The role of a bank's authorised Valuer

The role of a bank's authorised Valuer

Private Property South Africa
Kerry Dimmer

One of the roles of the property valuer is to value a home. How they do that is based on a large number of factors, not least of which is an understanding of market conditions, local market demand, and previous sales in the locale among them. The South African Institute of Valuers (SAIV) is likely to be the most authoritative body from which to source valuers, which is why finance houses use its registered valuers to ensure that a property that has been sold, and for which finance has been applied for, is not valued above or below its worth.

To explain and encourage the relationship between valuers and market players is Malusi Mthuli, President of the SAIV.

Q: What is the major difference between a property practitioner’s valuation and a professional valuer’s valuation?

The valuation that professional valuers complete is undertaken by an objective person who is legally recognised by The Property Valuers Profession Act of 2000 and who, by training and experience, has passed the competency required by the International Valuation Standards and Municipal Rating Standards to determine the market value of a property.

The end-user of a valuation report that a professional valuer completes benefits from making an informed decision on property value that is sound from a physical (structure and features), legal (real right), and economical (benefit). This is founded on sound research and a high degree of technical knowledge on matters relating to a property and its surrounding market. In addition, a professional valuation is defendable in court and usable for funding purposes.

Incidentally, the word ‘value’ appears only twice in the Property Practitioners Act of 2019, which entails the protection of the public by regulating the conduct of property practitioners in the country. Too often, property practitioners purport to do free valuations in the market, but these are merely indicative assessments that do not fit the definition of market value and hence cannot be recognised as being independent given the vested interest of an estate agent in any property transaction.

Q: How does a property practitioner best develop a relationship with a professional valuer?

I believe there is a good relationship between property practitioners and professional valuers, and for as long as the professional responsibilities do not encroach from either side, the relationship is bound to grow further. We cannot have valuers putting themselves in the market as agents in the same way that we shouldn’t have agents posturing as valuers if both sides are not qualified to do so. There is, however, an existing scope of information sharing from both sides.

Q: How are valuers trained; what is the type of education required and qualification examinations?

Property valuers are required to obtain a three-year tertiary national diploma, a four-year degree, or a master’s degree in real estate, property valuation, or property studies before registering to become property valuers to ensure that they have the necessary theoretical knowledge. This is followed by intense practical training and exposure to various property types before they are eligible to write an exam qualifying them to become professionals.

Furthermore, valuers are required to undertake various activities for their continuous professional development in order to maintain their registration. Therefore, no one can conduct valuations without first meeting these prerequisites.

Q: Do valuers need to be registered with SAIV?

All registered valuers in South Africa are governed by the Property Valuers Profession, 2000 (Act of 47 of 2000), through a juristic body known as the South African Council for the Property Valuers Profession (SACPVP) that is responsible for the registration and regulation of the profession.

The SAIV is the largest voluntary association representing more than half of registered Property Valuers in South Africa, established in 1909, to which any suitably qualified person can belong. Our members comprise valuers, but we also have affiliate members, being those who are registered as professionals within Councils forming part of the Council for the Built Environment who have a particular interest in and/or connection with the property valuation profession.

Q: How many houses does the average valuer review annually - large metros, for example?

It is very difficult to establish the average number of valuations each valuer does annually as this depends on each valuer’s client base, skill set, experience and network in the market. Companies that consume valuations on an ongoing basis also keep a short list of valuers on a panel to which they outsource valuation instructions.

Provinces and metros have varying levels of activity as well. Given that the valuation work is not randomly distributed, theoretically, a valuer can complete a valuation report within two to five days, which translates into having the capacity to complete four to ten valuations per month. The more sophisticated valuations in the commercial sector take longer than the less sophisticated residential sector.

Q: When doing the valuation, as per a bank request, what are valuers looking for specifically?

The valuers use their technical skills and experience to determine the property’s saleability, physical condition, and area demand dynamics so as to empower the bank’s credit decision.

Q: How important are aesthetics to a valuation?

Aesthetics for a residential property and even of a commercial property differ significantly, but all talk to the satisfaction of the use of the property by its occupant. High-end finishes matter a lot more in the residential sector, whilst functionality is more important in the commercial sector.

Q: Do professional valuers consider the value of other properties in an area or is the valuation purely based on size of the property and other standard features?

Various market transactions determine the market. The market determines thresholds of valuation input variables that help the valuer to formulate an opinion of value based on a comparative sales analysis. It is therefore not only necessary but critical for valuers to consider the value of other properties in the area in their assessment of market value.

Q: What advice should estate agents be giving their sellers regarding the condition of a property that is coming up for sale?

It depends on how bad the state of the building is and how big the headroom is between the value of the building as it stands and the highest achievable price. Should it be viable for sellers to spend some money on the property and sell the property at a higher profit than selling it as is, then additional improvement may be a good option. However, where the price ceiling is too low, only improvements of a cosmetic nature may be necessary to enhance the appeal to the market.

Q: Should estate agents recommend a professional valuation prior to the sale, and if this is done, does it save sellers' or bank home loan application times?

Buying any property is often a big life or investment decision. Credible advice is necessary for one to make the best call. The cost of undertaking a professional valuation upfront is a fraction of the potential loss in making an uninformed decision.

A valuation is typically valid for a year, and some banks will consider an independently executed valuation.

Q: What other advice should agents give their clients relative to home value, and what should the agents look at in terms of the property’s condition?

I cannot speak on behalf of agents and the difficult task of striking a balance between the demand-side and supply-side of the market to enable transactions to occur. I think it is incumbent on the agent to point out aspects of the condition of a property that is positive and negative and allow both the seller and buyer to negotiate a price that accounts for these aspects.

Q: What is your interpretation of the market currently?

I think the changes in the property market have made it necessary for a more prudent application of principle when assessing valuations. The market is showing signs of volatility, and in the absence of in-depth data analysis, participants in the market may make costly decisions. It is for this reason that we implore the broader market to visit our website saiv.org.za to obtain some free content around the valuation industry and also communicate with our office for referral to a credible valuer in their area.

Writer : Kerry Dimmer

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