What’s the deal with private selling?
Homeowners with properties to sell are breaking with tradition and ditching estate agents in favour of finding their own buyers. With prices under pressure, selling privately is taking off because of the money you can save yourself in commission. But isn’t a sluggish market the time when you most need the skills of an estate agent? We look at what it takes to sell your own home.

After years of buying and selling investment properties, Cape Town-based investor Steve Binos decided to take a stab at selling his home himself.

Binos placed an advertisement in the property supplement of the weekend papers, organised boards and brochures for a show day, and had an attorney friend draw up the paper work.

When his Harfield Village house sold to a cash buyer on the first show day, Binos was blown away.

At a cost to him of just over R1 000 and what he calls a "small hassle factor", he saved R80 000 in estate agent’s commission. "When I realised just how simple it was, I was sold!"

But that was in 2006, when the market was hot and it seemed like everyone who could afford it (and many who couldn’t) was buying and selling property to get a piece of the action.

Selling was also easier then than it is today. In the third quarter of 2006, properties took an average of eight weeks to sell, according to the residential property barometer of First National Bank (FNB). Now it takes twice as long. FNB’s report for the second quarter of this year shows that properties are on the market for an average of four months – or longer if they are valued at more than R1.2 million.

The number of estate agents has dwindled, which the Estate Agency Affairs Board attributes to current market conditions. The board estimates that of the 82 000 agents who registered last year, 26 000 agents have not renewed their licences this year.

Banks are not lending as freely as they were. In June, house prices showed a 7.3-percent fall from a year earlier, according to Absa’s house price index. Economists warn that South Africa is entering a period of house price deflation.

Given all of these factors, the prospect of handing over tens of thousands of rands to an estate agent who has facilitated the sale of your house is particularly galling.

In the heady days of the property market boom, it was common for agents to charge commission of 7.5 percent. But times are tough for them too, and their fees are "under stress", Willie Marais, the president of the Institute of Estate Agents, says. (See "Commission: how much leeway do your have?" below)

Even if your estate agent is willing to accept commission of five percent, on a R1 million house that’s R50 000 before VAT. (You would pay another R7 000 in VAT.) It’s a lot of money to pay for what many homeowners regard as little more than the placing of a few adverts in the newspapers, the holding of a show house or two and the overseeing of signatures on a contract. (See "How estate agents add value" below.)

The amount you pay in commission affects not only the seller but also the buyer, because it reduces the room the seller has to manoeuvre when considering offers. If you, as the seller, have to shell out R50 000 in commission, you have less room to negotiate the price of the property with a prospective buyer. This becomes even more pressing as increasing numbers of homeowners teeter on the brink of negative equity (a situation where the outstanding balance on your mortgage bond is greater than the value of your property).

Justin Clarke, the executive chairman of Private Property Holdings, says the incentive to sell privately is stronger than ever, particularly in this market.

"A large percentage of South African homeowners are highly geared because it was so easy to borrow money against property. People have propped themselves up to the full value of their properties.

"In some areas, prices have fallen. So someone who bought an apartment for R3 million and can now get only R2.5 million is stuck if he’s got a full R3-million bond. How does he pay estate agent’s commission, let alone the bank to cancel the bond? So this market pushes people into the private-sale environment," Clarke says.

The private route
It may be more difficult to sell in the current market, but, compared with two years ago, there are more options for people who want to buy and sell privately.

Immediately after Binos’s watershed experience with his own sale, he contacted Andre du Toit, a friend who was on the board of a national estate agency and an owner of two of its franchises. Reading the trends here and abroad, the two saw an opportunity to offer South African property sellers something new. At the time, ForSaleByOwner.com was one of the fastest-growing online companies in the United States and today it is one of the top five real estate websites in that country. Du Toit cut his ties with the national agency and his franchises, and joined Binos to launch www.sellingprivately.co.za.

By this stage, online company Private Property Listings (www.privateproperty.co.za) had already been going for eight years.

"When we started 10 years ago, things were very different. The internet wasn’t as effective as it is today," Clarke says.

The rise of private property sales has been fuelled by the internet, which Clarke describes as a "disruptive force" in the marketplace.

