Now, more than ever, it is has become essential to be able to evaluate and easily analyse assets and their value to make informed decisions on whether to buy or sell.
South Africans are facing the immense uncertainty during these challenging times caused by the Corona Pandemic. While our economy was headed for a recession even before the pandemic, the picture has become even more grim with a forecast of an estimated 6% to 7% contraction. And while FNB forecasts a -5% decline for the property market in 2020, it says this forecast negative capital growth does not tell the full story of market weakness.
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In a downturn, Property Market Values can deviate dramatically from the market “equilibrium” value, a value which can be far lower than the market in recessionary times, due to strong resistance by the market to dropping values to make the sales, says FNB Economist John Loos.
‘Valuations reflect a market in demand-supply disequilibrium’
In short, he says, during a sharp economic and resultant property market weakening – the market becomes unbalanced and can remain like this for long periods of time, adjusting gradually. The slow valuation adjustment is also the reason why he foresees negative capital growth to continue into 2021.
“Property Valuations or Price Indices reflect market values, but the market value in a sharp downturn can often be far above the “market equilibrium” value, a value which is often difficult to find in a severe economic shock, because initially little or no trading gets done at this value in such times,” says Loos.
Why the highest evaluation is not necessarily the best evaluation?
Yet sellers choose their real estate agent based largely on the property valuation they receive, with the highest often being the one accepted.
"It’s chiefly during these times that the highest evaluation is seldom the best evaluation for numerous reasons - and should at least be tempered with a best case and a worst-case scenario, or the property will end up staying on the market for an extended time," says Chris Cilliers, CEO and CO-Principal of Lew Geffen Sotheby’s International Realty in the Winelands.
"In real estate, the practice of offering extremely optimistic appraisals in order to obtain sole mandates does unfortunately happen, and in a stiffly competitive market it will be more common."
'Property values typically adjust very slowly to changes in economic fundamentals'
In the property market in general, there is a strong resistance to price drops to make a sale. This can be due to a number of factors, says Loos.
"A property can often be a major investment, and a very important asset on the balance sheet, either for a household or for a business, and as such there is a reluctance to accept that it may not be worth as much as what had been believed for some time. There may be a strong anchoring of value perceptions to recent price levels, or even to the prior purchase value a number of years earlier."
Loos says the result can be a large oversupply in the market, with a large part of market weakness observed in rising average times of properties on the market prior to sale as oversupplies mount, and initially relatively mild price or valuations decline as seen in a price/valuations index.
Therefore, market values move slowly, and battle to keep up with market reality in a sharp economic shock such as the one that has befallen us since early-2020.
SEE: South Africa’s recession sobering for property sellers who ‘need to get realistic about pricing'
'Risk staying on the market for an extended time'
“Valuations must make provision for the prevailing market conditions and a measure of uniqueness in every property as well as current trends which all influence on the final value that a particular purchaser may perceive," suggests Cilliers. “In my opinion, a market valuation should always be expressed as a range between two values to allow the market to determine the ultimate price.”
Cilliers suggests sellers should not only rely on information submitted in questionnaire form as it "could easily result in inaccurate valuations".
“It's very easy to make use of virtual meeting technology in order to ‘meet’ and chat with prospective clients and to do a “virtual viewing” with them whilst they walk you through their home with a video app.
'Condition of the property falls to the seller'
“It’s also important to realise that, at the end of the day, agents are only really in control of the marketing of a property,” says Cilliers.
The condition of the property when it goes to market falls to the seller and the eventual sale price of the property is ultimately controlled by the market conditions, the demand and the price that the seller is prepared to accept.
“Therefore, it’s imperative that sellers choose an agent and agency based on their marketing offering, together with the experience and track record of the agent and agency concerned. They use their experience to advise and guide a seller regarding price, but they do not determine the final sale price.”
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'Marketing for a speedy sale'
Ultimately, the goal is to achieve a speedy sale at the best possible price and, in order to do so, not only must the property be realistically priced for the current market, it must also be properly marketed, all of which require experience and knowledge and the backing of a reputable agency.
“The importance of a comprehensive marketing strategy when selling a home should never be underestimated, especially in a tougher market, as it can significantly impact the final sale price realised as well as the length of time it spends on the market. And, in terms of the EAAB regulations, a mandate presentation by the agent must include a marketing plan.
“Choosing an agent based on their skill sets, the company’s marketing ability and their track record in an area is a way better way to go - sellers should select the right agent for their needs based on the quality of their offering rather than pricing.
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'Get several marketing proposals'
This can be done by asking several agents from different agencies to submit marketing proposals that outline their strategy and reach and also posing questions about other salient points like their recent sales in the area.
“Once you have decided which agent and agency can offer you the best marketing for your home, it’s then easy to have a frank and honest discussion to determine a sale price and discuss other factors like the photographs and videos.”
So, what should sellers be looking for in a winning marketing plan?
The traditional way of showing homes will have changed, even when the restrictions have been eased.
3D Walkthrough
“Going forward, people will want to spend less time viewing homes in person and the ability to view a 3D walkthrough, such as a Matterport Scan, at their leisure will limit the need for unnecessary viewings in an environment where clients and agents will be trying to limit their potential exposure to COVID 19.
“Strategic digital marketing can help agents reach a broad demographic of potential buyers at a pace never imagined during the reign of print advertising, and studies of consumer brand interaction reinforce why it’s vital for sellers to select a real estate company that has a strong online presence.
Strategic digital marketing
“An optimum marketing strategy should now include social media, database advertising, property search portal and app placements, digital media showcasing, virtual and physical show days, outdoor boarding and high-end print material.”
However, Cilliers cautions sellers to also look beyond the digital aspect as even the best plan on paper requires a personal element for effective execution.
Adapting to new market techniques
“When it comes down to the wire, having a professional, experienced and legally-savvy estate agent at your side and making use of all the latest tech offerings, is critical to ensure a seamless sale that doesn’t reveal any ugly, costly surprises weeks or months later.”
Cilliers says, “The key factors in moving property, especially during the next year or two, will be experienced agents who can adapt to new marketing techniques, with good databases and extensive marketing to the right demographic and, of course, realistic pricing.”
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