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Banks "distorting" property prices

Should property buyers be stuck with a home, and its mortgage, for at least 5 years?

Realestateweb recently ran an article suggesting it is high time for agents to slash their hefty 5-10% (before VAT) commission (click here to read Time for agents to cut commissions). This way they would help inject fuel into the property market. Visitor Richard Waring says there's more to the picture, in his letter. Sellers are over-charging and banks aren't always bothering to check up on property values in relation to the amounts home-owners are borrowing:

You are missing a vital point. A properties' ‘selling' price is determined by the seller, not the agent. In 90% of cases, a SELLER has extended him or herself and used their property as collateral with the bank. A valuator from a bank will determine the properties value based on Deeds Office transactions for the particular area. In many cases, the valuator will not even visit the property. Thus they don't even see if the home is actually in a state to live in, and how it does actually compare to the average for an area.

Another important point to note is that in most cases, the extended loan is not used for improvements to the home.

Use the example of an area where the average home price is R800 000.

When a seller now has to sell the property, they call an agent. On viewing, an agent will determine that the property is only worth R700 000, based on ‘actual' comparisons for the area even if the average for the area is R800 000.

However, the seller tells the agent that he requires a minimum of R850 000 nett, to cover the bank and make a small profit. The estate agent adds his commission on top of the nett and markets the property - R890 000 (less than 5% comm. ) - and tries to sell a property that is way overpriced, no matter the average for the area.

If the bank had done its job properly in the first place, the situation would never arise.

What happened to understanding that a ‘bond' is a 20 year loan term, not 12 months, two or five years?

In the last five years, I have seen very few bank valuators actually visit a property to determine if it is worth the money the homeowner is trying to borrow.

An idea to possibly alleviate some of the mess would be for banks to tie homebuyers into a minimum 5 year term on any property purchased. At the moment, property prices are distorted due to high turnover in short ownership periods.

Thank you for an interesting article.

Kind regards
Richard Waring