This sounds like a big claim considering the low levels of internet penetration in South Africa.

But media analyst and internet expert Arthur Goldstuck says it’s no exaggeration.

"The internet has transformed the real estate environment. Three to five years ago, property buyers turned to newspaper ads. But more and more, they’re going online, especially since property portals allow for searches that are impossible with print adverts," he says.

For example, these sites enable you to refine your search to, say, "house, three beds, Bryanston".

"All the major property companies have websites, and a company without one is regarded as behind the times," Goldstuck says.

He concedes that internet penetration in South Africa is small at only about 4.5 million users. However, "the property-buying market is the internet market". And internet penetration is growing steadily, he says.

"This year we’ve experienced growth of eight percent, compared with six percent last year and three percent the year before."

This is key because the internet gives sellers a means of reaching buyers by way of a tool with formidable reach. And it gives buyers access to a pool of properties that no single agency could ever offer.

Du Toit echoes Goldstuck: "The astute buyer goes first to the internet, because almost all properties for sale, regardless of who is selling them, will be advertised somewhere on the net."

Today, Selling Privately gives its clients internet exposure to three million unique visitors a month.

Selling Privately is a network of 20-odd websites that list properties for sale. Apart from the big local players, such as property portals Property Genie (www.propertygenie.co.za) and SA Home Traders (www.sahometraders.co.za), the network includes a number of top sites in Germany and the United Kingdom, notably www.dailymail.co.uk.

Effectively, this means that when a buyer does a Google search for property in your suburb, properties listed with Selling Privately will be in the top five results "about 90 percent of the time", according to Du Toit. "Obviously, there is no telling what phrases people will use to search, but our partners appear in the top five for virtually any such search."

Clarke says Private Property is the biggest private seller organisation, measured by listings and web traffic. The site has more than five million page impressions a month and also advertises its listings on other websites, such as www.junkmail.co.za and Jump Shopping (www.jump.co.za). The website also boasts 200 000 registered buyers.

How does it work?
To market your property online, all you pay is a listing fee. Selling Privately charges listing fees on a sliding scale:

  • R1 350 for a property with an asking price of up to and including R500 000;
  • R1 699 for a property priced between R500 001 and R1 million;
  • R2 250 for a property priced between R1 000 001 and R2 million; and
  • R2 950 for a property over R2 million.

These fees include all advice, marketing material and support, including one newspaper advert valued at about R400.

Private Property charges much the same fees, but at the time of going to print the company was in the process of changing to a "service-based fee".

It’s now possible to list your property online yourself with Private Property. For now, it will still cost you the same one-off listing fee as it would if you were to have a consultant do the listing for you.

Private Property also offers sellers the option to add a virtual tour to their listing. This gives prospective buyers a much better feel for your property than just a few photographs do. If you opt for this feature, your one-off listing fee is R3 200, regardless of the value of your property.

The actual process of listing is simple. It’s a case of emailing photographs and a detailed description of your property that will be uploaded to the website. Any visitors to the website can view your property, but only those registered as members or buyers will be given your contact details or the number of the company listing your property.

Registering as a member or a buyer is free. You provide the company with your name and email address, and, when you are interested in a property advertised online, you can have the advert and owner’s contact details emailed to you.

Buyers also have the option of receiving email notifications when new listings that match their criteria (area and price range) come up for sale.

Listings stay online for as long as the seller wants, or up to one year, depending on the company. At any point, the seller can edit or amend the advert at no cost, and delist at any time.

What’s the catch?
Typically, companies such as Private Property and Selling Privately make money via commission on bond origination.

But Binos says Selling Privately is a viable business without this income stream. "Our overheads are small and we’re able to offer a boutique of services cost-effectively. We don’t live or die on bond origination."

Bond origination is a service provided to buyers who need home loans. Bond originators submit your application for a loan to financial institutions to secure you a loan at the best interest rate from among those institutions approached. The benefit to you is that you submit one application to the bond originator instead of having to apply to and negotiate with several institutions yourself.

Bond originators provide this service at no cost to the borrower because they receive a commission from the loan provider. The commissions vary from institution to institution, but they can be up to two percent of the value of the loan, Saul Geffen, the chief executive of ooba (previously Mortgage SA), says.

