The property industry in South Africa is largely unregulated at present, and while this enables real estate agents that are less than honest to turn a trick or two, by far the most vulnerable people are those who choose to sell or buy privately, thinking they will get a better deal.

"Horror stories abound of people who have been ripped off during the property transaction," says Property24 MD Richard Gahagan, in a company media release. "However, the difference between transacting privately or through an estate agent is that by using a reputable agent buyers can minimise the risks."

Although real estate agents trumpet the fact that they have Fidelity Fund certificates and are governed by the Estate Agency Affairs Board (EAAB), property market watchers, according to the release, know that the certification means little and the EAAB is relatively toothless. And there are a multitude of voices persuading the seller that he can increase his profit by selling privately, while at the same time trying to convince the buyer that he will actually pay less for the property if he goes the private route. But this is not always the case, says Gahagan.

"It might in fact be true that the seller could get more by avoiding payment of agents' commission," he says, "but the pitfalls of selling privately include the risk of ‘fantasy' buyers. These are buyers who make offers on properties they have no intention of buying, and once the homeowner has then removed the house from the market and turned down other potential buyers, he finds his buyer either disappears or cannot qualify for home finance."

"There are clearly people who get some kind of thrill out of pretending to buy really expensive properties they can't afford," says Ian Slot of Seeff's Cape Town office. "Sellers often get sucked in for a variety of reasons, obviously including everyone's desire to believe it's true and the fact that the person tends to go to an awful lot of trouble that just doesn't seem to make sense if they really don't intend purchasing."

The use of an experienced and reputable estate agent will mostly prevent this, as the agencies have qualifying criteria that is checked out before they introduce a buyer to the seller.

"There are so many issues to be aware of," says Gahagan. "Very few people understand the workings of occupational interest, and how it is applied. Similarly, the legal ramifications of the sale of property in some circumstances, for example in a deceased estate, can be quite extensive."

A case study provided by a Property24 reader cites just such a situation. An offer to purchase on a house was accepted by the widow of the owner, who had been married in community of property. On reaching the attorneys, it was discovered that the house was part of the deceased's estate and in the absence of a valid will, the house belonged in equal parts to the widow and the four minor children. In this case a ruling by the Master of the Supreme Court was required in order to release the children's share of house for sale, but by the time this was discovered the buyer had sold his house and taken occupation of the new property.

The Master refused the motion, and the house could not be sold after all but had to await finalisation of the estate. The buyer – who had bought privately thinking he was getting a ‘good deal' - was by then living in the new house, having paid all the costs associated with moving, and was left basically homeless as the seller had to move back in. After six months of uncertainty, both buyer and seller were back where they started, all considerably out of pocket.

"Other pitfalls include buyers who have signed a second offer which is subject to a previous offer they have made but not disclosed to the seller. This leads the seller to believe his sale is secure and on the strength of this he has gone ahead and made an offer on his next property, only to find that the offer falls through – often just after his own offer has been accepted," says Gahagan.

And then there are the costs involved. How many private buyers and sellers understand the complexity of VAT and transfer duties, conveyancing fees, or capital gains tax?

A bill passed in parliament in September 2007 requires that any person who buys property from a non-South African resident must withhold tax from the proceeds of the sale. The majority of private buyers are not aware of this requirement.

Madeleine Schubert of Shepstone & Wylie's tax department explains that where the purchaser is a South African resident, the taxes withheld must be paid to SARS within 14 days.

"If the purchaser fails to pay the taxes and should reasonably have known that the seller is a non-resident, he or she will be personally liable to SARS, together with interest and a 10% penalty," warns Schubert.

In addition to conveyancing fees, there are additional disbursement costs including FICA identification and verification costs as conveyancers are held to be accountable institutions in terms of the Financial Intelligence Centre Act and are required to identify and verify their clients.

There is also the danger that an inexperienced seller will ‘devalue' his property without realising it.

Mark Meyer of Engel & Völkers Johannesburg says that the focus of the South African residential property market has shifted.

"After years when property was in such high demand that sellers could almost name their price, we've entered a tougher, more realistic phase where true value is governing market behaviour," he says. "It's no longer about perceived value in the face of unstinting demand, it's about good value for money."

"If a property is incorrectly priced in this market, it will not sell, and will become tainted after being advertised for months on end. Perceptions that there is something wrong with the property – apart from its inappropriate price – is one of the most dangerous things that can happen in a market like this, where buyers are looking for real value for money – and they have the choice to seek it out."

"On average, a professional agent will negotiate with a seller for seven hours, but he will be involved in negotiation process with a buyer for up to 32 hours. A home owner is neither equipped or experienced enough to handle this phase in the context of a private sale. With their emotional attachment to the property, their lack of objectivity is likely to compromise the success of the deal even further."

"Apart from their skills at valuing a property, an experienced estate agent has the contacts and knowledge to match an appropriate buyer with a property, and is skilled in negotiating with buyers – often the most difficult part of the process.

"The punch line," says Gahagan, "is that while the seller might well make more profit by avoiding commission, the buyer very, very seldom benefits as the seller still tries to get the same asking price he would have if he had been paying commission, in order to make that extra profit. Any potential buyer who believes his seller will discount some of the cost of the commission is fooling himself."

2008/04/21