The Building We Rented For Eleven Years And Almost Did Not Buy

The letter on the workshop door

The letter was taped to the roller door when I got there at ten past six on a Monday morning. Not posted, not emailed. Taped, with the silver duct tape we keep in the office for exactly the kind of job it should never be used for. Our landlord had died in February. His son had been running things since, badly, from Durban, and the letter said the building was going on the market and we had first option if we wanted it.

I stood in the cold with my keys in one hand and that page in the other and read it three times.

We make industrial seating. Not glamorous. Chairs for factory floors, drafting stools, the high ones with the foot rings that you find in laboratories and workshops. My husband Riaan started it in a double garage in Boksburg in 2011 with one machine and a bakkie that smoked. I came in properly in 2014, after I left the bank, and we moved into this unit in Germiston in 2015 and have been here ever since. Eleven years. There is a patch on the concrete near the cutting table where the floor has gone dark and shiny from Riaan standing in the same spot for a decade.

So the letter was not really about a building. It was about whether the last eleven years had been rent or a foundation.

The number I got in a WhatsApp

I did what I think most people do. I phoned an agent. A friendly man, quick to answer, who came out that Thursday, walked the unit in about nine minutes, asked what the rates were and then sent me a number on WhatsApp that evening with three fire emojis after it.

I want to be fair to him. He was not lying to me. He was telling me what he thought the unit would fetch if it went to market, and that is a real and useful thing to know. But I took that number to the bank, and the woman at the bank looked at the WhatsApp screenshot I had printed out, and she was very kind about it, and she said no.

Not no to the loan. No to the number.

She explained it to me twice because I did not get it the first time. What she needed was not an opinion about what the building might sell for on a good day. She needed a valuation. Something signed by a professional who is registered to do it, prepared to a standard, with the reasoning shown, that the bank could put in a file and defend later if anybody asked. She used a word I have thought about a lot since. She said it had to be defensible.

I remember driving back to the workshop feeling stupid, which was not her fault. I had worked in a bank. I had sat on the other side of that desk. And I still had not understood that a price and a valuation are two completely different objects that happen to both be written as a rand amount.

What I actually did not know

Here is the thing nobody explains to small business owners, and I say this as someone who thought she was reasonably financially literate.

An agent's number is a forecast about a sale. It is shaped, quite reasonably, by what the agent thinks will happen in a negotiation, and by what will get you to sign a mandate. A valuation is a different exercise. It is an attempt to establish what an asset is worth, on a stated basis, at a stated date, by someone who has no interest in whether you buy or sell.

That last part is the bit that took me longest. The person doing the valuation does not benefit from the number being high or low. That is the whole point of them. I had spent eleven years in a business where every number I received from anyone was, in some quiet way, an argument for something. A quote is an argument. An offer is an argument. I did not have a category in my head for a number that was simply trying to be correct.

Riaan, who is more practical than me, put it better. He said the agent was telling us what someone might pay. We needed to know what it was worth. Those are not the same sentence.

The valuation itself

We were given a name by our accountant, and I ended up dealing with a valuation and advisory firm in Sandton. I will not pretend I chose them through some careful process. I chose them because our accountant said they do this properly and had worked with them on a client's audit.

What I noticed first was how much longer it took. The agent had been in the building nine minutes. The valuer was there most of a morning. He measured. He asked about the roof, and about the three phase supply, and about whether the yard at the back was included in the title or whether we had been using it by arrangement for eleven years, which, it turned out, we had, and which nobody had ever mentioned to us.

He asked to see the lease. He asked what we paid, and what the escalation had been, and whether the rate was in line with what other units in that block were achieving. That was when I understood that he was not looking at our building in isolation. He was placing it inside the South African property market as a whole, checking our little corner of Germiston against what was actually happening in comparable industrial nodes, using property data that went back years rather than a feeling about how the area was doing.

I had assumed valuation was mostly measuring. It is mostly comparing.

The number, and the part I did not expect

The valuation came back lower than the agent's number. Not dramatically. Around eleven percent lower.

My first reaction, I am embarrassed to say, was disappointment, as though someone had marked my exam down. It took me a day to see it properly. That lower number was the number the bank accepted. The high number had got me nothing except a wasted fortnight and a strange feeling of failure. The lower one got me a building.

There was also something in the report I had not asked for and had not thought about. In going through the property he raised the question of what it would cost to rebuild the structure if it burned down, which is a different figure again from what it would sell for, and it became fairly clear that the insurance we had been quietly paying since 2015 was set against a value that had stopped being realistic somewhere around 2019. We had been underinsured for years and had no idea. If there had been a fire in that workshop, the payout would not have rebuilt it.

That was not what we commissioned. It came out of the process anyway, because somebody was looking at our building carefully for the first time in eleven years.

What I tell people now

We took transfer in October. The dark shiny patch on the floor near the cutting table belongs to us now, which is a ridiculous thing to be emotional about, and I was.

When friends with small businesses ask me about this, and a surprising number have, I tell them one thing. Work out which question you are actually asking. If you want to know what you could get for it this year, ask an agent, and listen to them, because that is genuinely their skill. If you need a number that has to hold up in front of a bank, an auditor, an insurer, the taxman, or a family member who disagrees with you, then you do not want an estimate at all. You want a valuation, from someone independent, who writes down their reasoning.

I spent a fortnight chasing the higher number because it flattered me. The lower number was the one that was true, and true is the only kind that does any work.