Bank valuations are 'depressing' Moot market

Willing homebuyers and sellers in Pretoria's Moot area are reporting that big banks are undervaluing properties for sale, which slows down transactions in this popular neighbourhood.

Top local agent Willie du Plessis, who recently bought the RealNet Moot East franchise to add to his RealNet Moot West operation, says the practice not only inconveniences bona fide property consumers, but is now also starting to harm estate agents' reputations among sellers.

"The practice has been reported in other parts of the country and is now also prevalent in our local market. Banks are valuing properties on which consumers have applied for bonds at much less than market value – which is the price that qualified buyers are willing to pay.

"In some instances bank valuations are as much as 20% less than what buyers have offered, and in extreme cases even lower than the municipal value, which as everybody knows is usually much less than the "market value".

And sellers who are marketing properties that they bought recently are understandably especially shocked at current bank valuations. "We had a recent case where the owner bought a property for R720 000 in 2011, for which he obtained a bond through a bank. Now the bank value is given as just R650 000. It is no wonder that the owner is upset and is questioning the integrity of not only the bank, but also estate agents.

"It took quite a bit of explaining, with the aid of official growth figures in real estate and comparative market analyses, to illustrate to the irate homeowner that he was not the victim of a conspiracy and that bank valuations do not necessarily reflect market value, but rather the amount that the bank is willing to lend on the property.

"Market value is, quite simply, the price that buyers are willing to pay - and banks interfere with this free market mechanism when they undervalue properties for credit purposes."

Du Plessis adds, though, that quite a number of buyers are now circumventing the problem by applying for personal loans at banks not active in the real estate market to make up the shortfall between the asking price of a property and the amount that any of the four big banks are willing to lend.

"Many of our clients resort to this practice in order to buy homes, but it must be said that undervaluation seriously complicates the home-buying process and slows transactions, to the detriment of the market, buyers and sellers.

"On the other hand, one could argue that opportunities are opening up for banks not traditionally active in real estate to gain a foothold in the market - and competition in any given market is usually to the benefit of consumers."

Nevertheless, Du Plessis advises consumers to obtain independent valuations to submit with applications for home loans and to attach a comparative market analysis to support the independent valuation.

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