Misunderstandings still encountered in the property valuation process

The recent fires in the Western Cape once again focused attention on the dangers of misunderstanding the value of the insurance taken out on properties or other assets, says Gavin Commins, chief executive of the Valuator Group, which has qualified valuers operating countrywide.

“In our business we frequently come across fundamental misunderstandings about the insurance cover required. In particular, many people don’t realise there are significant differences between the replacement value of a property and its current market value.

“In fire and flood scenarios it is all too often discovered that the properties or other assets destroyed have been seriously undervalued, and this in many cases caused severe hardship to the owners. When a property is insured for its replacement cost, it will be covered for all costs associated with replacing it, including the cost of building, demolition and site clearance, if required, the professional fees and related escalations.”

Commins says the value attached to these services may be very different to the price the property would fetch if sold in the open market to a willing buyer by a willing seller. If the market is buoyant – as at present – the property insured for its market value might well be valued far above its replacement cost. If, on the other hand, the market is struggling, the price might well be below the replacement cost.

Giving as an example one of the most luxurious and attractive homes in Hillside Village on the Hermanus Golf Course, Commins says the replacement cost might be about R10 million, but the market value could well be around R20m. Owners, therefore, need to decide on the type of cover they want and in most cases it would worth their while to call in a professional valuer to ensure that the valuation process is carried out efficiently.

The Valuator Group covers property as well as other specialised assets.

“We target wealthy clients and their businesses as well as doing a considerable amount of government work. Insurance brokers tend to be our best clients because they want to avoid potential conflict down the line due to under- or overvalued assets. We work directly for many insurance brokers who often put us in touch with their own clients so that we can meet and understand exactly what is needed and ensure that their assets are accurately valued for insurance purposes.”

Professional valuers are approved associate members of the SA Institute of Valuers or The SA Council for the Property Valuers Profession and most valuers will at some stage become specialists in certain fields.

“Our experience is that it seldom pays to allow, for example, a residential property expert to value a commercial or industrial property. Although it is true that qualified valuers need to gain a wide range of experience in valuing different properties, a really good valuation firm will always have dedicated valuers focusing on certain fields to the exclusion of others.

“Over the years we have broadened our services to cover properties as well as plant, machinery, equipment and technical assets, fine art, antiques and contents, luxury boats and many other specialised assets.”

Commins says that qualified valuers take about three years to obtain the diplomas and degrees recognised by the SA Institute of Valuers and the South African Council of Valuers, after which they still have to undergo a two-year mentorship in the firm that employs them.

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