Six Costly Mistakes - What Every Seller, Agent Or Buyer Should Know
The primary aim of hiring an independent “expert” to conduct a condition survey or an assessment of value is to prevent a dream home from becoming a nightmare and to price a listing well to sell within reasonable marketing period. The underlying benefit of such surveys helps to alert an owner of any material defects to be found on a home and, as the law requires for home sales, can be used by the seller to sufficiently disclose defects on the house prior to a sale, inadvertently this also helps the agent to stay away form possible legal mishaps from poor disclosure.
In South Africa, at the moment, it is not compulsory required to hire an independent expert to survey condition or assess value of a property prior to a sale. With the Property Practitioners Act coming into effect soon, this is about to change. The Bill is currently just waiting the president's signature, to come into effect. This law makes it mandatory of any property sale or lease the seller or landlord to disclose defects in a disclosure form and it makes abundantly clear that a property practitioner may in fact not even accept a mandate to sell or let a property without a disclosure form where defects of the property are made known to the buyer or tenant. With this law in place many agents, sellers and landlords are soon to discover that the days of ‘hiding’ problems or known defects onto unsuspecting buyers and tenants under the pretext of “voetstoots clause” are becoming a thing of the past. It therefore appears reasonable that agents, landlords and sellers should be encouraged to use residential survey experts to fulfil the disclosure requirements.
However, in practice most sellers and agents says no to voluntarily hiring valuers or home inspectors because these home survey experts are considered potential “deal killers”.
Agents, sellers and landlords must become aware and understand the risks when a property is listed for sale or to let, and should resist making these practical mistakes that could potentially leave them exposed in terms of the incoming property practitioners law
1. Focusing too much on the list price
With the advent of online valuations many agents and sellers tend to make little effort to hire experts to assess value or condition prior to listing. There focus is on the listing price which mostly rely on what the agent and seller can realistically make from a sale, with the least amount of disruptions. The fact remains, a listing price may be the best indicator of the seller's motivation, but it says nothing about the condition or how much a property is worth. When making an offer most buyers are interested in the price and condition of property than purely trying to match the list price.
Technology has become so pervasive that most buyers are a click away from making a competitive offer. Agents who are savvy, who solution clients beyond the list price, with value-add products that may include last-mile services, post-sale tax support, etc are most likely to get more offers and close sooner.
2. Poor voluntary objective disclosure of facts
Any experienced agent cannot be faulted on the knowledge of their sales area. Agents spend lots of time building a solid referral network and honing in on knowing issues affecting the locality where they are active. Many agents, valuers and home inspectors make the same mistake of taking area speciality as an indicator of property acumen. Regrettably, location proficiency, though an important piece of knowledge, it is not an indicator of expertise required to gather information on the condition.
Few agents, sellers and buyers make the mistake of not investing upfront in the expertise required to make a proper list of defects, required improvements, expected costs, municipality information and understanding condition of listing. Upfront investment in expertise that specialize in condition surveys, allows for an objective sharing of ‘expert’ reports with clients.
The natural instinct of most sellers and some agents, is to disclose “enough information” about the property without increasing the risk of disrupting any prospects in the sale process. Doing so “challenges” the buyer to discover for themselves facts about the property. Such behaviour has been consistently justified with that ‘too much’ disclosure increases the likelihood of delays, and even raises the prospects of transaction failure.
But, market evidence have shown that, upfront full disclosure or wholehearted transparency about facts on how the property price (value) was determined and the current condition of the property, a home on sale receive two times more offers than similar listings in the market, is more likely to close 32 days sooner and buyers most often choose transparency over spending money to establish facts for themselves.
3. Assuming sellers are desperate or buyers uneducated
Internet has brought market information to the fingertips, making it possible for buyers to be highly informed. This has resulted in little differences in the knowledge buyers and sellers have to exchange competitive offers. The exchange can amount to buyers demanding as much as 10%-20% discount on the listed price, insertion of conditions suspensive to independent valuation/ an inspection, or adding contingency period on the closing date/ the sale period for time to investigate facts for themselves. This is evidence that days of sellers and agents having total advantage over a property sale process are over.
When sellers choose an agent (or an agency), the choice is mostly based on the track record of prior successes, location speciality or from referrals. However, studies of consumer behaviour indicates that buyers select location preference first, do research about it and property(ies) that could be found that match their taste and lifestyle, and this decision process leads to initial contact with an agent or seller.
It is follows, therefore, that modern practitioners should not only equip themselves with market information and property knowledge, but invest in understanding buyer behaviour, cultural diversity, learning local languages, etc and thus not rely solely on prior experience and property information.
