Who Determines Market Value?

It’s by far the most pressing question for property sellers: What is my property worth?

Before listing, a seller will call in a few estate agents to get their opinion on market value.

Sadly many agents will wander through the property, ask the seller what they would like to achieve, and then agree to the figure in order to get the listing.so-what-do-you-do_banner

Some agents may take it further and pull a Comparative Market Analysis report off one of the Deeds Office systems and present this to the seller. The problem with these system-generated reports is that they default to take the last 10 or 20 sales in the geographical area, work out an average price, and then factor it in on the property in question.

It’s a very flawed way to determine market value, for a few reasons:

• Some of these comparative sales could have happened between 1 and 4 years ago. Who would argue that the market hasn’t changed? It’s simply stupidity to use a sale in a market that is unrelated to our current market.
• The physical condition of these properties used in the comparison may vary greatly. The result is that the average value per square meter could be totally unrelated to the property.
• As the system selects properties within a close proximity only, it excludes other very similar properties in other suburbs that are comparable.

The reality is that the market has changed considerably in the last 6 months. In fact, we’ve noticed a change in certain price ranges in the last 6 weeks!

Only the most recent sales can be used. And only the most comparable properties should be considered.

To this end, an agent who knows what they are doing would never guess at a value, or use an automated computer-generated report. A professional agent would use their local area knowledge, their skill and experience to research the market and use the correct comparisons. That’s the only way to estimate market value.

But even then, it’s not foolproof. Why? Because the market changes so quickly. That’s the risk of listing a property with a price. It’s the conventional way of selling – marketing with a price. The danger is that, if you overprice your property, you chase away the buyers you should be attracting.

raskryEven worse, if you under price your property you sell for less than you should.

So, if you are listing with a price it’s imperative that your agent shares the market feedback with you within the first 2 to 3 weeks of listing. That way you can make adjustments to the price if you need to, before you damage the saleability of your property. The alternative is listing without a price – which we’ll discuss in the near future.

Steve Caradoc-Davies
Principal of Harcourts Platinum, and Director of Harcourts South Africa

Email your real estate question to steve.cd@harcourts.co.za.

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