Bond originators mostly source loans from banks, so don’t assume that your bond originator will also approach other home loan providers, such as SA Home Loans, Integer and www.liquidhome.co.za. For example, SA Home Loans and Integer deal with some originators, but liquidhome does not. You should find out which institutions your originator will approach. Always make sure you are shown a copy of the quotes from each home loan provider.

Until earlier this year, Private Property derived most of its income from bond origination commissions. But in May, the company restructured, splitting into four separate entities under the holding company Private Property Holdings.

The business now consists of listing company Private Property South Africa; a real estate company, SmartSell; a mortgage originator, iLoan; and letting portal www.rentaspot.co.za. Although these entities offer supplementary services, the business of the listing company has reverted to pure listing.

Too complicated?
One of the arguments used against selling privately is that property transactions are complicated and should thus be left to the experts.

Binos says: "In the chain of experts involved in property transactions, conveyancing attorneys are the real professionals.

"On listing, we make an attorney available to you, to explain the legal process and supply you with all documentation. From then on, the attorney will be available for advice on any offer you receive. The buyer pays legal fees, so this doesn’t cost you a cent," Binos says.

Private Property offers a similar service. "We no longer allow listing consultants to get involved in your sale agreement. You now get to choose a qualified expert from our panel of attorneys who will help facilitate the sale at no additional cost," Clarke says.

Another argument against selling privately is that buyers often want to discount the sale price by approximately the amount that an estate agent would have charged.

But Binos says it all comes down to supply and demand. "If you have a fantastic house and five buyers desperate for it, then it’s simple. But if it’s a little more difficult to sell that house, you must be prepared to forgo some of the money that would have been a cost had you used an agent."

In other words, "the commission" should be regarded as a discretionary fund that you use in the negotiation process, he says.

Negotiating is a delicate process, but if you get the help of a transferring attorney, you needn’t get embroiled in negotiations, Binos says. "You tell your attorney your bottom line figure, and he gives it the best punt and negotiates on your behalf, just as an agent would."

Are there pitfalls?
One of the barriers to selling privately – although all sellers are prone to it – is the tendency to overprice. "Overpricing is a big problem," Du Toit says. And agents are usually to blame, he says.

"An agent comes along and says, ‘Your plot is fantastic! Worth R1.5 million.’ But R1.5 million would be a record price by 45 percent. The only reason the agent told you he could get R1.5 million is because he was after a sole mandate."

Clarke agrees: "Agents have been guilty of bidding for mandates by telling the seller what they want to hear. We provide the seller with a comprehensive comparative market analysis report as part of the package to help him price his property realistically, then leave it to the buyer to be the referee."

Wrong perceptions and advertising also lead to overpricing. Binos explains: "Before sellers decide on a price, they’ll look at what other similar properties are going for. So maybe the house down the road is going for R1.2 million and you think your place is better and therefore worth, say, R1.3 million, and so you pitch it at that price assuming that the guy down the road is going to get R1.2 million."

Similarly, you may have picked up a glossy pamphlet distributed by one of the big name estate agencies showing the houses they’ve sold recently. But alongside all the prices of the houses they’ve sold are asterisks and at the bottom of the page is fine print that reads "listing prices reflected", Binos says.

"Those houses may well have sold for a fraction of the listed price," he says.

The other reason people don’t succeed at selling privately is they lose heart, Du Toit says.

"It does involve some work, and I’m always really insistent about that right from the start. This is going to cost you 20 to 30 hours of your life, and you have to weigh that against a commission of, say, R120 000 [seven-percent commission on a R1.7-million property]. But 30 hours is less than a week’s work and not many people earn R120 000 a week, so 30 hours is a small price to pay."

Du Toit says a small percentage of people try it and hate the experience of selling solo.

"They run their first show house and detest the experience because people can be rude and pass insensitive remarks."

This is partly why Selling Privately introduced a money-back guarantee, Du Toit says.

"If you’re struggling, we’ll put you in touch with top estate agents in your area to help you. If one such agent manages to sell your home, we’ll refund your listing fee," he says.

Other concerns
A recent issue of a home and lifestyle magazine published an article that identified numerous risks of selling privately.

