The most important drivers of value are location, floor-area size, quality or age of
the building and finishes, and condition of the building. External factors also play a
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.
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, 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.”
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. 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 advice your client whether now is a good
time to sell or not.
3. CONDITION OF PROPERTY:
The features and condition of the home itself will also determine the home’s value.
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, 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.”
Many sellers 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, 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, 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.
4. 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.
In terms of the Municipal Property Rates Act (MPRA), 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, 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.
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, the real estate valuation is “slightly higher”, as it takes into
account more characteristics of the property compared to the municipal value.
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.
SOURCE: IOL PROPERTIES
