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Factors that can influence the price of my home

MyProperty recently spoke to Sonja Buhrmann from Protea Real Estate, which operates in Bloemfontein, to talk about the factors that could influence the price of your home.


The team from Protea Real Estate

The most important aspect of selling your home is getting the pricing right on your property. The right price will ensure that your home spends less time on the market and attracts the right buyer. However, before going into factors that affect property price, it is important to understand that property value and property price are two different things, even though property value should guide the pricing decision.

Property value concerns how much the property is worth in the market, in other words, what the general buyer population would be willing to pay for that specific property at a specific point in time. 

The market value of a property is normally determined by a professional appraiser or by a professional estate agent who determines the value of the property in comparison to other comparable properties in the same area which have recently been sold or are currently for sale under the same market conditions. Specialist knowledge of properties in a particular area is a key input in determining the market value of a specific property.

Property price is the price that a buyer and seller agree on through negotiation. It often happens that properties transact above or below property value due to factors such as a sale forced by the necessities of the owner, e.g. financial difficulty, divorce or urgency in having to relocate. 

The key stumbling block for transactions to take place is a differing perception of what the property in question is worth to the buyer and seller. Buyers inevitably will always want to buy at the lowest price while sellers want to sell at the highest price. Having a valuation will give both parties an indication of the parameters to work within towards an agreed property price. 

Having explained the above, there are a number of factors that ultimately influence the property price. 

Three key factors:

Location 

A property resides in a physical location. Some areas are simply worth more than other areas. In every city you will find your high end market and your lower end market. In Bloemfontein for instance, you cannot expect to sell your same size home in Bayswater (a normal suburb) at the same price as in Woodland Hills (a security, wildlife estate), even though both form part of the northern suburbs of Bloemfontein. Here security and exclusivity contributes to the added value in Woodland Hills. 

Property hunters are also willing to pay a premium price for location with great accessibility to main roads, good schools, shopping malls, places of worship and other popular amenities. In South Africa, security is without a doubt a key location factor that influences the price of properties. 

Desirability/appeal

One of the key factors in your home’s value is the features it provides. For example, some house styles are more popular with buyers than others. 

The age and size of your home compared to other available properties also plays a part in affecting your home’s value. Historic homes or newly built, modern properties often reach higher prices than houses built somewhere in between. 

Furthermore, layout is a key factor because an open-plan design is far more popular than a boxy space of the same size. The number of bedrooms also influences a home's value. Interestingly enough, sometimes fewer, but larger bedrooms tend to boost value. Potential buyers will take into account the condition of your home in deciding if they want to buy it and how much they are willing to pay for it. 

A home in immaculate condition has a much higher potential for selling at the highest market price than one that is lacking the most basic routine maintenance. When extensive work is required for roofing, sewage, flooring, etc., the buyer would probably ask for a lower price because his perception of value decreases. 

Demand 

When the market is flooded with similar properties for sale and home buyers are scarce, you can expect to sell your home for less than you would if there was a shortage of supply and many eager potential home buyers. 

Other factors 

Upgrades - Most people think that home improvements are a sure way to increase the value of a home. But here is a word of caution. Major home improvements are unquestionably important factors that affect the property value. 

Improvements like room additions, bedrooms, bathrooms, kitchens and swimming pools, etc., can increase the value of your home. However, it only matters what those improvements are worth to the potential buyer. 

On the other hand, renovations could improve a home's value, but if your home is considered "over improved" compared with other properties in the neighbourhood, it can actually hurt the property's value. 

Good advice would be to ask your estate agent or an appraiser to prepare a feasibility analysis that will help you determine the impact of renovations on your home's value. For instance, unless you live in an area where granite countertops and built-in gas hobs are the norm, you might be better off saving the money and rather choosing more basic, neutral finishes. 

It is also not wise spending a lot of money on something that has a great deal of personal taste attached to it. Keep it basic and keep it neutral. 

Negative factors - If your property has issues like mold or was the site of a violent crime, it could be a harder sell – and command a lower price. Another factor that negatively affect the value and price of a property is when properties in an area are prone to cracking due to the soil conditions of that particular area. 