These risks included the security concerns over holding show days. You need to exercise caution when allowing strangers into your home, and you may want to alert your armed response company to the fact that you are having a show house.

The article also identified the legal risks you might encounter, such as:

  • Exposure to money launderers and "fantasy buyers" – people who put in an offer to purchase but have no intention to buy, often because they don’t have the means;
  • Dealing directly with people whose personal details have not been verified;
  • Disputes that arise over the non-disclosure of latent defects;
  • Having to chase the buyer to fulfil his or her obligations in terms of the deed of sale; and
  • Costly legal implications of special circumstances, such as an offer subject to another offer.

Conveyancer John Christie, a director of J Leslie Smith & Company, says that each of these risks can be real, but that instructing a conveyancer will eliminate "all reasonable foreseeable risks".

"Each and every risk mentioned would be dealt with by a conveyancer in the normal course of drawing up an agreement of sale and in effecting transfer. A private individual must sooner or later instruct a conveyancer to effect registration of transfer, and a number of the risks will in any event be dealt with by the conveyancer at that time.

"The best time to consult a conveyancer is during the negotiation phase, before the agreement is concluded (even when an estate agent is involved) – and not after signature of the agreement. An agreement results in legal rights and obligations, and it seems only logical that the intentions and wishes of the parties are correctly reflected in the agreement right from the outset."

Christie says all but the most knowledgeable and experienced estate agents would be oblivious to a number of other risks.

It’s not for everyone
Binos concedes that not everyone is cut out to sell their property themselves.

"I call it the toe-in-the-water paradigm. At its very worst, this is when the seller says: ‘I’ve signed up to sell privately. Great! I’ve paid my listing fee and now I’ll wait for the offers to roll in.’ Well, it doesn’t work like that.

"It’s the same as saying, ‘I want to get fit, so I’m joining a gym.’ But being a member doesn’t necessarily mean you ever go there. The bottom line is that you are still responsible for selling your property."

If you’re a passionate seller, you stand a far better chance of attracting buyers. Both Selling Privately and Private Property have their own marketing plans, employing much the same techniques that estate agents would use.

"The trick is that you’ve got to try all these tactics at the same time because there’s interplay between them that creates hype around your property," Binos says. "The toe-in-the-water-style is typically the guy who says: ‘I’ll put my property on the web, but don’t ask me to hang a sign outside my house because if the neighbours see that I’m trying to sell and I don’t succeed, I’ll feel like an idiot.’ That won’t result in a sale."

Is it working?
Clarke says sellers are biting – although it’s not possible to establish what percentage of sales are private. The Deeds Office tracks the number of sales but not whether they’re private sales.

"We believe [total private sales] are around 10 percent," Clarke says. This includes sales between friends, family members and neighbours, which typically do not go through a private selling company.

"A few years ago it was sitting at about five percent, so we feel we’ve grown the market significantly."

Commission: How much leeway do you have?
The main motivation for selling your property yourself is to avoid paying an estate agent commission of up to 7.5 percent (excluding VAT) of the selling price of the property.

Although commission to estate agents is not regulated, 7.5 percent has become the norm – "the starting point for negotiations", Willie Marais, the national president of the Institute of Estate Agents of South Africa (IEASA), says.

"The argument for any professional fee is that it must be enough to make a business sustainable and it must be in keeping with the level of service offered," Marais says.

It’s difficult to ascertain exactly what average rate of commission is being charged, because the IEASA doesn’t track the fees paid to its members.

Marais says fees differ according to the type of property and where it is located, and economic conditions. "Currently, fees are a bit lower than two years ago, but the range for residential property in the Pretoria-Johannesburg area is five to seven percent of the selling price, VAT exclusive."

Gavin Wright, the owner of three Leapfrog franchises in Cape Town, says his agents earn an average annual commission of five percent.

Wright says commission is lower for expensive properties, for clients who repeatedly use the same agency (such as people who regularly buy, renovate and resell) and the "odd deal where the transaction happens very easily".

Commission is negotiable around issues such as the nature of the agent’s relationship with the client (for example, if the client is a developer), if the client introduces the buyer, whether there has been repeat business, the number of properties owned by the client, and the length of the mandate and whether it is a sole mandate, Wright says.

