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Market Valuation of Residential Property

Real Estate Matters – By Laura-Jean & Allan

Not all estimates of value are made by professional valuers. An estate agent who may or may not be a registered valuer, must be able to help a seller arrive at a realistic asking price for a property, or assist a buyer when deciding on the price to offer. Whatever price the seller may ask or the buyer may offer, an estate agent must also be able to estimate the price for which the property will probably sell. In this respect, an estate agent must always observe the “Code of Conduct” in terms of which an estate agent may not, in order to obtain a mandate in respect of a property, knowingly or negligently make a material misrepresentation concerning the likely market value or rental income of the property to the seller or lessor thereof.

With this in mind, what is meant by value and what factors influence the value of a property?

Value is an abstract word with various meanings. Generally stated, an object may be said to have value if it is useful or is scarce in relation to the demand for it. In ascribing value to a residential property, an estate agent attempts to quantify such usefulness or scarcity in monetary terms. This is done by using specific valuation methods.

A distinction must be drawn between the market value of a property and other measures of value. Market value is the price which a willing buyer will pay to a willing seller on a specific date. It is based on the assumption that (A) there is a free and open market; (B) neither party is overly anxious to buy or sell the property because of special or extraordinary reasons; (C) the parties are “at arm’s length” (e.g. not related or associated in some way) and (D) both parties are willing and able to do business on a given day.

Apart from market value, there are other measures of value, depending on the purpose for which a valuation is required. For insurance purposes, for example, the emphasis is on the replacement cost of improvements, irrespective of the market value of the property.

Property is something which satisfies human needs, and for this reason people will pay a price to acquire it. The price, and thus the value, of a property is determined by the following:

The general appearance of the property; the type of accommodation the property offers and its size; the age of the property; the general condition of the property; the recreational facilities the property offers, such as a swimming pool or tennis court; the suburb in which the property is situated, and whether or not it is close to shops, schools and places of employment; the view from the property; whether or not the property is close to busy streets; the legal restrictions (if any) on the use of the property, for example whether or not there are any servitudes registered over the land etc.; the relative scarcity of the property and the demand and supply.

An over supply creates a buyers’ market and this gives rise to low offers and prices. In contrast a rapid increase in demand results in the creation of a sellers’ market with rapidly rising prices.

When a property is valued, it is important to consider all the underlying factors which contribute to value. - Source: EAAB

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