Price, value and cost

Is there any difference between the price paid for a home and the value of that home?

In today’s property market there is more to a property’s worth than the price paid for that particular property. This is why it is important for homebuyers to conclude the proper research and become familiar with the aspects that are involved in a real estate transaction before the decide on which home to buy, says Adrian Goslett, CEO of RE/MAX of Southern Africa.

He adds that buyers should have a clear understanding of the additional details that are related to the property sale, as well as knowing what their own personal and financial requirements are with regard to the property they wish to purchase. “If a buyer knows what type of property they are looking for, as well as the price bracket that they can afford to buy in, the process of finding the right property will be far easier in the long run. Consulting with a reputable real estate professional who has working experience within the area that the buyer is interested in will also provide the buyer with invaluable information with regard to elements of the current market. An experienced estate agent can also assist the buyer by projecting their criteria into the search and ensuing that the property they select is a worthwhile investment by looking at the price, perceived value and cost,” says Goslett.

Is the home priced correctly?

Generally speaking the price of a home is what it is worth today, however sellers often overprice their property, so it is important to compare the price with what recent selling prices have been achieved in that particular area. This will provide insight into what is currently a fair market value for that specific property and the price that the seller should reasonably be asking for. “To determine fair market value accurately, it is essential that the comparative selling prices are no more than six months old, and the properties must be similar in terms of size and upkeep to the property the buyer is considering,” says Goslett. “There is unfortunately no exact science to pricing and the comparative market analysis won’t include all of the differential features of the property, which would include the views from the property, location, current condition and surrounding amenities. All these aspects must be considered by the agent as they may have an influence on the price of the home.”

What determines value?

According to Goslett the first factor that affects the value of a property is the current market conditions. “During the boom period for example, the perceived value of property was much higher than it is today,” he explains. “There is currently a situation in the market where we have more sellers than buyers. Due to the fact that buyers have many investment options available to them, the demand for property has been impacted. Property pricing is generally synonymous with demand and the value of a property is established by the prospective buyer.  This means is that a home’s value is largely determined by what buyers are prepared to pay for it.”

He adds that value is often calculated based on a buyer’s lifestyle, so it varies from person to person. For example, a home near public transportation could be more valuable for someone who does not drive than it would be for someone who does.

How is cost a factor?

“The large majority of sellers believe that a house is worth what they paid for the property as well as the additional cost that they have spent on renovations and improvements. While this is true to some degree, it all depends on a buyer’s perception of how much value the improvements have added to the property,” says Goslett. “While a seller may set the asking price of their home, it is the buyers in the current market that determine its value. Upgrades and renovations are all subjective and are often based on personal taste and requirements.”

Goslett says that whether viewed from a buyer’s or a seller’s perspective, when determining a property’s worth a comparative market analysis is merely the starting point, while value is largely subjective. “It is essential for buyers to closely inspect each property they are interested in to make sure that it fits in with their personal requirements and their budget,” he concludes.

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