Knowing how much your home is worth is not only useful before selling, but also during your time of home ownership.
If you know the value of your property, and understand the factors that affect that value, then you will also know how to safeguard against negative influences that will cause your home to depreciate, says regional director and chief executive of RE/MAX of Southern Africa, Adrian Goslett.
To help homeowners protect the resale value of their homes, he says three key factors that determine a home’s value include location, external market conditions, and the condition of the home.
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Echoing this, Erwin Rode of Rode & Associates says that, for residential property, the most important drivers of value are location, floor-area size, quality or age of the building and finishes, and condition of the building.
1. Location
The location of a property is the biggest determining factor in the home’s value. Each suburb has its own maximum and minimum values based on previous sales that will largely dictate the price parameters for future sales. But, these parameters can change if demand for the area changes, Goslett says.
“The more desirable the location and the higher the demand for the area, the more expensive the homes in that area will become. The most desirable suburbs are typically located in the most convenient, trendy, beautiful, and/or secure parts of a country. Keep an eye out to see if anything in your suburb changes to make it more desirable.”
An example of a positive influence could be the opening of a trendy restaurant, while abandoned homes in the area could be a negative. Other negative factors, says Rode, include noise – such as being on a busy road or under the flight path of an airport.
“Location would also include crime and proximity to work opportunities. In low-cost areas, one presumes proximity to reliable public transport is also a factor.”
In addition, says David Jacobs, Gauteng regional sales manager for the Rawson Property Group, the neighbourhood makes a “huge difference” to the value and growth prospects of a property investment. The proximity to schools and amenities, public transport routes, hospitals, and police stations are also taken into consideration.
“This is usually incorporated when an agent does a comparative market analysis.”
2. External Market Conditions
Property values are based on the rules of demand versus supply and will constantly change over time in response to external market factors, Goslett says. If demand is greater than supply in a given market, property prices will increase.
However, if there are more properties on the market than there are buyers, property prices will drop.
“When things like interest rates, inflation, and unemployment are on the rise, across the country, demand usually drops along with property prices. Similarly, during periods of economic flourishing, demand usually rises along with property prices. While it is virtually impossible to time the market accurately, keeping abreast of the external market conditions can help you decide whether now is a good time to sell or not.”
3. Appearance and condition of the home
The features and condition of the home itself will also determine the home’s value, he says. This includes things such as the state of the roof, the number of bathrooms, and the size of the property. As simple as it sounds, he says, the visual state of the property will also influence the value of the home, as it can make the property more or less desirable to potential buyers.
“Homeowners should keep on top of all home maintenance issues and keep the home modern and appealing to ensure that the resale value is not affected.”
At the time when a property owner is ready to sell, Goslett states that hiring the right professional and following their advice should be a number one priority.
“Many might not realise that there is a difference between an official valuation certificate and a real estate agent’s market assessment value of a property. The difference is that a property valuation can technically only be conducted by licensed appraisers.
“Some, but not all, real estate agents are licensed to provide an official valuation. But all licensed real estate professionals will have the requisite expertise and access to information to provide a fair market assessment of the home’s value.”
Other things that can drive down a property’s value, he says, include the quality of the property’s infrastructure – such as if it is old and unmaintained and needs a lot of work, or being 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 updated then that can also contribute to lessening the property value.”
The factors that contribute the most to a property’s value though, says Kgomotso Sebakwane, head of property analytics at FNB, is the amount of living space available.
“Different people value different things, however having the option of having an extra bedroom will always add more value. Beyond just the purely functional aspects of a home, the quality of finishes adds the extra appeal to a property.”
Any major structural or cosmetic defects, however, detract from the value of a property.
“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 need to fix. Whatever the quoted cost of repair, the potential home builder 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.”
Complications
There can also be differences in the value assigned to a property by the local municipality and the value given by an estate agent, states Rode.
In terms of the Municipal Property Rates Act (MPRA), he says 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.
“Often, they would use a combination of the two.”
How closely aligned the respective valuations are depends on a few factors, he 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.
“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 in opinion are inevitable.”
Jacobs explains that agents arrive at their property valuations through various ways, the most important of which are:
- Square meterage of the property
- Fixtures and finishes of the property
- The location of the property – proximity to schools and amenities, public transport routes, hospitals, and police station.
- Comparative Market analysis
“Real estate agents’ values are determined by an actual physical viewing of the property and the understanding of the property’s offering combined with a comparative market analysis, whereas a municipal valuation just includes a value based on a standard number of square meters and does not include quality furnishing and fittings.”
More often than not, he says, the real estate valuation is “slightly higher”, as it takes into account more characteristics of the property compared to the municipal value.
Echoing this, Sebakwane 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 a home.
“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 own property 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 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, number of rooms available, and the quality of the finishes.
“Given that they observe the selling prices for what people are willing to pay for, they have the ability to gauge the value at which a property will sell.”
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