Assesing Properties

When you buy a property and approach a bank for a mortgage loan, it will send out a building inspector in its own employ to value the property and determine whether there is adequate security in the value of the loan to match the amount required. If not your bank will either decline the loan or be prepared to grant you a reduced amount and it will be up to you to decide whether you are prepared to accept it and make up the difference yourself. What often happens, however, is that some time after a loan has been granted, the transfer has been registered, and the seller has been paid the purchase price, the buyer will find serious defects of which he was not aware atthe time he entered into the agreement. The inclination is always to blame someone else and the bank will usually become the target. Why did its inspector overvalue the property? Why did he not carry out a thorough analysis of its condition? What can I do to the bank for not
properly assessing the value of the property? Can I claim a reduction in the capital amount of
my mortgage?

Banks- Moneylenders or Property Valuers?

The answer to all those questions lies in the clearly defined role of banks in the business world. They are, first and foremost, moneylenders and most of their energies are devoted to protecting their interests in this field. Banks are not key roleplayers in the real estate industry they have a very supplementary and secondary function. In fact banks have made a point of avoiding direct influence in the property world. Even when they have to sell repossessed properties they employ the service of estate agencies to do the marketing work.
Their consultants are trained to canvass issues such as affordability, current monthly income, insurance requirements, optional loan facilities and the like. Actual property matters are left to estate agents and conveyancers. A story about a roadside hamburgerseller in New York will help to make the point. Every
day he parked his small trailer outside one of the largest banks in the city, turned on the oven, and spent the day hawking burgers and hotdogs. One morning a local tramp came up and appealed to him for a small loan. "Just a dollar will do, guv'nor. I'll settle with you by Friday". The hawker replied "Do you see this
large bank behind me? Well, in the interests of avoiding competition for the same markets, we have concluded a small partnership agree-ment.
I won't lend money and they won't sell hamburgers". Your bank's role in granting a mortgage loan is to lend you money to help you make up the purchase price. It assesses and values your property purely to protect its own interests and has no responsibility for the condition of the property or the amount of its valuation. More often than not it will not even disclose its own valuation to you.

Estate Agency Valuations - the CMA Process

Estate agents, however, are direct roleplayers in the real estate industry and will make every effort to obtain a proper assessment of the value of the property. Even here, however, the agency will not give a warranty as to the property's value but only a guideline. The estate agent has a duty to himself, nonetheless, to give an accurate assessment of each property's value. If he undervalues it he risks recourse from the seller. If he overvalues it he will not get it sold. It is in his best interests to value it accurately. When a property is placed on a multilisting scheme, enabling all local agencies to sell it, they will invariably have what is known as an open hour. Up to a dozen of them will give their own estimate of the value of the property and will often comment on its condition. Here the truth will often come out - don't necessarily
believe all those catchy newspaper ad phrases such as "your dream home at last", "this one will go fast" or "owner emigrating - desperate to sell". Sometimes these ads unwittingly tell the whole truth, such as "stone's throw from local school". The present owner is probably only too aware of this! At an open hour, however, agencies are likely to give their real impressions of the home. Estate agents regularly do what is known as a CMA, a Comparative Market Analysis. Recent selling prices of other homes in the neighbour-hood will be examined to determine the market-value of the house to be placed on the market. Some banks and small companies issue a very helpful list each month of local property prices. The condition, locality, quality and special features of the home will be taken into account.

The Code of Banking Practice

For some time South African banks, represented by The Banking Council of South Africa, have subscribed to a code of conduct to monitor their dealings with the public and to set standards that potential investors and borrowers can expect of them. In a section of the Code, under the subject of mortgage loans, the banks have expressed their general attitude to the subject of valuations and assessments.
Being financial institutions only they do not have the skills or resources to determine the exact quality of any home a potential borrower is purchasing. They will clearly inform you that their valuations are for their own purposes purely to satisfy themselves that the property itself is adequate security for the loan they are granting. They do not accept responsibility for the structural condition of the property, even if the building is an entirely new one. They are as much at risk as you are in securing their loan if it turns out that the actual value of the property is below their own estimation.

The Market-Related Value of Each Property

What many people overlook is what really determines the value of your property. Is it the material value of the bricks and mortar, the windows and ceilings? Not at all. What drives market forces in putting up the value of properties or stagnating or reducing them is a combination of factors. It is fundamentally, at the
end of the day, a question of supply and demand. Current interest rates, affordability, the buyer's own preferences and other factors are the real determining causes of a property's resale value.

In the coastal regions of South Africa and Namibia properties sell at much higher prices than they do inland. Despite being the economic engine-room of the sub-continent property prices in the Gauteng region are grossly under-valued at present. After independence in Zimbabwe in 1980 properties sold for very
cheap prices in Harare but, once the exodus of local whites had stopped and a shortage of accommodation grew, the same properties shot up in price. Very rarely does the actual material value of the house on a property determine its market-value. Low interest rates in the USA means that residential properties sell for up to fifteen times the price of the new car in the garage. In South Africa two cars in a
garage can cost as much as the home itself.

The Risks to the Banks

In some areas property prices have fallen dramatically in recent years, especially in suburbs where the real value of new homes has been overestimated. Very often banks lose hundreds of thousands of rends on the resale of these properties as their initial valuations prove to be excessive. The huge number of repossessed homes that sell at way below the amounts currently owed to the banks is ample proof that bank valuations are not necessarily
a true reflection of their actual resale value. The same applies to your estate agent. A CMA is often a far more decisive factor in settling the likely sale price of a property than its actual condition. Only where the whole property is in a generally poor condition will its resale value come down substantially. Very often sellers have been encouraged to repair obvious defects that will lower a property's value and it is usually inconspicuous defects, invisible to the estate agent and bank building inspector, known as latent defects, that will be discovered by the buyer when he occupies the premises after they have been fully vacated by
the seller.

The Condition of the Property

In closing a few things need to be said about your possible reaction to the condition of a property once you take occupation of it. Remember it is a secondhand article and will
have the natural effects of wear and tear. You do not have the right to confront the seller or your bank with a list of every possible shortcoming you may discover and expect compensation or repairs to every fault at their expense. It is also unwise to go back to your bank and try to persuade them to withdraw your loan so
as to lapse the sale. Such a deliberate intervention on your part can constitute a breach of contract, in particular the voetstoots clause.

Your seller may well be able to hold you to the deal or sue you for damages. It is also not the bank's duty to advise you of what they think the real value of the property is. Most bank loans staff are only too aware of the need not to interfere and the consequences of advising buyers that they consider the property to be
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