Determining Real Estate value

When putting a house on the market, there are many factors that play a role in determining the asking price for the property. Both buyers and sellers should be aware of the factors that influence real estate marketability as they ultimately determine the value of property. Some of these factors include those of demographic change, progression and regression, and supply and demand.

According to Jan Myburgh, General Manager of Harcourts Real Estate South Africa, “An important factor that determines price is the demographic change within a neighbourhood, be it negative or positive. All areas experience transformation, either in the form of growth or decay and these circumstances will severely affect the value of a property when it comes time to sell.” Extreme examples of these are suburbs such as Hillbrow and surrounds.

In circumstances where the demand for property far exceeds the amount that is available in the market place, the price of homes and rentals usually increases as people are willing to purchase at a higher price rather than risk no purchase at all. The strong demand for property leads to the building of more housing developments and accelerated growth in supply of property, such as South Africa had from 2005 to 2008.  However, this often results in a surplus of housing which causes the reverse effect in the market, especially when the market is affected by unavailability of loans, high debt levels and unemployment like SA had for the past 3 years.

“In the current market, this reverse scenario is in effect with the supply of property surpassing the demand for it. Unfortunately with such steep growth and frenzied buying driving prices sky-high, most sellers who are now trying to off-load in the current market cannot realise the same price that they paid for their properties if they purchased in the period between 2007 till now.  This “buyer’s market” offers great opportunities for potential buyers” states Myburgh.

Houses within a neighbourhood that all conform with each other as they are of a similar size and style with the same number of rooms, etc- will all fall within a similar price bracket and the maximum value for these properties will be obtained. However, the values of properties that do not conform within the parameters of the houses in the areas surround them may be affected by the principles of progression and regression.

The term “Principle of Regression” is used to refer to property of high value that due to its location within an area of lower valued properties is negatively affected and may suffer as its true value is not perceived. Similarly, the “Principle of Progression” refers to the increase in value of lower-valued properties which are in close proximity to houses of higher value. In short it means that the properties around you have a negative or a positive effect on the value/price on your property.
   
Myburgh concludes, “It’s all about location, location, location! It is best to buy the worst house in a good neighbourhood at a higher price than the best house in a bad neighbour at a lower price. You have to think about the future of your investment and make the decision that will be best for you as a home-owner in the long run.

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