Estate Agents Provide A "Comparative Market Analysis" - Not Certified Property Valuations.

Determining the right marketing price or rental for your property when you are selling or looking for a tenant is crucial. However, there is a difference between a marketing price and the value of the property. Although a marketing price would most of the time be very similar to the real value of the property, the property market cycle, and the reason the seller is selling, will have a positive or negative influence on the price or rental obtained.

The Property Practitioners Regulatory Authority (PPRA) issued a recent communiqué which alerted estate agents (as property practitioners) to their responsibility. They may not perform services as professional valuers unless they hold the required qualifications that the South African Council for the Property Valuers Profession prescribes for professional valuers and are registered with them.

1.           What is the best sale price or rental achievable for the Seller or Landlord?

One of the first questions that a property owner asks of the estate agent when he or she considers putting property on the market for sale or lease, is what the likely rental or sale price is. The property practitioner, exercising his or her professional skills and knowledge regarding the sale and lease of property, will then provide a considered estimation.

The estimation is not a figure grabbed from the air. Estate agents consider the values of comparative sales or rentals in the area, the activity or lack thereof in the sale or lease market at that time, the unique attributes of the relevant property and enhancements, amongst other things. In practice both the property owner and agent sometimes refer to this exercise as an "estimation" or a "valuation". In effect it is a comparative market analysis (CMA).

In using such wording, the estate agent does not mean to hold himself out as a professionally qualified valuer, but rather as a professional in his industry with experience in values that properties reach in the specific real estate market. The estate agents know that they are also strictly regulated in making such assessments. They may not make misrepresentations or false statements, whether wilfully or negligent, and specifically may not misrepresent the market value or rental income to secure a mandate. They may also not use harmful or misleading marketing techniques.

2.           Estate Agents vs Property Valuators

Estate Agents:

Estate agents facilitates the buying and selling of properties. Their "opinion of value" is an informal estimation of price based on their knowledge of all the latest and comparable sales, and their experience of the specific local property market and property cycles etc. It has however no legal standing and cannot be used by banks, financial planners, insurance companies etc.. Real estate agent's CMA or market assessment values are provided for free.

Property sellers or landlords should therefore not at any stage be under an impression that the estate agent (Property Practitioner) is acting as a professional valuer. Estate agents should also not use the word "valuation' when he or she advises the seller on the best marketing price or rental for the property - as that can create a wrong impression with the seller or landlord. Estate agents should rather convey their service as an "assessment performed by a qualified estate agent" or an "estimated valuation", or words to that effect, in comparative market analysis reports and communication with their clients.

Property Valuators:

A property valuer in South Africa must be registered with the South African Council for the Property Valuers Profession ("SACPVP"). They are qualified professional who passed the board exam and can provide an independent opinion of value that has legal standing in court - but it comes at a cost (fee).

Licensed valuers or appraisers prepare an official valuation report that explains in detail how they determined your property value. The report provides security that all factors relevant to the particular property are adequately considered.

The valuer visits the home and inspects the property from all angles - taking photographs, measuring the Land extent and the aspect or views afforded by the property and the topography, measuring the size of the building, noting the number and type of rooms, the dwelling's age and state of repair, its fixtures and fittings, the quality of the finishes, its design and layout, ease of access, property zoning and building restrictions, servitudes, title deed restrictions, and any unique characteristics that could affect the value. They also include price trends and information from the Deeds Office and Surveyor General in the final calculation. There are various methods that an official appraiser uses during a real estate valuation, depending on the purpose of the valuation.

3.           Types of Valuations by Property Valuators:

To give you an idea of what this entails, here are some of the methods used to arrive at a property's value:

Comparison method: The comparison method is most used for those who are selling residential property. The evaluator compares the current market value of properties and plots in that region and uses it to create a comparative market assessment.

Costs method: If there are no comparative property prices or valuations available, evaluators use the costs method for a house valuation. Here, they analyse the average cost of buying land and building a similar property in that area and use that as a comparison to evaluate the property.

Profits method: Investors usually use this method to determine how profitable the property can be if they rent it out or lease the property to run a business. The property's value then needs to match or be lower than the potential gross earnings to ensure that the investor takes home profits.

Residual method: This method is used for properties that are bought with the intention of renovating or making changes to increase the value of the same. Most developmental properties and those bought as investments are valued using the residual method.

4.           Conclusion:

It is very important to use the correct professional for your needs when requiring a property valuation. When you are considering selling your home, pricing your property correctly will always be the most important factor.