Hello and welcome to the first in a series of articles on buying property in Cape Town.
I’m Marco Garuti, the Director of Property at SAHomeBuyers, and over the following weeks and months I’ll be bringing you all the useful information, tips and hints you need to make a successful purchase of property in Cape Town, South Africa.
Lets first start with the different professionals that may play a role in your house purchase, how they can help you and what to watch out for.
Understanding their roles is essential as one of the first decisions you have to make as a buyer is whether to appoint a property buyers consultant to work with you or just go the estate agent route.
First lets focus on estate agents and the role they play in the sales process. Most importantly on how they interact with the different parties including you the buyer, and how they do or do not help you.
Estate agents can be in many ways be compared to a broker. They link up the buyer and seller of a property and in return get paid a commission. This commission is paid by their client, the seller. As the commission is normally a percentage of the price achieved, the higher the price the estate agent can obtain for the seller the more commission they will get paid.
Where it becomes complicated is that estate agents deal with both parties – the buyer and the seller, they however, only enter into a contract of services and get paid, by the seller.
Lets look what the seller should expect for the commission he pays to the estate agent:
- Obviously the seller wants exposure for their property. They will expect their estate agent to market their property on websites, adverts in printed media and also conduct show houses.
- They would want some expert input from their appointed estate agent into how to make the house more saleable
- They will want the estate agent to accompany prospective buyers and ‘sell’ the property to them
- They will expect regular updates from their estate agent as to any progress
- They expect the estate agent to negotiate, on their behalf with the buyer, to get the best possible price – in other words the highest possible price
- They expect the estate agent to complete a legally binding offer to purchase document ensuring all terms and conditions are in their (the sellers) interests.
All of this is of course perfectly fair and proper. If you were paying for a service I am sure you would expect nothing less.
Now lets look at this from the Estate Agents side:
Estate agents work very hard to get the property they are selling the maximum exposure. They want potential buyers to see their properties for sale first and to make sure they are presenting them in the best possible light. They achieve this by spending their own, or their companies’ money on advertising in printed media, websites and various other places. This, they hope, leads to buyers wishing to view the property and in turn leading to a sale.
Now remember the estate agent only earns an income in the form of a success commission. In short if they don’t sell the property they do not get paid. In addition to this the longer the property is for sale, the more expense and time the selling agent incurs.
Most agents are appointed for a period of time, lets use 12 weeks as an example. The estate agent now faces what is akin to a gamble. They now must spend their own money advertising the property and their time showing people the property in the hope they find a buyer.
At the end of the 12 weeks if no buyer is found the seller is totally within their rights to appoint another estate agent. The original estate agent is now faced with a loss of money and time and no longer has the property to sell.
As the estate agent is employed and paid by the seller of course this is where their loyalty must lie. In an industry where reputation can be everything, Estate agents want to be renowned for selling the most properties, getting the highest prices and offering the most professional service – for sellers. In fact a cursory glance through papers and you will often see the latest estate agents awards for the agent who has sold the most property.
In terms of buyers, these are of course essential to the estate agent, without them there is no sale. It this respect it is no different than a shop with no customers. No matter how good the stock is, with no one to sell it to, it means little. Of course just like a shop you don’t want the customer to leave without buying anything or go on to a competitor. In this case another estate agent with different houses to show.
In dealing with buyers, there is also an ethical obligation, as well as a due care obligation, that they should consider the buyer, disclose to the buyer and treat the buyer lawfully, yet there is no obligation to help the buyer get the house for less money or on advantageous terms.
In summary the estate agent is paid by and and legally obliged to look after the seller not the buyer. Their role is to get the best price possible for the seller and the most advantageous terms and conditions.
Transferring attorney’s ( REFFRERED TO AS THE CONVEYANCER)
The conveyancer is paid by the buyer but is appointed by the seller. They are usually not involved in the transaction until after the offer to purchase agreement has been signed and agreed.
The offer to purchase agreement is a sales contract that is completed to make an offer on a property. Once signed it is legally binding and forms the conditions and price of the purchase.
Transferring attorneys are involved to facilitate the transfer of the property from the seller to the buyer. They are not there to give advice to prospective buyers about contractual conditions that should or should not be in the offer to purchase agreement.
Nor are they there to act for the buyer should a dispute arise.
The role of the transferring attorney should also not be confused with the role attorneys in many other countries play in the property buying process. It is normal in most countries that one attorney looks after the buyers interests and one attorney looks after the sellers interests. Together they agree all legal conditions, terms etc. In fact in many countries one attorney representing both sides of the transaction is not legal and considered a conflict of interest.
In summary the conveyancer’s role is not to offer pro active advice to the buyer, or be involved in the offer to purchase agreement, or indeed to settle any disputes. They area appointed by and work for, the seller to transfer the property form their name to the buyers.
So the estate agent works for the seller and the conveyancer works for the seller. The seller has expertise in terms of the pricing, terms, conditions and legalities. The buyer has no one.
So what about the buyers?
The South African system remains somewhat skewed and out of sync with countries such as America and Australia.
South Africa maintains a system of one agent representing two parties and furthermore one attorney representing two parties.
This system in many countries is not lawful.
Where does the buyer turn to for help and assistance? What a dilemma the estate agent faces and potentially a conflict of interest as buyers turn to them for advice.
The American and Australian system has removed this conflict and provided dedicated support to the buyer with the services of a property buyers consultant, sometimes referred to as a property buyers agent.
You can read more about Cape Town property consultants SAHomeBuyers here and our next article start to discuss what property buyers consultants do, how they can help you and whether they are appropriate for your needs.