While it is true that those South Africans hoping to buy a home - or are simply investing in residential property - these days tend to have a better understanding of how the banks' loan criteria work when they apply for a bond, they are often surprised by the banks’ valuation procedures and the figures they arrive at, says Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance.
"Although it is generally accepted that bank valuers are very carefully trained and work to internationally accredited criteria, this does not mean that they will all come up with the same valuations. Neither does it mean that they will agree with the valuations of highly professional estate agents with many years of experience operating in that particular market."
The important point to grasp about bank valuations, said Van Alphen, is that their aim is to assess whether the property is worth the price being paid for it so that, should the bond borrower default on his bond payments, they will be able to recover the full value of the money outstanding by selling the home.
To arrive at an accurate valuation, said van Alphen, the bank valuer will probably do a Comparative Market Analysis. In this he will compare the home price with that of other similar properties sold recently in the area.
This, said Van Alphen, is where a problem for the seller can lie, because when doing the valuation they may ignore the home’s certain undefinable assets such as a magnificent view or close proximity to a certain school. Such valuations may also ignore the highly relevant fact that the home has been very carefully maintained and in an as-new condition - while those 'similar homes' sold recently may have been in a very poor condition.
"Often the similar homes will have serious defects which the valuer will recognise but insist, by means of a cash retention clause, they be fixed before the bond is registered. To the enquiring buyer, however, such defects may completely rule out the property or will, in his view, give it a far lower value."
Sometimes, said Van Alphen, the buyer, frustrated by a low bank value on the home he hopes to buy, will remind the banks that the insurance value is far higher than their valuers. This however is unlikely to impress the banks because they will point out that the insurance value is probably based on a replacement cost, which is often higher than the current market value.
Where a bank supposedly undervalues a home, said Van Alphen, it may be possible for the bond originator to get them to change their minds by quoting his own and the agent’s Comparative Market Analyses.
Alternatively a bond originator and an agent working together may be able to persuade the seller to put right those defects which, in the bank’s view, are lowering the home’s value. This tactic, said Van Alphen, has resulted in many a bond eventually being granted and the sale taking place.
"The important point for the bond applicant to realise is that he must not give up. We as bond originators do all we can to keep negotiations open and to reach a solution which will be satisfactory to the bank, the seller and the buyer. Because we work in a sophisticated rational society, bond originators are able time and again to help in these matters and this is one of the reasons why we are popular with the public today."