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Property Valuations 101 | Jenny Falck

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Nov 9, 2022

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Even though the property valuation profession in South Africa has a much larger profile than, say, 20 years ago, there are still many myths and uncertainties surrounding the profession, the environment in which it operates and the reasons for its existence. It is therefore essential that the What, Why, Who and How of property valuations should once again be highlighted.

 

What?

Globally the terms property ‘valuation’ and ‘appraisal’ are used as synonyms; but the South African legal framework has a clear distinction between the two terms. In this country ‘appraisal’ usually refers to a valuation performed by an appraiser, in terms of the Administration of Estates Act 1965 (Act No. 66 of 1965).

Appraisers do not require any specific tertiary qualification, the only prerequisite being that they can prove to the magistrate in the magisterial district in which they wish to operate that they have the necessary experience. The appraiser is then appointed for that specific area and has to register with the magistrate on an annual basis. In this context, appraisals are done for specific purposes, eg a deceased estate, on a specific form (Rev 246); valuation reports or certificates are not acceptable in terms of this Act. Furthermore, the fee payable is prescribed by the Act and is based on the value derived. This type of valuation is often referred to as a ‘sworn valuation’ or in Afrikaans ‘’n geswore waardasie’, but the term carries no weight in law. It is, however, important to note that the global use of the term ‘appraiser’ is increasing in South Africa, with many property valuers referring to themselves as appraisers or doing appraisals – in this context referring to valuations in the ordinary sense of the word. In contrast to an appraisal, a valuation can only be completed by a registered valuer – more on this below.

Why?

There are several reasons. A valuation most people come into contact with is a valuation required by a bank, if they apply for a bond. In this case a valuer must determine whether the property, which will be held as security, offers adequate value should the bondholder not be able to service the bond.

There are, however, myriad variations on this simplistic determination of value. Valuers determine the value of business assets on an annual basis for inclusion in financial statements; the same applies to listed funds and property trusts. Valuations of property are required by local authorities for the compilation of valuation rolls, the basis for the determination of property rates payable to municipalities. Legal disputes also require value determinations, eg in divorce cases or where partnerships are dissolved and assets have to be divided. Where a servitude is imposed or expropriation takes place, it is essential that an accurate valuation is carried out to establish compensation payable.

It is clear that the detail contained in a valuation exercise can vary significantly, depending on the purpose for which that valuation is required. Should such a valuation be subject to scrutiny in a court of law, it will contain far more information than the valuation required by a bank for use in-house. Not only does the amount of detail and effort determine the cost of such a valuation, it also plays a role in determining the best person to instruct for the specific valuation.

Who?

The valuation profession in South Africa is governed by the South African Council for the Property Valuers Profession – the SACPVP. This body forms part of the built environment and is governed by the SA Council for the Built Environment (CBE) which sets the standards to which all valuers must adhere. Tertiary qualifications, experience in the valuation field and a code of conduct are also stipulated by the SACPVP. To practise as a valuer, one must be registered with the SACPVP in one of four categories: Single Residential Property Assessor, Candidate Valuer, Professional Associated Valuer or Professional Valuer.

Each category has different requirements and needs a different level of skills. People in the first two categories who do valuations require a mentor/supervisor to countersign the valuation, as these categories are regarded as entry levels to the profession.

A professional associated valuer is on the next step of the ladder, and could in the past be registered with or without restrictions. This situation is about to change, with persons being registered as associated valuers only with restrictions on what they may value. If there are no restrictions, they will fall into the Professional Valuer category. The restrictions refer to certain types of valuations (eg thay can only value for mortgage bond purposes) or for certain types of properties (eg they can only value agricultural properties). Should a valuation outside this restriction be undertaken, a supervisor is required to countersign the valuation. It is worth mentioning that a professional associated valuer with a restriction is often regarded as an expert in his/her specific field, if this is the focus of his/her work. The final category is that of Professional Valuer, a valuer who has passed the necessary examinations, obtained the tertiary education and experience, and has the skill to value most types of properties, for most purposes, without supervision or mentorship.

How?

For a valuation, a valuer will typically research the three pillars of the property, ie its physical attributes, the institutional framework in which it operates and the economic factors which affect the demand for it. If one of these three pillars is disregarded, the valuation is compromised. This could be because title deed conditions are not investigated, a zoning or soil condition does not allow certain uses, there is a lack of demand in a certain suburb or an over-supply of a certain type of property. It is of the utmost importance that the consumer takes great care in selecting the correct valuer – property is after all one of the most valuable assets one will invest in. To take shortcuts on valuation fees is not worth it!

As with most products sold in the market place, in valuation you get what you pay for. The SACPVP has a guideline of fees for each category of registration, and this depends on the skills set and experience of the person performing the valuation. The old adage: ‘If you pay for a doughnut, don’t expect a chocolate cake’ applies, so the cheapest price will not necessarily ensure the best job (nor will the highest price for that matter!). One of the mandates of the SACPVP is to protect the public in their dealings with property valuers, largely though the categorisation of professionals. This is, therefore, a good starting point to determine whether the specific valuer is capable of the job at hand and has the expertise, skill and experience required to compile the valuation.

Apart from the legislative requirement of registration with the SACPVP, there are also a number of voluntary associations to which property valuers can belong. The largest of these is the South African Institute of Valuers (SAIV), which is the oldest voluntary association of property valuers in South Africa – for almost 105 years it has been at the forefront of the profession.

This organisation’s main purpose is the promotion of the profession, not only through advocacy to the wider public and at government level, but also by means of continued education and training for members. Membership of the SAIV or any of the other voluntary associations is another important tool by which to gauge the professional ability of a valuer.

**This article was originally published in The SA Valuer August 2014 edition

One Comment

  1. Dave Furness Nov 12, 2022 at 15:52 - Reply

    Well worth publishing again, thank you I enjoyed reading this. Can we somehow make sure all our Men tees read this thanks. I often get the impression that many of our them do not fully understand the seriousness of what we do and the consequences of not doing a proper and complete valuation.
    Thank you Jenny

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