Property value can often be a contentious issue, not only insofar as rates are calculated but also the price it sells for, or what a buyer may be prepared to pay.
There can also be differences in the value assigned to a property by the local municipality and the value given by an estate agent.
In terms of the Municipal Property Rates Act (MPRA), Erwin Rode, managing director of Rode & Associates, 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”.
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Residential real estate agents arrive at their property valuations by either using their ‘guts’ – which he says could result in quite accurate value estimates if they have been specialising in a particular area – or they use comparable sales as a guide.
“Often, they would use a combination of the two.”
How closely aligned the respective 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.
“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.”
David Jacobs, Gauteng regional sales manager for the Rawson Property Group 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, Kgomotso Sebakwane, head of property analytics at FNB, 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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What factors determine a property’s value?
For residential property the most important drivers of value are location, floor-area size, quality or age of the building & finishes, and condition of the building, Rode says. Negative factors are noise – such as being on a busy road or under the flight path of an airport.
“Location would include crime and proximity to work opportunities. In low-cost areas, one presumes proximity to reliable public transport is also a factor. When using the comparable-sales 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, Jacobs says, adding that 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”
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 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 Sebakwane, 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.”
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