A sole mandate, which is commonly referred to as a "sole and exclusive" mandate, gives an appointed estate agent or agency the sole right to market a property.

In terms of common law, a client is entitled to sell the property him- or herself, even if he or she has given a specific agent a sole mandate. But sole mandates tend to be worded in such a way as to prohibit the client from selling the property him- or herself. And if the client does, he or she is in breach of contract and is liable to pay the agent a penalty, which can be equal to the commission.

Agents obviously favour sole mandates because it keeps their competitors out of the picture. Agents argue that they can’t afford the time or money spent on marketing a property unless they are given a sole mandate. But if you’re willing to give an agent a sole mandate, the agent is sometimes willing to work for a lower commission.

Open mandates entitle the seller to appoint as many estate agents as he or she wishes. No agents can claim the sole right to sell the property. The first agent to bring the seller an acceptable offer is awarded the commission.

Agents argue that open mandates receive a low priority in terms of advertising and showings to prospective buyers. They say the seller is less likely to obtain the best price because of the rush to conclude the sale of a property on the open market. "Commission on open mandates is often higher than on sole mandates," Wright says.

Many agents offer a multi-listing service. This is a system whereby a number of estate agents agree to share their listings on the understanding that the commission is shared between the listing agent and the selling agent. All participating agents get to market the property. The seller is liable to pay one commission, which is split.

Although the listing services don’t prescribe commissions, an agent who multi-lists your property may be more reluctant to negotiate commission because it is going to be shared.

Wright says agents who multi-list try to insist on a minimum commission of 6.5 to seven percent.

Apart from the mandate and your circumstances (for example, how urgently you need to sell), the presence of foreign buyers and expensive properties also have an impact on commission, Wright says.

"In Cape Town, especially in the City Bowl and along the Atlantic Seaboard, we find that with the high percentage of foreign clients and the higher prices, commission is often negotiated down," he says.

For sellers who are averse to paying commission, it is possible to negotiate a fee-based service with your agent, Wright says.

"We have done this in circumstances where we have a long-standing relationship with a client or where the client has a buyer who is interested and we only close the deal, write up the offer and follow through on the conveyancing side."

But, he says, setting a fee is problematic because of the difficulty in knowing what it will cost to market a property and how long it will take to sell.

Marais says there are alternatives to the percentage-based model. One is a set fee per transaction. With this model, the seller would, for example, contribute to the marketing costs.

"It’s common in Australia and New Zealand, but it hasn’t taken off very well in South Africa," he says.

How estate agents add value
Estate agents are the "oil in the gears" of a property transaction, Willie Marais, the president of the Institute of Estate Agents of South Africa, says.

"They are in a far better position than the seller is to negotiate. When buyers and sellers come face to face, all it takes is one wrong word and there’s no deal."

Marais says he knows of instances of hapless private sellers who have sold for less than they should have because they did not use an agent who knew the ropes.

He says agents add value because of their knowledge of the areas in which they operate, as well as their expertise in the legal intricacies of property transactions.

"They also help with the financial evaluation of both the seller’s and the buyer’s situation."

Gavin Wright, an estate agent and the owner of three Leapfrog franchises in Cape Town, says estate agent are "professionals at pricing, marketing and working with people in order to conclude a sale and achieve the best price in the shortest possible time, with the least pain and suffering to the seller and buyer involved".

They also advise sellers and buyers as to what the market is doing locally, nationally and internationally, he says.

Assuming you aren’t keen on or suited to selling your property yourself, what should you look for in an agent?

Wright offers this advice: "Choose an agent who is an area specialist – someone who knows the property trends in the area and has a passion for the area.

"You also want your agent to be passionate about his or her career. You need to feel comfortable with your agent and know that he or she can be trusted. Go for someone who tells it like it is and drops all the hype and bluster that goes with jobs in the sales industry.

"It’s often a good idea to use an agent who has been referred to you by someone who had a ‘wow’ experience with that person."

You need a conveyancer to guide you
"Conveyancers are the real experts in property transactions and it makes sense, whenever possible, to consult a conveyancer, particularly prior to the signing of an agreement of sale," says John Christie, a director of J Leslie Smith & Company, a firm of attorneys, conveyancers and notaries public in KwaZulu-Natal.

