GETTING TO GRIPS WITH THE VALUE OF YOUR PROPERTY

Apart from being your home, property is also an investment. For a range of reasons, you may want to ascertain the value of your asset from time to time. In this article, we’ll look at the reasons why regular updates about the value of your property can be useful, how the resale value is determined, and how to go about finding out the current value of your home or property.

What is the difference between a property appraisal, valuation or comparative market analysis?

In addition to an estate agent, there are mainly two other bodies that regularly do property appraisals. These are municipalities and banks (property financiers).

Because property appraisals for both municipalities and banks have formal, legal frameworks, the people who conduct them are professionals with a relevant degree, and who must be registered with the South African Council for the Property Valuers Profession (SACPVP).

Rather than doing a formal valuation, most real estate agents will draw up a comparative market analysis (CMA) which will evaluate similar properties in the area, what they sold for, when and/or in the current market. This, combined with their local knowledge of sales in the area will be used to give you a realistic estimation of the value of your property. Your real estate agent will typically provide you with a report on how they arrived at their conclusion.

How else is a property’s value determined?

Apart from — and sometimes used alongside — comparing the costs of other homes in the area, there are other methods that are used to help determine the value of a property:

The cost approach

The cost approach involves calculating the total amount for replacing or building the same home or structure, based on the current land and building costs. You can do this yourself by finding out the current building costs – usually your local hardware store is a mine of information or a friendly architect – and add to that the value of the land only. Using this information, take the area of your house, multiply it by the building cost (per square metre) and then add the cost of the land.

Income capitalisation

The income capitalisation method is used for commercial – or rental – properties that generate income. Here, it’s important to have some insight into the rental market and what affects it, and it’s best to get professional help with this, either through a registered valuator or a reputable rental agency like RE/MAX.

How much does a property valuation cost?

The answer to how much a property valuation costs is, “it depends”. Firstly, if you have asked your estate agent for a comparative market analysis, they are unlikely to charge and are happy to offer this as a free service.

Registered valuers, however, do charge for their services and other than for deceased estates, there is no gazetted schedule of fees. The cost of a professional property valuation will depend on the amount of work the valuer does and the value of the property. Some professionals may charge an hourly rate, so if you’re planning to get a formal valuation of your property, we suggest either you shop around and/or ask for a quotation so that you know what you’re in for.

Word to the wise: as with most professional service providers, ensure that they are properly registered, and you can do this via the South African Council for the Property Valuers Profession website.

Why property valuation matters

There are three main reasons for understanding the value of your home: it will impact your annual rates escalation and it effects your insurance.

Municipal Rates

Each year, when your rates increase – the municipal tax on your property – the new amount is based on the municipal valuation. About every five or so years, each municipality surveys every property that falls into its boundaries and assesses its value which is based on location, land size, buildings and any other improvements to the land. When complete, the data is published in the local authority’s valuation roll.

Financial Reasons

The second key reason for keeping up to date with the value of your property is because this has an impact on your financial status. If you are a homeowner and you have a bond and the value of your property increases, that means that you also increase your equity in the property. This is very important if you decide that you want to refinance the property, or if you are looking for a loan for other reasons. It also helps you to plan what you will stand to make if you decide to sell your property.

Insurance

In addition to this, the value of your property will also influence the cost of your homeowners’ insurance. Not only does your homeowner’s insurance cover misfortunes such as burst hot water geysers, but also damage from natural disasters. The effects of climate change are becoming increasingly evident – as we saw with the 2022 floods in KwaZulu Natal and the 2017 Knysna fires when entire homes were destroyed. This means that the value of your property will determine how much the insurance company will pay out.

Factors influencing property values

There are several factors that influence property values. Some of these are beyond almost anyone’s control and these include, for example, shifts in the global economy and interest rates.

If interest rates rise, and large numbers of homeowners are forced to downsize to afford the higher home loan repayments, property prices could drop. Conversely, if interest rates drop consistently for a period, more people can afford the cost of home finance to buy their own homes, and this can make house prices increase.

Other more obvious factors that influence the value of a property include location, access to amenities – like education institutions, the condition of the property and garden, as well as curb appeal, to name just a few.

If you’d like to find out more about the current value of your home, contact your nearest RE/MAX office and ask one of our agents for an obligation-free market assessment of your home.

Have more unanswered questions? Here are some related questions – and answers – that might help…

Who pays for a valuation report?

If you ask for a formal property valuation – whether you’re buying or selling a property – you must pay for the valuation. However, when the bank or municipalities conduct valuations, they are responsible for contracting and paying the professional property valuer.