The local property market is undergoing dramatic changes; some of which will remain with us forever. Real estate sales and consultancy is emerging as a significant subsector in the built environment. This introductory article for this blog will focus on property values; it trend though not new in other market is very new to us.
Have you ever considered that your property may now value less than what it will ‘cost’ you to replace it? That is more so if you are selling.
Let us examine a few concepts here: if you are selling, the critical concept to grapple with is market value: on the other hand if your interest is to insure your property in the event that you have to claim on your insurance company then replacement value becomes critical. These values will be different for the same subject property given what is happening now on the local property market. The ‘market value’ as the term suggests is what a willing buyer and seller operating at ‘arm’s length’ will be willing to offer and accept for the subject property under consideration. Technically it is defined as follows:
‘The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby
(1) Buyer and seller are typically motivated;
(2) Both parties are well informed or well advised, and acting in what he considers his own best interest;
(3) A reasonable time is allowed for exposure in the open market;
(4) Payment is made in terms of cash (EC $) or in terms of financial arrangements comparable thereto; and
(5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale 1
Inherent in this definition is what both buyer and seller are willing to accept; market value is now becoming a reality as more comparable sales data become available. This is evident by the number of ‘for sales’ signs affixed to properties on the local market.
The prevailing idea here is that changes periodically occur where demanders and suppliers interact to constitute a market. Although these changes – demand, supply and value (price) are not proportionately related they do bear some relationship every time. These reflect basic economic theory of supply and demand. Therefore, with this background in market value; and as property values interact in the market place you may well find that the going rate (cost per sq. ft.) for selling is much lower than the rate for construction.
Yes, we say market value is determined by what the buyers and sellers are willing to ‘accept’; but how is the value determined? For residential properties there are three methods can be utilized, the cost approach (driven by the cost per square foot to construct), sales comparable (dictated by what similar properties are sold for on the market) and the income approach (focused on revenue from rent). Given the size of the local market where high volumes of properties for rental purposes is not prevalent the two other methods, cost and sales comparable are mainly used. The sales comparable method, up until recently was not utilized mainly due to the absences of sales data as mentioned earlier. Sales data over the years was dominated by vacant land sales. Therefore, with this relatively new development in the local market, the availability of sales data on residential properties provides for a serious ‘bargaining chip’ for ‘buyers’; that is why today your dwelling home, as a matter of fact any property may now value very much less than what it will cost if you have to replace it! The going rate to construct a residential home locally may range between $ 135.00 per square foot to $ 165.00 per square foot; sales data within recent times show a selling price between $ 93.00 per square foot and $ 135.00 per square foot.
This is our introductory article on the analysis of the local property market on this blog. We intend to examine all the areas of this subsector of the local economy. We will speak to our designers, contractors, decorators, suppliers of building materials, educators and yes property owners to bring information to you so that you have a better understanding of our local property market and we will provide guidance in other related areas of this sector.
- International Valuation Standards Committee (IVSC)