A conveyancer, or transferring attorney, is an attorney who has passed a conveyancing exam and who has been admitted as a conveyancer by the High Court. A notary public has likewise passed a specialised exam in notarial practice and has been admitted as a notary public of the High Court. In some cases, the use of a notary public can be indispensable.

Benn Estates, on its website, says a conveyancer is responsible for completing the about 77 steps needed to transfer ownership of immovable property from the registered owner to the buyer.

The Western Cape-based estate agency says among these 77 steps a conveyancer will:

  • Conduct a Deeds Office search of the property and of the seller;
  • Liaise with the bond-holder for the cancellation of the existing mortgage bond;
  • Liaise with the financial institution that will be issuing the new mortgage bond and with its conveyancer for the registration of the bond;
  • Pay all the outstanding rates and taxes for the current tax year to the local municipality, and obtain a rates clearance certificate;
  • Collect the transfer duty from the buyer, pay the duty to the Receiver of Revenue and obtain the transfer duty receipt; and
  • Prepare the transfer documentation so it can be lodged and registered at the Deeds Office.

    In addition, the conveyancer can draw up an agreement of sale.

    Christie says standard sale agreements, which are available from stationery stores and over the internet, are often used, as are standard form agreements printed by estate agents.

    But while such agreements are useful and acceptable for most sales, they are suitable only for the simplest of agreements. They are " target="blank" says.="says.">

    Private Prop, says a conveyancer is responsible for completing the about 77 steps needed to transfer ownership of immovable property from the registered owner to the buyer.

    The Western Cape-based estate agency says among these 77 steps a conveyancer will:

  • Conduct a Deeds Office search of the property and of the seller;
  • Liaise with the bond-holder for the cancellation of the existing mortgage bond;
  • Liaise with the financial institution that will be issuing the new mortgage bond and with its conveyancer for the registration of the bond;
  • Pay all the outstanding rates and taxes for the current tax year to the local municipality, and obtain a rates clearance certificate;
  • Collect the transfer duty from the buyer, pay the duty to the Receiver of Revenue and obtain the transfer duty receipt; and
  • Prepare the transfer documentation so it can be lodged and registered at the Deeds Office.

    In addition, the conveyancer can draw up an agreement of sale.

    Christie says standard sale agreements, which are available from stationery stores and over the internet, are often used, as are standard form agreements printed by estate agents.

    But while such agreements are useful and acceptable for most sales, they are suitable only for the simplest of agreements. They are " target="blank" says.="says.">erty and Selling Privately offer to arrange for you to meet a conveyancer when you register as a seller with either company, so there is no need for you to source a standard document.

    If you are selling on your own, without the help of a private selling company, it would be prudent to follow suit and to make a visit to a conveyancer your first step.

    Christie says conveyancers are in most cases willing to tailor an agreement to suit the specifics of the transaction.

    Agreements of sale that have been sent back and forth between the parties and/or the estate agent often become illegible, and "disputes often arise around blank spaces, deletions, additions and amendments", Christie says.

    He points out that all alterations to an agreement of sale need to be accepted and initialled by all parties to the agreement. "Amending a material term of an agreement after it has been signed by one party could amount to a counter offer in law, and if the other party refuses to accept the alteration, could result in the agreement not being binding in law."

    Agreements "need to be clear and unambiguous, failing which disputes inevitably arise, which could result in litigation or in the agreement being cancelled".

    Christie says neither the purchaser nor the seller has an absolute right to appoint the conveyancer, and the appointment is usually negotiated between the two. "If the seller and the buyer fail to consider the appointment of a conveyancer, by law in South Africa the seller has the right to appoint the conveyancer, except in KwaZulu-Natal, where the buyer has that right."

    He says conveyancing costs are usually based on a recommended tariff, but can sometimes be negotiated with a conveyancer. Christie says he cannot provide any guidelines on how much the services of a conveyancer would cost because charges vary according to the complexity and value of the transaction. - Margarete King

    This article was first published in Personal Finance magazine, 4th Quarter 2008.

  • Article by: Angelique Arde - www.persfin.co.za