Valuation of Property
Valuing of property
It is essential to understand how banks go about property valuations.
The property media have done an excellent job in educating and informing the general public on property matters and their increased knowledge has become apparent in the questions they put to agents and the requests they regularly make for carefully researched information to back up the agent’s statements.
Nevertheless many surprising “patches of ignorance” still exist – one of which concerns the valuing of property.
South African valuers operate to international standards, but this does not mean that all valuations will be the same or be what the agent, seller or buyer feel they should be.
The most important fact to grasp is that the bank valuer is there to assess how the property rates in relation to the price being paid for it, i.e. how much security its value offers the bank.
A valuer is not there to check on the physical state of the property or what parts of it need repair.
Bank and other valuers use a number of tools to do a market related price valuation, one of which will be a Comparative Market Analysis. This tries to fix a realistic value for the home by comparing it to similar properties in the area that have sold recently.
CMAs are, of course, an inexact science because no two homes are the same, even when they have the same designs and are in the same estate. In particular, the condition of one home may be very different from that of another – its defects, or lack of them – should lead to a different valuation but often do not.
Where a property has obvious defects, but the valuer feels that the valuation can be reached if these are fixed, valuers may take cognisance of such defects by calculating what it would cost to repair them and inserting a retention clause stipulating that specialised repairs have to be carried out before the Bond can be registered.
Municipal valuations can be useful guidelines, provided it is accepted that these days they are often far higher (as much as 20%) than the market value – the aim of the municipalities being to increase their rates and taxes.
Another guideline in establishing a fair valuation may be the insurance value – but as this will take into account the cost of replacing the home, it, too, will probably be high because, in today’s market, building a new home is 20 to 30% more expensive than buying one “second hand”.
Valuations become exceptionally important when a buyer is applying for a bond. Quite often the bond applicant will, possibly on his estate agent’s advice, make an offer only to find that the banks’ valuers see the property as being considerably less. The bank will then be prepared to issue a bond only in relation to their valuation.
In these cases if market value is not found, a good bond originator may be able to persuade the bank that their valuation is not market related or he may be able to get the buyer and seller to rectify defects which will make the higher valuation valid.
It has to be understood that a home may have certain features (e.g. proximity to a school or an especially attractive garden) which give it huge value for some buyers but might reduce its appeal to other buyers.
In a willing buyer, willing seller market, where a bank does not find value, we always suggest that the valuer meets with the estate agent selling the property and have a relook at the comparative market analysis and decide what it is about this property that detracts from the value as calculated by the valuer.
This will enable the agent to find out what the bank thinks should be changed or improved before they will consider granting the loan and often matters can then be put right.
*Rob Lawrence is the National Manager of Rawson Finance, the Bond Originators for the Rawson Group.
It is essential to understand how banks go about property valuations.
The property media have done an excellent job in educating and informing the general public on property matters and their increased knowledge has become apparent in the questions they put to agents and the requests they regularly make for carefully researched information to back up the agent’s statements.
Nevertheless many surprising “patches of ignorance” still exist – one of which concerns the valuing of property.
South African valuers operate to international standards, but this does not mean that all valuations will be the same or be what the agent, seller or buyer feel they should be.
The most important fact to grasp is that the bank valuer is there to assess how the property rates in relation to the price being paid for it, i.e. how much security its value offers the bank.
A valuer is not there to check on the physical state of the property or what parts of it need repair.
Bank and other valuers use a number of tools to do a market related price valuation, one of which will be a Comparative Market Analysis. This tries to fix a realistic value for the home by comparing it to similar properties in the area that have sold recently.
CMAs are, of course, an inexact science because no two homes are the same, even when they have the same designs and are in the same estate. In particular, the condition of one home may be very different from that of another – its defects, or lack of them – should lead to a different valuation but often do not.
Where a property has obvious defects, but the valuer feels that the valuation can be reached if these are fixed, valuers may take cognisance of such defects by calculating what it would cost to repair them and inserting a retention clause stipulating that specialised repairs have to be carried out before the Bond can be registered.
Municipal valuations can be useful guidelines, provided it is accepted that these days they are often far higher (as much as 20%) than the market value – the aim of the municipalities being to increase their rates and taxes.
Another guideline in establishing a fair valuation may be the insurance value – but as this will take into account the cost of replacing the home, it, too, will probably be high because, in today’s market, building a new home is 20 to 30% more expensive than buying one “second hand”.
Valuations become exceptionally important when a buyer is applying for a bond. Quite often the bond applicant will, possibly on his estate agent’s advice, make an offer only to find that the banks’ valuers see the property as being considerably less. The bank will then be prepared to issue a bond only in relation to their valuation.
In these cases if market value is not found, a good bond originator may be able to persuade the bank that their valuation is not market related or he may be able to get the buyer and seller to rectify defects which will make the higher valuation valid.
It has to be understood that a home may have certain features (e.g. proximity to a school or an especially attractive garden) which give it huge value for some buyers but might reduce its appeal to other buyers.
In a willing buyer, willing seller market, where a bank does not find value, we always suggest that the valuer meets with the estate agent selling the property and have a relook at the comparative market analysis and decide what it is about this property that detracts from the value as calculated by the valuer.
This will enable the agent to find out what the bank thinks should be changed or improved before they will consider granting the loan and often matters can then be put right.
*Rob Lawrence is the National Manager of Rawson Finance, the Bond Originators for the Rawson Group.
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