Value is a tricky thing to define, precisely because it is so subjective.
The Oxford Dictionary once provided the following definition:
“1 the worth, desirability, or utility of a thing, or the qualities on which these depend“
This brings on to slightly more property focussed definition, which is often quoted:
“The most probable price that a voluntary, informed purchaser will pay a voluntary, informed seller in a normal open-market (arms-length) transaction at the date of valuation – after allowing for proper marketing prior to the valuation date – when neither party is under any compulsion to sell or to purchase, other than their normal desire to transact”
This is of course very academic but two points bear noting:
- It’s highly subjective process; and
- Value can vary greatly based on apparently insignificant differences in the property.
We are living in an incredibly exciting time especially in the property space. At no time in the past did property data companies (which collect property data and organise it into information) ever have as much information as now. If one links that to IA and the incredibly gifted boffins they have designing algorithms etc, it could be said that a desktop valuation should be the most spot on it has ever been.
If that is the case there is no longer any need for valuers – because the computers have it covered. But do they really?
I am sure there are many people who would, possibly from a vested interest perspective argue differently, but can a computer really value a property correctly.
Let’s consider a few aspects which a computer may not know:
- A favourability of a unit’s position within a complex (not all locations are valued the same). There may be variation caused by views, perceived safer location, closer access or removal from the clubhouse, location nearer or further from the gate, etc
- The condition of the units surrounding this unit (for example if the neighbour’s home has not been painted in living memory;
- The type of neighbours (noisy, untidy, shady, etc)
- New developments in the immediate area like the building of a new complex that will adversely affect the property’s value.
- The list goes on ….
But one will often find that free-standing individually built homes pose a particular problem. In an area where every home is different and sale happen seldom, how does one determine truly comparable properties so as to use as comparables? In other words how do we compare apples with apples when everything seems unique?
The municipal value cannot be used because the very nature of the valuation method used is inaccurate. In my experience the municipal value seldom if ever truly represents the real value of a property. Most homes have never been valued on site, many have been upgraded, or left without a word to the municipality (which begs the question how accurate are those valuations? In some cases, the homes have been valued far too high but it was not opposed because it made the owner feel good that his property’s value was growing at pace, without considering that this value means nothing to buyers and purely determined the rates and taxes paid. I would suggest getting a knowledgeable estate agent to value your property after the proposed values are released to avoid paying unnecessary rates.
So maybe if one could find properties that were identical and sold recently would that provide the intelligent valuation systems a chance to shine? In my experience the degree of accuracy is limited. Soon after a developer sells units to buyers the homes begin to change. Some owners develop the gardens, install water features, and upgrade the unit within while another unit may be left stock standard and rented out. After a year or two, the difference in sale price will be marked in relation to the purchase price.
The remains that the ultimate arbiter of value is the buyer.
Local is Lekker (but may also be better)
It is exactly for this very reason that an estate agent, who is truly a local expert, can truly get to provide an estimation of selling price which is in the real range achievable.
This is because :
- They know the area and what finishes the homes had that recently sold and can put the purchase price in context;
- Data alone does not consider that the home down the street was sold to a family member at a conservative price, which cannot be determined off hard data. This could also be caused by a distressed or forced sale which did not result from an auction sale;
- The soft shifts in the suburb very often are missed or misinterpreted, without local context;
- The perceived value of developments in the area are often mistaken without local knowledge; interpret property reports, they have viewed homes in the area and know what money buys which gives them an idea of the supply and demand dynamics in the area;
But so what?
If I am selling maybe I can cut out an agent and just get my selling price from a desktop valuation.
Let’s consider a hypothetical example, there are many possible permutations but let’s consider unit X in Happy Land Estates. On paper unit 1 is:
- 56 sqm (like the other 100 units in the complex);
- Sold 2 years ago for R600k like the 25 other units in its phase;
- 8 recent sales in the complex just sold for R765k each;
- And another unit sold for R600k
- The desktop valuation says the unit is now worth R740k
So the owner lists at R760k because that makes sense to him/her.
What does not appear in the information, on the valuation system:
- A government department bought the 8 units which were furnished with upgraded finishes;
- No private sales have gone through in the area because a new development which was promised to add massive value fell through;
- The developer is still trying to sell a few units at launch prices with all costs included in the price;
- A new development next to this development is launching, below the launch value of Happy Lands for similar units;
- The unit in question is stock standard and is right next to the main entrance which makes a racket, open continuously at all hours of the night, and there have been a number of attempted break-ins, which were not reported to the police.
The owner lists and gets no offers despite being only a few thousand of the desktop valuation and can not understand why. The property stays on the market for months and in the process becomes stale and sells for below its actual market value.
The same can happen where a desktop valuation is below what can be achieved here the owner get’s less than the units worth and can cause serious losses.
Ultimately, computers and data do not buy homes. People buy homes and people are not constrained by logic or data. This is also the reason why even in the US estate agents have held their own despite the most advanced systems and impressive information systems.
In my opinion, get the best of both worlds. Get a local agent who knows their stuff, who uses the modern technology, and then discuss commission and the negotiate to a win/win deal.