Sole Mandates

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SOLE MANDATE

The majority of residential properties in South Africa are sold under a sole agency agreement. Unfortunately, owners often choose an open mandate when marketing their homes, believing that the more agents they have working on their property, the sooner they will achieve a good price for their property.  In fact, the reverse is true, as no agent likes to spend time and money on a property they might not sell. A competent, self respecting agent would rather list a few properties exclusively than taking a hundred open listings.

With a Sole Mandate, the agent and the agency are contractually bound to spend all their efforts to market the home within a set period of time laid out in the Sole Mandate agreement. Sole Agents spend more time working exclusively on the said property, putting in more energy into the marketing of a home where they know the responsibility of getting the home sold lies with them.

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Power to the Consumer

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Peter Gilmour, Chairman of RE/MAX of Southern Africa, discusses how the Consumer Protection Act will affect the real estate industry

Gazetted in April 2009, with published regulation as of April 2010, the Consumer Protection Act (CPA) is a virtual "Bill of Rights", designed to create a strong culture of consumer rights and responsible trading in South Africa. The Act makes South African consumers some of the most protected in the world.

The intention of the legislature is to define and enforce a set of fundamental consumer rights, as well as to regulate business names and industry codes of conduct. The CPA is set to have a massive impact on virtually every business in the country, including the real estate industry, says Peter Gilmour, Chairman of RE/MAX of Southern Africa.

He notes that the consumers' rights, as laid out in the CPA, include the right of market equality; the right to privacy; the right to choose; the right to disclosure and information; the right to fair and reasonable marketing; the right to fair and honest dealing; the right to fair, just and reasonable terms and conditions and the right to fair value, good quality and safety. "Many of the provisions in the Act will certainly change the way estate agents have traditionally marketed properties, and it may also do away with parameter pricing and marketing," says Gilmour.

For example, the CPA states that a supplier cannot make any false, misleading or perceptive representations that any land or immovable property has characteristics, facilities and amenities that it does not have, or that it may lawfully be used for purposes that are unlawful or impracticable. Says Gimour: "As per this particular clause, any false representation or inaccurate concepts, whether delivered knowingly or not, could, under the CPA, make it possible for the buyer, on appeal of the courts, to get the contract canceled."

Furthermore, it deals with restrictions pertaining to unfair, unjust or unreasonable terms, and stipulates that the price and terms must be fair. "This is a relatively controversial provision, as it could be used as a price control mechanism. In reality, with markets and demand in a constant state of flux, it is very difficult to determine what a fair price is - a fair price is what the market at any particular given time is willing to pay for a property," he explains.

Gilmour notes that in terms of Section 55 of the CPA, every consumer has a right to receive goods that are suitable for the purpose for which they are bought and free of defects. He explains that the exception to the aforesaid is if a consumer has been expressly informed that the goods were offered in a specific condition and has accepted goods in that condition. This particular section does not apply to auctions however.

The CPA is limited to transactions that are concluded as part of the regular business of sellers, suppliers, distributors and manufacturers. "As long as it is not their usual business, the Act does not apply to one-off transactions undertaken by private individuals who sell their property. However, pertaining to the real estate industry, if the supplier of the home is a developer or builder, and defects become evident after the sale, they will be held responsible.

Gilmour recommends that agents ensure that, before the sale, any clients (sellers) compile a list of all the defects with their property that they are aware of, and that they make sure that prospective buyers are aware of these. The seller will need to sign a declaration that they have listed everything that they are aware of, and likewise, the buyer will also need to sign a declaration noting that they have read and fully understood the list.

Gilmour believes that the Act is still very new, and expects that, as with the implementation of anything new, it will take some getting used to and some adjustments will need to occur to iron out any issues as they rise.

However, he believes that ultimately it will benefit the real estate industry and business at large in South Africa: "If enforced successfully, the CPA will no doubt instill great confidence in local and international investors alike, as well as weed out unscrupulous operators, which ultimately, will be to our benefit in the long run."

Pricing realism now defining market

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Pricing realism and oversupply are now stark realities in the residential property market with more people dropping their asking prices and properties staying on the market for longer periods.

The 2nd Quarter FNB Property Barometer, which gauges the opinions of estate agents, showed the average time that a house is on the market before being sold shot up to 17 weeks and 1 day from 12 weeks and 4 days in the 1st Quarter (Q1).

“While being subjective, we are of the opinion that in a market with a healthy balance between demand and supply, this level should be below 2 months,” said John Loos, property economist at FNB.

“The latest average suggests a tendency towards oversupply of property relative to demand, and the necessity for some possible price ‘correction’.”

The estimated percentage of sellers being required to drop their asking price in order to sell jumped 5% from an already high 76% in Q1 to a whopping 81% Q2.

“Admittedly, moves from quarter to quarter can be volatile, but the bottom-line is that these levels are far removed from those closer to 30% and 40% seen during the boom years,” Loos said.