4. Ignoring the Municipal information during listing and conclusion of sale
This week at myhomecheck we received an enquiry from a distraught home buyer who discovered after recently moving into a newly purchased home that the neighbour’s boundary wall is built over the building line and the boundary, thus cutting into their stand. How did this discovery come about?
Telkom, working in the area needed to access the municipal servitude which is mostly found within the building line. Low and behold! A lapa and large section of neighbours’ boundary wall were constructed inside the building line, over the servitude and into our client’s property. This did not only contravene municipal by-laws but also drastically reduced the purchased (registered) size of the property.
Since it was a recent sale, the most important and first point of call was to check the seller’s declaration form. Nothing was listed relating to this defect. A quick simple check at the local municipality revealed that a contravention notice was issued against the neighbour in this regard few months before the sale.
Checking municipal information is the one area that many agents and sellers often overlook before finalisation of a sale. Many fail to disclose upfront in the declaration form the status of municipality information pertaining to the property details regarding any compliance to by-laws, planned city works, any issues affecting zoning or building certificates. For most buyers, agents and sellers the level of disclosure of municipal information stop at checking for (un)approved building plans and the status of municipal accounts. Home buyers are generally none the wiser, majority do not even bother to check at the municipality information regarding their property of interest.
It is regrettable that some of the hired experts; valuers or home inspector; also neglect to do the work of finding facts regarding municipal information to include in their reporting. Municipality information in reports are more than just information on rates amount or municipal valuation.
5. Not sufficiently researching the ‘expert’ before hiring
It is not uncommon for most people to hire expert services based on referrals by family, friends or associates. Practitioners, sellers and home buyers do likewise when hiring a valuer, home inspector or any ‘property expert’. Few do any prior research, let alone investigating the licensing or practicing requirements of such an expert advisor, or checking the qualification or training required to provide the expertise.
Sadly, there is a myth that low prices are a sign the socalled expert may not have required expertise to do proper work or lacks the required training. Some even exaggerate that low prices are evidence of fraudulent operators. Compared to traditional methods, technology has brought benefits of lowering costs across many industries. In real estate, low commission providers, online/ desktop valuations, even banks have entered the market, offering same quality or higher at reduced charges and compete directly with traditional providers.
A number of emerging valuation and home inspection providers, offer competitively similar or higher quality services at charges markedly lower than tradition, proving outdated a myth that service charges are an indicator for quality of service. Practitioners, sellers and buyers needs to make an informed enquiry to establish facts about the service provider prior to hiring, these include speaking to previous clients, enquiring on licensing requirements.
6. Beware the unqualified or unscrupulous expert
To protect the public and real estate consumers, it is illegal in South Africa to practice as an estate agent without valid a registration with the Estate Agency Affairs Board (EAAB), similarly, it is against law to market/ provide valuation services, conduct an a valuation or purport to be a valuer unless registered with the South African Council of Property Valuers Profession (SACPVP). Regrettably, the same can not be said about home inspections and home inspectors.
At present, locally, there is no professional body/ regulatory/ licensing authority responsible for licensing, registration, or professional conduct of home inspectors, similar to the likes of NACHI (National Association of Certified Home Inspectors) licensing structure in the United States or in England and Scotland where residential surveyors register under the auspices of Royal Institute of Chartered Surveyors (RICS), and the recently launched Residential Property Surveyors Association (RPSA). Lack of national professional standards or some form of statutory guidance, has led, in South Africa, to uncontrolled mushrooming of home inspection providers. Nothing guides professional conduct and levels of training/ expertise to operate as an inspector.
The work of home inspectors is locally guided by the national building regulations and there are diploma and degree qualifications in Building or Construction to become academically qualified in building inspections. Unfortunately, most active home inspectors acquire experience to practice largely through years of experience working in municipalities or from the building industry. There are local organisations such as SAHITA, NABISA, etc attempting to do something, but those attempts are yet to produced anything tangible, so an emerging trend of online studies via InterNACHI membership have become the popular choice amongst home inspectors to gain knowledge and get a foot in the door.
International qualifications, online or not, may add spice to technical knowledge, are not designed for local building regulations, as result the content always lacks in local relevance. At myhomecheck any active practitioner conducting inspections or valuations must at the very least be academically qualified and, in addition, get registered with the relevant (or close enough) professional association. This is in part to protect clients who use our service and to make sure our employees have access to the latest technologies, training and practices in the fields we operate.
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