Just as vultures begin to circle a wounded animal in its final death throes, estate agencies are pedalling ‘assisted sales’ or ‘quick sales’ as the solution to the COVID-19 related problems of many a property owner.
“An assisted sale or quick sale has been the main source of revenue for many estate agents in troubled times even before COVID-19,” says Meyer de Waal. De Waal is a progressive conveyancing attorney who has assisted many property owners with alternative solutions to retain their properties and ensure that such properties are not sold below market value.
WHAT IS AN ASSISTED SALE?
An ‘assisted sale’ is where a property is marketed and sold for far below its actual market value. This manner of property sales is designed to instil fear within the property owner, using such an approach as: “Rather sell your property through a programme promoted by your own bank as bondholder, than wait for a sale by the Sheriff on an auction, where you will get nothing (or close to nothing) for your property.”
A MUCH SIMPLER SALE
Once a property owner grants a mandate for an assisted sale, it becomes a far simpler and more attractive sale for an estate agent, as they would rather sell a property that will ‘fly off the shelves quicker’ than the average 90 days it takes to sell a property. Estate agents approved by the financial instructions favour these types of mandates, and often do not think of the damage it does to the property industry as a whole.
ASSISTED SALES DESTROYS THE PROPERTY MARKET
This type of sale erodes and destroys the property market, says De Waal:
The property prices of a particular suburb or area are determined by the record of past sales in that suburb. If one property is sold far below the market value, it does not have a major impact. Imagine for a minute 10 properties in sectional title complex, security estate or neighbourhood are sold at 30% below market value. This will have the effect of a 30 % drop in value of the entire complex or neighbourhood. Everyone loses out.
If an assisted sale or sale by the sheriff is less than the bond amount due, the property owner is required to sign an acknowledgement of debt to repay the shortfall.
FINANCIAL INSTITUTIONS MAY ERODE THEIR OWN FOUNDATION
The value of a property is one of the three foundations of the security that a financial institution relies one when they grant a home owner a mortgage loan.
If financial institutions promote the “assisted sale” or “sheriff sales” they erode and destroy the entire foundation of property values in the entire country and soon the properties they rely on as security for their mortgages will have little value in.
Financial institutions have to develop and find alternative solutions to assist distressed home owners, as an “assisted sale” or “quick sale” may not be the best solution for home owners, the entire property market and for the financial institution itself, says De Waal.
COMPARATIVE MARKET ANALYSIS
The method behind property pricing mentioned above is the concept of a comparative market analysis, also referred to as a CMA. CMA is the term real estate agents use when they conduct an in-depth analysis of a home’s worth in today’s market.
No astute property buyer would submit an offer before he or she studied the property sale trends in the area. CMA reports can be obtained from companies such as Lightstone, Propstats or Property 24. Property 24 offers in depth area reports of any suburb and area.
I HAVE NO ALTERNATIVE AS A DISTRESSED PROPERTY OWNER
Many property owners may feel that they have no alternative but to throw in the towel and may care little if their distressed property sale may ‘stuff up’ the average sales prices in the area, as long as they look after themselves and their family. “If you wait too long,” they are told, “the sheriff will come knocking on your door with a warrant to sell your property in execution.” What can a cash-strapped property owner do when faced with such a possibility?
THERE ARE OTHER ALTERNATIVES
Let us explore alternatives to execution, as there are many options open to you, explains De Waal:
1. A payment holiday.
Most financial institutions, such as the bank that granted your home loan, extended an olive branch to their clients during these difficult times. You should contact your bank to negotiate and arrange a payment holiday. The pandemic will not last forever.
Some financial institutions have been pro-active and reached out to their customers. Others wait for their customers to contact them.
Most financial institutions will allow such payment holiday, in particular if you were not already in arrears with your home loan prior to Covid-19. Often a 3-month payment holiday is granted and absorbed over the remainder of the home loan term. This result is a far more attractive one than losing one of your biggest investments.
2.What happens if I my bond was already in arrears before Covid-19?
If your account was already in arrears before COVID-19, a financial instruction may be nervous, and suspect that you may not be able to recover financially. Luckily a home owner is protected by the National Credit Act No 34 of 2005 (the NCA).
