There can be a yawning gap between the market and municipal values of the same property. Experts explain why
Property values can often be a contentious issue, not only insofar as rates are calculated but also the price a home sells for, or what a buyer may be prepared to pay.
There can also be differences in the value assigned to a property by the local municipality and the value given by an estate agent.
Read the latest Property360 digital magazine
Erwin Rode, managing director of Rode & Associates, says in terms of the Municipal Property Rates Act, the municipal value of a property must reflect the market value. However, as these are mass valuations, one would “not expect an accurate estimate at all times”.
Residential estate agents arrive at their property valuations by gut feel – which he says could result in quite accurate value estimates if they have been specialising in a particular area – or they use comparable sales as a guide.
“Often, they use a combination of the two.”
How closely aligned the market and municipal valuations are dependent on a few factors, Rode says, one of which is the quality of municipal valuations.
“These are often far below market value because the valuer wants to avoid appeals against the valuations. An important metro in the north of South Africa was a case in point until its latest general valuation when this discrepancy was set right.
“Also, where a valuation is done by an outside firm, the municipality’s supply chain committee normally has no experience in valuations and tends to award the tender to the cheapest bid.”
The quality of the estate agent’s valuation is also a factor to consider.
“Valuation is not an exact science, and even where both the municipality – or its outsourced service provider – and the estate agent are competent, differences in opinion are inevitable.”
David Jacobs, Gauteng regional sales manager for the Rawson Property Group, says agents arrive at their valuations via various ways, the most important of which are:
• Size of the property.
• The property’s fixtures and finishes.
• The property’s location – proximity to schools and amenities, public transport routes, hospitals and police station.
• Comparative market analysis.
“Real estate agents’ values are determined by a physical viewing of the property and the understanding of the property’s offering combined with a comparative market analysis, whereas a municipal valuation is not based on a viewing, but on a standard number of square meterage and does not include quality furnishing and fittings.”
He says that, more often than not, the real estate valuation is “slightly higher”, as it takes into account more if the property’s characteristics than the municipal valuation.
Echoing this, Kgomotso Sebakwane, head of analytics and valuations at FNB private bank lending, says municipalities do not have the luxury of visiting homes individually to measure the size or number of bedrooms or judge the quality of the finishes inside a home.
“Municipalities use the data sources of sales available to them and apply an average property rate to each property within a suburb. And so the average homeowner will find that their property’s market value can be very different from the municipality’s.”
An estate agent, on the other hand, has access to the property data in the suburbs that they operate in and, as part of their work, they intimately understand the characteristics of a home, whether it’s the size of the kitchen, the number of rooms and the quality of the finishes.
“Given that they observe what people are willing to pay, they have the ability to gauge the value at which a property will sell.”