In this article, we look at an example of the multiple value-attributing factors when determining the value of a property.
A property is purchased at a price/value determined to have a market value of R2,000,000; it has also been determined that the escalation in values and prices achieved in the same area are rising by 5% annually. The buyer puts in a swimming pool costing R100,000 (not out of line for the area) and rips out the perfectly serviceable kitchen, and completely refurbishes the kitchen costing R150,000. A year later, the owner wants to know what value/price he can achieve.
Here are some factors to consider in the attempt to reach a conclusion:
The swimming pool may add value to the property, but not necessarily to the extent of the cost. The kitchen, on the other hand, is slightly harder to explain. The increase in value would be far less than the R150,000 because there was a kitchen in the property before it was upgraded, which would have been contributing to the overall value.
In some areas with severe water restrictions, the added value of the pool may be very little; if the owner profile for the area is majority young families, it may add more value. If the majority ownership is the over 65 retirees, then it may be a negative and so on.
If the property is at the top end of the price band within the suburb, then it becomes more and more difficult to add value without the property becoming overcapitalised.
Each valuer may come up with a slight variation of value/price, but the thinking applied above, is precisely what is required when comparing sales to a subject property; adjustments for value are most definitely not as a direct result of cost. The valuer needs to approach each valuation with all contributing factors in mind – A HOLISTIC APPROACH.
There are so many unique contributing factors applicable to each and every subject property. One cannot simply apply a rate per square meter to determine value. A valuer will take all of these factors into account when determining the value of a property.