The NCA, through section 129, states that a consumer who cannot meet his/her credit payments must first be notified they are in arrears. Various options are proposed, but the solution that is overlooked lies in section 129 (1) (a) and in the wording “and agree on a plan to bring the payments up to date.”
This “plan to bring the payments up to date” is the solution a home buyer can make use of, and not sacrifice their property to an assisted sale or a sale in execution by the Sheriff.
“We already teamed up with a specialised company in debt restructuring and negotiations, to provide such negotiations between consumers and financial institutions,” says De Waal.
“Gone are the days where distressed property owners see the sale of their property at a discount price as the only solution,”
Says Paul Slot of Octogen, a company who entered into a joint venture agreement with MDW INC Attorneys and the Attorney Realtor Hub association of conveyancing attorneys. Together these institutions provide a solution for consumers in distress. Slot continued:
The COVID-19 outbreak has created unprecedented global uncertainty, and we understand the fear consumers may be facing about their personal financial situation.
Our aim is to assist the property owner to retain their property. We have developed a special service for all distressed consumers to provide aid.
The important aspect is that the property owner must not wait until the Sheriff arrives at their front door with a warrant for execution; but to act as soon as possible when in distress.
3. Alternative sale methods to retain the full value of your property.
De Waal suggests a home owner provides an alternative purchase solution for a buyer:
With 50% of home loans not approved by financial institutions, the dreams of many aspiring home buyers are halted when a home loan is declined.
COVID-19 has not reduced the interest of home buyers. Many home buyers are still searching for properties as they realize it is a buyer’s market; and they can pick up a property at bargain prices.
Home buyers are using the internet to first check if they can qualify for a home loan, as there are many online tools available to aid a home buyer.
My Bond Fitness is a free online bond indicator that links up the credit score and direct bank integration to provide an accurate indication of a bond amount. This service only saw an 18% decline in online subscribers during April 2020, the height of the COVID-19 level 5 lockdown.
First time buyers have also realised they can use the internet to check if the can qualify for a Government FLISP subsidy.
ALTERNATIVE SELLING & BUYING METHODS.
As buyers struggle to convince the banks to grant property financing, they have begun to look at alternative methods. These are also solutions for property sellers.
Instalment sales agreements have been with us since 1981, explains De Waal.
An instalment sale agreement is regulated by the Alienation of Land Act No 68 of 1981, as well as the National Credit Act.
An instalment sale agreement creates the perfect solution for a property seller and buyer. The parties agree on the purchase price and terms. The purchaser takes over the obligations of the seller. This will include the home loan instalments as well. Both parties are able to achieve what they set out to do.
As the seller will remain liable to the bank for regular home loan instalments, it is advisable that an experienced attorney be consulted to prepare the correct legal agreement. A concrete agreement ensures all parties are aware of their obligations, and the repercussions should they not be fulfilled.
A distressed property owner can make use of this type of sale and still sell the property at a market related price. They may not get the full purchase price in 2 or 3 months’ time, but they avoid selling the property far below the market value.
A rent to buy sale
A Rent to Buy transaction is a sale that is similar to an instalment sale agreement, but far less complicated; as it is not governed by the strict rules of the Alienation of Land Act and the National Credit Act.
Two types of Rent to Buy agreements are available:
“Rent2buy standard” is where the property remains in the name of the seller and the purchaser pays a monthly rental amount. A portion of the rental, usually 20%, goes towards the reduction of the purchase price and the balance is allocated as the ‘normal’ rental amount.
Rent2buy Finance is where an intermediary company purchases the property from the seller for cash at the full fair market value; and then grants the aspiring home buyer the opportunity to buy the property back at a fixed price, two years later.
Our backs may be against the wall, but there are many directions to turn to. In this industry, there are always options available, despite what a bank or estate agent may tell you.
Meyer de Waal
083 653 6975
11 May 2020
Yilungelo Lakho / It’s Your Right
TV Current Affairs
Discussion will take place via SKYPE.
Our programme details are as follows:
Transmission date – 25 May 2020
Transmission Time – 12:00 to 13:00
Skype line TESTING – 11:40
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)