Advice and Opinion Areas and Places

Misunderstandings still encountered in the property valuation process

A house in Hillside Estate on the Hermanus Golf Course, which was valued by The Valuator Group. A home of this kind would have a replacement value of around R10 million but a market value of close to R20 million – this illustrates the vital importance of selecting the insurance the owner considers appropriate.


The recent fires in the Western Cape, and prior to these the floods that hit the agricultural community in 2001, when eight of the nine Provinces in South Africa were declared disaster areas by the South African Government and corn, soy beans and wheat crops were particularly severely affected, once again focused the attention on the dangers of misunderstanding the value of the insurance taken out on properties or other assets. This was said recently by Gavin Commins, the CEO of the Valuator Group a company that has 20 professionally qualified valuers operating countrywide and who together have 320 years of valuation experience.

“In our business”, said Commins, “we frequently come across fundamental misunderstandings about the insurance cover required. In particular, it is often not appreciated that there are significant differences between the replacement value of a property and its current market value”

In the fire and flood scenarios mentioned, said Commins, all too often it was discovered that the properties or other assets destroyed had been seriously undervalued and this in many cases caused severe hardship to the owners. When a property is insured for its replacement cost, it will be covered for all costs associated with replacing it, including in the cost of building, the demolition and site clearance, if required, the professional fees and related escalations.

The value attached to these services, said Commins, may be very different to the price the property would have achieved if sold in the open market by a willing seller dealing with a willing buyer. If the market is as at present buoyant, the property insured for its market value, might well be valued far above its replacement cost. If, on the other hand, the market is struggling, the price might well be below the replacement cost.

Giving as an example one of the most luxurious and attractive homes on the Hermanus Golf Course (in Hillside Village), Commins said the replacement cost today might be on R10 million, but the market value could well be around R20 million. Owners, therefore, need to decide on the type of cover they want and in most cases it will very much worth their while to call in a professional valuer to ensure that the valuation process is carried out efficiently.

Working in a niche market which they have identified and developed, The Valuator Group offers an all-inclusive service to clients covering not only property, but other specialised assets and the value of this service has been proved time and again, says Commins.

“We target high net worth clients and their businesses as well as doing a considerable quantity of Government work” said Commins. “Insurance brokers tend to be our best clients because they want to avoid potential conflict down the line due to under- or overvalued assets. We work directly for many insurance brokers who often put us in touch with their own clients so that we can meet and understand exactly what is needed and ensure that their assets are accurately valued for insurance purposes.”

Valuers, said Commins, are usually approved associate members of the SA Institute of Valuers or The SA Council for the Property Valuers Profession and most valuers will at some stage become specialists in certain fields.

“Our experience is that it seldom pays to allow, for example, a residential property expert to value a commercial or industrial property. While it is true that qualified valuers need to gain a wide range of experience in valuing different properties, a really good valuation firm will always have dedicated valuers focussing on certain fields to the exclusion of others”

The Valuator Group, said Commins, has over the years broadened its services to cover not only properties but also plant, machinery, equipment and technical assets, fine art, antiques and contents, luxury boats and many other specialised assets.

Asked what assurance a person contemplating using a professional Valuer, has regarding the competence of such people, Commins said that qualified Valuers have all spent three years working to obtain the diploma/degrees recognised by the South African Institute of Valuers and the South African Council of Valuers, after which they still have to undergo a two-year mentorship in the firm that employs them. Thereafter, as indicated, the Valuer will probably focus on certain specialist fields.

“The importance of gaining experience in this work cannot be over-emphasized” said Commins, “and that is why a really well qualified mentor can make all the difference to an up-and-coming Valuer. Being table to pool and offer a wide range of experience in one firm is what establishes a good reputation for that firm.”

The cost of a professional valuation, said Commins, is sometimes begrudged by clients, but when the value of a truly accurate valuation is fully appreciated, the service will be seen to be very definitely worth paying for.

“The overall benefit is worth the cost”, he said.

To assist clients, added Commins, The Valuator Group offers a five year agreement in which the value of the property and/or the business and other assets is reviewed and updated annually. With this system, he said, the client by the fifth year will be paying less than half his first year’s fee because the bulk of the research has already been done – and the client will have the satisfaction of knowing that the valuation is wholly up-to-date year after year, giving peace of mind to all concerned.