No gazumping allowed!

South Africa's astute property laws mean that there's no chance of buyers being 'gazumped' or sellers 'gazundered' in a property sale, says Lew Geffen of Sotheby's International Realty.

"Selling residential property in South Africa through the auction process could be an alternative method, but there is simply no demand from the public." Geffen notes that demand is low for property auctions because the law in SA protects the buyer from being 'gazumped' or the seller being 'gazundered'.

'Gazumping' is the process whereby a seller can change their mind and pull out of the deal right up to the point when property is transferred — it’s usually because he has received a better offer. And 'gazundering' is the where the buyer can simply walk away right up to the point of transfer.

"In countries like Australia where the law does not protect against gazumping and gazundering, property auctions have evolved and are so successful because of the need to thwart these practices. Selling by auction in Australia prohibits gazumping and gazundering but selling by Private Treaty does not. This is why Australians elect to go the auction route.

"In Australia a buyer can sign an offer by private treaty, have it accepted and then go through months of insecurity not knowing whether he has in fact bought a house because the seller can walk away anytime if he gets a better offer.

"In SA gazumping and gazundering can’t happen because of our Roman Dutch law (as opposed to Australia’s legal system that is based on English law) that states that once the suspensive conditions have been met (i.e. the deposit has been placed and homeloan granted) there is only a miniscule chance of the collapse of the deal. In other words, neither buyers nor sellers can walk away from the sale."

Cheaper and quicker
Geffen notes that is it also much cheaper, quicker and much less invasive for a seller to sell by private treaty than by auction.

"An auction sale typically costs the seller 10 percent of the sale proceeds and the seller has to pay his own marketing costs. This can amount to thousands of Rands.

"Sale by private treaty is cheaper and more efficient. Although 7.5 percent commission is usually requested, commissions average about six percent across the board and the agent places the ads and covers all marketing costs."

Geffen points out that his own property auctions in the early to mid-nineties showed just what an ineffective selling model auctions are.

"In those days and still today we have a specially trained in-house auctioneer and would gather up 150 people in a hall and auction off 30 to 40 homes at a time. At one stage we had about 30 auctions per week, but the buying demand was simply not there.

"The hit rate was only about 10 percent and the whole process took about six weeks which sellers and buyers found a long and painful process. Auctions attract bargain hunters and there is therefore a negative stigma attached to the auction. People are very wary of houses that didn’t sell at an auction and are now listed with an agent.

Geffen concludes: "As long as the property market is positive, auctions will not be flavour of the month."

Article from: http://iafrica.com