The value of a valuation

The value of a valuation

Private Property South Africa
Kerry Dimmer

Almost every asset, or service for that matter, has a monetary measure , which allows us to understand the value of its existence. In many cases, the value of a ‘thing’ is based on whether an individual is prepared to pay what the seller is asking. In the property industry this is commonly known as ‘willing buyer, willing seller’ (WBWS).

WBWS is not necessarily absolute however in terms of the true value of a property, which is why house valuations are undertaken to define exactly what a market of buyers should be prepared to pay based on a number of factors. Estie le Roux, Manager Valuations Strategy at Absa Home Loans, provides the official interpretation of market value, and how it plays out in reality.

“The definition of market value is: “the estimated amount for which a property would exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties acted knowledgeably, prudently and without compulsion.” (IVC 2005)

“If you consider this definition, you will note that the WBWS is not the only requirement, it must be an “arm`s length transaction” (between parties who do not have a special relationship), “after proper marketing” and “wherein the parties had each acted knowledgeably and prudently”. This statement presumes that both the willing buyer and the willing seller are reasonably informed about the nature, characteristics and condition of the property, its actual use and potential uses and the state of the market as on the date of valuation,” says Le Roux.

A buyer however, particularly first-time private property entrants, may be confused because a home is usually valued by at least two to three different parties over time: that from a bank during the home loan application; the local municipality; and an estate agent who is motivating a sale. However, the municipal valuation doesn’t happen as part of the bond application process. Each party may utilise different valuation techniques, be that a physical inspection, computer-aided mass appraisals inclusive of aerial photography, or even desktop research.

“The reason for the valuation or the instruction also differs,” explains Le Roux. “An estate agent might be advising a client, the municipal valuer is determining a value against which rates will be levied, and the bank valuer is ensuring that the property offers sufficient security for the bond extended to the client.

The bank valuation, although it includes the same detail, goes deeper. Le Roux expands: “We make use of a professional valuer to confirm that a property can be sold at a market value that is in-line with current market conditions, is compliant with various government Acts and municipal by-laws, and that the condition of the improvements are such that there is sufficient security.

“The valuer also assists the bank to identify any fraudulent activity related to the sale. It is important to note however, that not all home loan applications submitted to the bank have a purchase price, such as when a home owner wishes to advance a loan for adding on a building or renovating.”

What does a valuation encompass?

Absa’s professional valuers follow a number of valuation protocols and techniques to arrive at a market value. This could take minutes or several days dependent on individual factors, but overall the process takes into account the following elements:

• Location (Pollution/ Noise/Demand in the Area/Amenities)

• Layout of the home

• Access and egress; how easy/difficult is it to enter or leave the property.

• Quality of finishes

• Condition

• Size

• Room count

• Legal use vs. actual use

• Age of the improvements

• Compliance with the various by-laws and Acts.

How does a private property alteration affect value?

“Alterations and additions to a property do not always result in an increase in value,” says Le Roux. “My advice is for home owners to engage with a local estate agent before making any changes or additions to find out what buyers are looking for in their area.

“If a three-bedroom house with two bathrooms is in demand in an area, adding a fourth bedroom may not result in the value increase expected when factoring in the cost of the renovation. Another example might be the installation of a very striking purple kitchen that might not appeal to the broader market.”

How to value the valuer

Absa ensures that all valuers comply with the requirements set out by SACPVP, which includes registration to this organisation. “To register as a valuer it is required that a valuer is in the process of completing (candidate valuer), or in possession of, the accredited qualification. To register as a Professional Valuer or a Professional Associated Valuer, the candidate needs to complete the SACPVP Work School and write the required exam.”

Le Roux also confirms that individuals and companies can also contract professional valuers directly. “Ensure that the valuer you select is registered with the SACPVP council,” she warns, “and performs the valuation in line with his/her registration. For example, a valuation undertaken by a candidate valuer has to be signed off by a Professional or Professional Associate Valuer.”

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