People often mistakenly think that sellers set the prices, but it is actually buyers who set the prices.
The value of a property is established when a willing seller agrees to a price that a willing buyer is prepared to pay, says Samuel Seeff, chairperson of the Seeff Property Group.
This is not random process, but a balance of various features of the property itself, the neighbourhood, and economic supply and demand forces.
TWO-FOLD SITUATION
Seeff says that while sellers often have an emotional connection to their home and how they assess its value, it is ultimately the market which determines the true value.
Equally, buyers may have certain expectations of property prices, but then find that prices are much higher than their own assessment. They may, for example, look at houses in one area and find these are reasonably priced, then look at another area and find that a similar house may cost a lot more, or less.
House prices are tracked using various property price indices, primarily the Residential Property Price Index (RPPI) from Statistics South Africa and the South African Reserve Bank, using data from the Deeds Office.
Lightstone also uses Deeds Office data. Commercial banks such as FNB and mortgage originators such as ooba also publish their own indices based on internal data from bond applications to provide additional insights into market and price trends.
Seeff unpacks a few factors which determine house prices:
LOCATION IS EVERYTHING
Seeff says this is the single most important factor. A property’s value is intrinsically linked to its surroundings, including views, the safety and cleanliness of the neighbourhood, its proximity to transport infrastructure, and amenities such as schools, shops, and leisure facilities.
A small, older home in a highly desirable, well-serviced area can therefore often be worth more than a large, modern house in a less appealing location, he says.
MARKET CONDITIONS AND RECENT SALES
The state of the property market, interest rates, and broader economy play a key role in the prices paid at any particular time.
In a seller’s market, high demand, and low supply lead to higher prices. In a buyer’s market, high supply and low demand result in lower prices paid.
The most accurate value comes from comparing recent sales of similar properties in the area, usually done with a Comparative Market Analysis which provides a benchmark for what buyers are actually willing to pay.
THE PROPERTY’S SPECS
The characteristics of a property are central to its value. Factors such as erf size, total floor area, number of bedrooms and bathrooms, layout, and features such as garaging, a swimming pool, or modern finishes boost the value.
A well-maintained home attracts higher prices than one needing repairs.
Renovating kitchens and bathrooms can add significant worth, but owners should avoid overcapitalising, as not all improvements will guarantee a higher return when selling.