He said the implications of this could be that prices could begin to come under pressure, “and indeed in June we have seen a slowing in the pace of acceleration in house price growth”.

Demand was still up 24,4% year-on-year (y/y) in Q2, but this was a growth deceleration from the 32,3% in the previous quarter. This growth was 36,8% in third quarter (Q3) 2009.

Examining the reasons for buying property, agents taking part in the survey continue to point to primary residential demand as being all-important, with non-essential demand languishing. The latter – which includes holiday properties, properties bought for family and buy-to-let – has seen a decline as part of overall residential buying due to widespread financial pressure remaining in the household sector. “Residential property is also still struggling to regain its popularity as an asset class and this will not change in the near future.”

Loos says although the World Cup will bring many potential long-term benefits for the residential property sector, the near-term outlook remains bleak.

The survey has begun to point towards a residential property market weakening, after a mild recovery that lasted from early-2009 to early-2010. “This is due to a slowing economy and a lack of further interest rate stimulus following the 5 percentage points’ worth of rate cutting from December 2008 to August 2009.”

Agents surveyed also said the near-term prospects for the residential property market look quite bleak, with demand being down and their opinions divided on whether the World Cup boosted or stymied demand for residential property.

The survey asked the agents to rate demand activity on a scale of 1 to 10. This figure slipped from 6,35 in Q1 2010, the highest it has been since early-2007, to 5,96 in Q2 2010.

“The single most important factor cited by agents as a driver of near-term expectations in the survey was the World Cup, with some believing it was a positive factor because it was improving sentiment in the country. Others, however, believed that many people were so caught up in ‘World Cup fever’ that they weren’t buying homes.”

Loos says the risk of a double-dip recession in 2011 remains high, given the vulnerability of some highly-indebted developed economies as well as a high level of indebtedness in SA’s household sector. “This implies that, at best, we will see house price inflation continuing in the coming years, but receding back into single-digit territory by 2011.”

“For the South African Reserve Bank (SARB), setting interest rate policy could be challenging in future. While it is tempting to wish for more interest rate cutting to alleviate pain in tough economic times, we will need to consider the implications at a later stage when they will rise again.”

“At present, the SARB has a nicely balanced interest rate stance from a property point of view, having given significant relief to those with debt, but not spurring robust new household sector borrowing growth,” Loos said.

Moreover, the report cited “down-scaling due to financial pressure” – 20% of total selling – as the primary reason why people put their houses on the market. Down-scaling with life stage comprised 16% of total sales, upgrading a firm 15% and emigration a mere 7%. – Eugene Brink

The Buyer's Guide

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Buying Property Privately:

Buying property privately has never been easier than now! Buyers do not need to register on this site when browsing for a property. By selecting the Province, Town and Neighbourhood, you will be directed to all available properties in that search criteria.

By clicking on the photo you would be able to Browse the Property. Should you be interested in a property, you could click on "Contact Seller" and supply your contact details; the Seller will contact you personally. When an agreement is made, the Seller could supply you with a unique "Private Offer to Purchase / Sales Agreement". Please read carefully when making an offer, see suspensive conditions, Should you need any assistance please click on "Contact".

Happy House Hunting!

Home Buying Tips : Location, location, location

  • The area where you live will be at least as important as the property itself. It is therefore advisable to purchase a smaller property in a better area.
  • Find a property for sale in places that interest you.
  • By researching the real estate market in a particular area you will be much better informed on property values.
  • Look at property prices to see how many properties have actually been sold for in the area.
  • Consider the local schools and check on availability before buying.
  • Look at local crime figures.
  • Large tracts of vacant adjoining land can attract vagrants and squatters.
  • Visit at different times - is it a quiet road at 6pm but full of noisy people when the pubs close?
  • Explore the whole area, not just streets you might live on.

Home Buying Tips : Your new home

  • Ensure the building is structurally sound i.e. there are no cracks in the walls, ceilings etc.
  • If a property has been renovated recently you might wish to see the approved plans, or ask the seller if there are any illegal structures that have not been approved.
  • Ask if there are any defects in the property that are not visible, as the seller is obliged to tell you.
  • Look carefully for damp spots or moisture as this may indicate a leak or rising damp.
  • Check the history of any scruffy - and therefore cheap - property. If it's been rented it may have had a succession of landlords, all of whom may have done the bare minimum in repair and upkeep.
  • New carpets, bathrooms and kitchens can be signs of a superficial renovation that is hiding more serious work to be done.

Home Buying Tips : Why are you purchasing the property?

  • If you intend living in the property does it really suit your needs?
  • If you have young children or elderly people living with you, you might wish to avoid stairs.
  • Do you intend to install a pool in the future?
  • Is the garden too big or too small?
  • Will you need more bedrooms in future?

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