What influences the value of a property? Location, location, location …… by all means one of the most important factors to take into account when the market value of a property in determined. Needless to say that two similar properties, one in Camps Bay and the other in Roodepoort, Johannesburg will be very differently priced. Other basic economic factors such as supply and demand as well as physical aspects including property specifications, quality of finishes and general / overall condition are all aspects that need to be taken into account. But why is it so important to get the price right?
Most people get money for the purchasing of a property from the bank through a mortgage bond / loan from the bank. The amount borrowed can be equal or slightly less than the purchase price. The days of borrowing 104% or 108% of the purchase price flew out the window many years ago and these days many buyers are also forced to pay a deposit in order to qualify for bond finance.
Part of the approval process is when the bank does their own valuation of the property that is being sold/bought. This can be done via “desktop” or with a physical valuation by a bank valuator. With some sectional title property sales, this process can be done electronically via “desktop” as the bank has enough information about the complex and current or resent sales values of similar size properties in the complex and general area. For single residential properties this is a bit more complicated and the only parameters that the valuators have is to look at recent sales / registrations in the immediate area combined with the size of the property and land as well as general specification and overall condition of the property. Bank valuations are done to make sure that the purchase price and loan amount can be justified by the bank in order to cover their risk before granting the loan application or a part thereof.
The valuator looks at recent sales in the area that can confirm that the property is sold within the area average for the specific type of property. Should you receive a cash offer on your property, this process is obviously not applicable. In many cases where properties are overpriced and they receive offers close to the asking price, this is where the cake flops and everyone involved is very disappointed as the bank comes back with a lower valuation than what the seller and agent thought was possible.
Imagine you make an offer on a property for R 2 000 000 with R 200 000 deposit and a bond application of R 1 800 000. The bank do their valuation and according to your credit score and affordability they come back with a 90% bond quotation. The bank tells you that the 90% is based on their valuation amount which is only R 1 800 000. This means that they did not find value for R 2 000 000 and now leaves you with a bond approval for R 1 620 000 and a deposit of R 380 000 plus total costs of +/- R 117 000 for transfer and registration.
Except for having to fork out an extra R 180 000 deposit you now have to be happy purchasing the property knowing that according to the bank you are overpaying for it. In some cases the amounts are much more and sellers aren’t always in a position to drop their price to accommodate the bank valuation. Because the buyers got a lower bond than what they applied for, they can decide not to accept the quotation from the bank and to cancel the transaction.
By having a proper and accurate market related valuation done by an agent who is familiar with the complex, estate or area where you are selling, you can avoid the above and put yourself in the best possible position to accept offers that have a real chance of being approved by the banks. The other option is to only accept cash …… but we are not all in the situation to do this.
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