaken and by whom?
Property valuations are performed by qualified Valuers registered with the South African Council for the Property Valuers Profession (SACPVP). One of the functions of the Council is to protect members of the public in their dealings with registered persons by the promulgation of rules which prescribe a Code of Conduct to which Valuers, Associated Valuers, and Candidate Valuers have to comply in the performance of their work in property valuation.
Property valuations are undertaken in line with the International Valuation Standards. This prescribes the different types of valuation methodologies and how they should be applied.
Q: Sometimes valuations differ between agents and other specialists, including finance houses. Is this common, and how does a home owner then trust one or the other?
The definition of market value describes market value as the estimated amount for which a property should exchange. Valuations are therefore not an exact science, and the person`s qualifications, experience, and access to information may influence the valuation outcome. The instruction is also important to consider when comparing valuation outcomes. For example, determining the forced sales value of a property may differ from the market value or replacement cost value calculated for the same property.
Employing an experienced Valuer with a proven track record and registered with SACPVP, will assist in safeguarding the customer against poor quality valuations.
Q: How big a role do the services in an area and state of neighbourhood impact on valuations?
The provision of municipal services and the curb appeal of an area are both factors that will impact the demand for property in an area. Buyers prefer to buy in areas where municipal services are reliable, and the area is well kept and perceived to be safe. As an area declines, for whatever reason, the demand in the area will also decline, and sellers will have to reduce sale prices in order to entice buyers. The old adage remains true: location, location, location.
Q: How much of the valuation is based on the size of the property vs the building?
This differs from valuation to valuation and will largely be impacted by the area in which the property is located and the type and size of improvements on the stand as well as the stand size.
Q: What is over-capitialisation in terms of upgrades/renovations, and how do home owners avoid this?
Over-capitilisation applies to the specific area in which the property is located and implies that the property owner will not be able to sell the property at a price that will enable him/her to recover the investment (expenditures) made, including the purchase price and renovations.
It is important to consider the nature of the area in which the property is located; building a six-bedroom home in an area where the demand is for two- bedroom homes will place the property owner at risk of not being able to achieve the required sales price. Some areas also have a ceiling value, a value at which buyers will be able to buy a similar property in a more popular area.
Asking for advice from an experienced estate agent prior to renovating will stand any property owner in good stead. The agent will be able to advise which property characteristics are popular in an area and will enhance the marketability of the property.
Q: Is it worth having your property valued regardless that there is no wish to sell?
This is at the homeowner's discretion; understanding the value and marketability of the property may assist the home owner in not over-capitalising when making renovations.
Q: How does Absa value a property? (eg: purely on the number of rooms or condition of the home?)
Bank Valuers act on behalf of the bank tasked with ensuring that there is sufficient security in place for the bonds extended to customers. In addition to International Valuation Standards, Valuers are also guided by the requirements set out in Basel, which is a set of international bank regulations.
Variables considered include (but not limited to):
- Location
- Ingress and egress
- The placement of the improvements on the erf
- The size of the improvements
- Accommodation offered
- Flow of the home
- Size of the stand
Municipal requirements
Zoning
Approved building plans
Condition and age of the improvement and finishes.
Q: What should home owners be aware of in terms of maintaining a property to ensure the best possible valuation?
As mentioned, the condition of a property impacts its value, as do issues such as cracks, damp, and roof leaks which should be addressed not only to enhance the property value but also to ensure further damage to the improvements are contained.
The new Property Practitioners Act stipulates that a defect disclosure form must be annexed and attached to the agreement of sale, ensuring buyers are aware of all defects and can consider those during price negotiations.
Curb-appeal should also be considered, which, although not affecting value directly, will improve the marketability of the property.
Q: How soon should a property be valued if the intention is to sell?
This is at the discretion of the homeowner. It is advisable that the owner understands the value of his/her property prior to listing the property. The services of an experienced estate agent can be called upon, or a qualified, registered Valuer can be employed to conduct a property valuation.
The above, in a nutshell, is what is involved in property valuations. Knowing when and how to do it is vital in the property business.