People are quite concerned if there was prior mold damage, obvious cracking (especially of a structural nature) or even if there were some sort of death or crime at the property. 

How much does the current real estate market conditions influence the price of my home?

Three key market factors:

Interest rates 

The interest rate has a major impact on the real estate market. Changes in interest rates can greatly influence a person's ability to purchase a residential property. That is because as the interest rates fall, the cost to obtain a mortgage loan to buy a home decreases, which creates a higher demand for real estate, which pushes prices up. Conversely, as interest rates rise, the cost to obtain a mortgage loan increases, thus lowering demand and prices of real estate. Even a small change of 0.25% in the prime lending rate could affect the affordability of property for consumers. 

For example, a home buyer looking to buy a property of R850 000 will see the monthly bond repayment increase from R7 785 to R7 923 and will thus need to find an extra R138 per month to make ends meet, thus adding to the buyer’s financial strain. The South African Reserve Bank remains concerned about the outlook for economic growth that is constrained by severe electricity shortages, the exchange rate, fuel prices and low levels of consumer and business confidence. Curbing inflation remains their main goal. We are therefore currently in an upward interest rate cycle. 

The consumer consequences of this increase, e.g. defaulting on debt repayments, might lead to banks tightening their lending criteria once again, thus negatively affecting the number of buyers able to buy property, thus lowering demand. 

The economy 

Another key factor that affects the value of real estate is the overall health of the economy. This is generally measured by economic indicators such as the GDP, employment data, manufacturing activity, the prices of goods, etc. Broadly speaking, when the economy is sluggish, so is real estate. Even with the difficult South African economic conditions, it is still expected that house prices will grow moderately over the next year. Rising interest rates will still put a degree of pressure on bond applications, especially as far as first-time buyers are concerned. 

Government policies/legislation 

Legislation is also another factor that can have a sizable impact on property demand and prices. A recent example of this in the South African context was the impact that the introduction of the National Credit Act in 2007 had on the South Africa real estate market. With its introduction, financial institutions have reviewed their risk profiles and granting of credit has become more vigilant which has had a significant impact on the real estate industry.

Do the expertise and market knowledge of your real estate agent influence the price?

Your estate agent’s expertise will not have an influence on the market value of your property, but could definitely have an impact on the eventual selling price. 

First of all, it is important for your area specialist estate agent to complement the general market reports that are based on deeds office information with his/her professional and specialist knowledge of comparable properties in the specific area to determine the right price for your specific property. 

As indicated earlier, the market value of the property should form the basis of the pricing decision, but all other factors specifically pertaining to your property, should also be taken into consideration, e.g. the location, features, condition, view, layout, etc. when determining the asking price. 

The marketing plan that your agent executes on your behalf will determine the amount of interest that is shown in your property, provided that the property is priced right. The greater the interest (demand) in your property, the greater the possibility of obtaining the ultimate selling price. Y
our agent’s level of skill and expertise in the negotiating process will also affect the amount of money you will be able to get for your home. 

Do the hard facts such as stand size, square meters and condition of your home play a role?

While homebuyers used to be attracted to ample square meterage, many have fallen out of love with it, mainly due to the cost of taking care of these huge houses, the increasing cost of water and electricity to keep these mansions running and the busy lifestyles of people, not affording them the time to keep their hand on such properties. 

What factors does not play a role in the pricing of my home? 

Determining the right price is a multi-faceted process and more art than science. Yet, the right price for your property IS NOT:

- what you paid for your home; 
- the amount that you need in order to purchase a new home; 
- the price you would like to achieve for your home; or 
- the sentimental value of your home. 

The pitfalls of overpricing 

Overpricing will damage the sale of your home, and you will be in danger of falling victim to these pitfalls:

- An unreasonable asking price discourages prospective buyers. 
- Buyers purchase by comparison and if the property is priced above similar competing properties, it will eliminate offers. 
- A property that is priced too high will stay on the market too long leading to overexposure and often develop the perception/stigma that there is something wrong with the property. 
- An overpriced property limits financing, because banks are very risk aversive and will not grant financing above what they also believe the value of the property is. 
- It eventually means a lower price


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