ESTABLISHING THE RIGHT PRICE IN TODAY’S MARKET
The new millennium has ushered in some interesting changes for the property market, says Carol Reynolds, Pam Golding Properties area principal in the Durban North and La Lucia areas.
“In the year 2001, Capital Gains Tax was introduced; then in 2006 the National Credit Act came into being. In 2008 the new NQF 4 qualification was introduced in an effort to ‘professionalise’ the real estate industry and in the same year, we witnessed the plummeting of the global economy. In 2010 we hosted a very successful Soccer World Cup and in October this year (2010) the New Consumer Protection Act will come into effect. With all of these factors in the boiling pot, where does that leave the property market?
“One very positive factor that has emerged is that the real estate industry is now a formidable one, filled with fewer, but more qualified, estate agents. Estate agents are now properly trained and educated to deliver a professional service to their clients, and both sellers and buyers are finding value in the level of expertise that we are able to offer.”
She says from a market perspective, affordability is still the most critical driver, and as a result, the legislation that has had the most significant impact on the property market is the National Credit Act. This Act has played a protective role in buffering South Africa from the sub-prime crisis that collapsed the US economy, but simultaneously it has created a lending climate that is extremely cautious and risk-averse. While the benefits of conservative lending on the whole cannot be underestimated, the net result is that the bond decline rate is still high and this is putting a very strong lid on price inflation. Essentially therefore, buyer activity has increased and sales volumes have increased, but prices have remained constant, translating as a very slow recovery in real terms.
Reynolds says one of the greatest challenges facing estate agents is therefore establishing accurate valuations for properties in a market that is so price sensitive. Essentially, every property has a number of potential values – firstly, the seller’s price, which is often based on factors such as the acquisition costs of the property and the seller’s personal needs regarding the purpose for which he requires the liquidity. Then there is the agent’s valuation, which is based on a comparative market analysis of similar properties in the same area, as well as replacement cost less depreciation and the agent’s general market intelligence and area expertise. In addition to looking at sales statistics, market activity and other comparators, a good rule of thumb applied by agents is simply to ask the question: “If I were a buyer, what would I be prepared to pay for this property?”
“The third value is the buyer’s price - generally a first offer will be made that is slightly below asking price, and it is the responsibility of the agent to negotiate with the parties to reach a final settlement figure. Ideally, at the end of the negotiation we seek to have a win-win situation with a happy seller and a happy buyer. And this then becomes the final price for the home. Thus, valuations are never cast in stone, and market fluctuations mean that the price a home will fetch can literally fluctuate on a monthly basis.
“It is evident that pricing is the most important service that estate agents provide, and it is our moral responsibility to offer our clients accurate advice. It is unethical business practice for agents to ‘buy’ mandates by inflating prices initially and raising their seller’s expectations. At the end of the day, the best service that we can deliver is a sale agreement, and spending months marketing over-priced stock is not going to deliver meaningful results,” concludes Reynolds.
Issued by Gaye de Villiers