What to keep in mind when accepting offers?

When selling your property, there is a strong chance of being presented with an offer for less than the asking price, before you accept you may want to consider the following.

The obvious question one would ask is “ can I get more? “ a good idea would be to look at other recent sales in your area, if your property is of similar size and setting but you have an offer for less than a property in line with yours....speak to the agent and ask why? It is important to be neutral in this decision and not allow emotions to run high as there may be valid reasons why “other” properties achieved higher selling prices.

One must consider the time it has taken to get the offer on the property. The longer a property spends on the market the less marketable the property becomes. Buyers will start asking “why” as well.

How active is the area you are looking to sell in and can you afford waiting longer before getting another offer.

Ask the agent for feedback as to the buyer’s impression of the property. It may be that they have seen something they would like to “fix” or change and have dropped their asking price to allow for this. Feedback like this can be invaluable as it will give you a fresh perspective on what buyers are seeing and saying.

If the offer is substantially less than the asking price, make sure your asking price is realistic and in line with the “other” properties on sale in the area. The Property Leader program can help you decide. By getting a valuation done through the property leader program FNB can give you an idea of what the market should be prepared to pay for your property.

Make sure the offer covers all the cost on the sale as well as on the new property you may be looking to buy. Take into account the estate agents commission, the outstanding bond amount (if bonded), the costs on a new property, and possibly a deposit? A total cost of around 8% on the new property may be applicable.

If your property has been on the market for some time and the feet through the door on show house days has dwindled, perhaps you need to revisit the asking price and or the marketing strategy of the agent. If the offer is an attractive one , don’t be caught stalling further by holding out too long, the longer your property stays on the market the more chance there is of getting an even lower offer. One must also consider the cost / time relationship once an offer has been received. The cost time relationship is based on the amount of time it will take to get a better offer and by how much, waiting an extra two months for a R20 000 increase in offer is something that would need to be factored in before declining the current offer, is it worth the waite?

 Accepting an offer is not easy, but, indications that you may need to do a price check comes from the time your property spends on the market and the number of offers you receive. A correctly priced property sells quicker. The FNB Property Leader Program can help guide you in making that all important decision.

 

PROPERTY BAROMETER – Sole Mandates...

Is it the right thing to do?

5 October 2012

Dear Reader.

Having spent some time in the market interacting with various estate agents and agencies, in an effort to better understand some of the challenges the industry is posed with. I noticed that there is a common challenge amongst agents in the securing of sole mandates. I myself needed to understand a little better why sole mandates are important and whether there is in fact any benefit to the seller and agent to enter such an agreement.

I initially found plenty of information from both seller and agent as to the reasons for or against signing a sole mandate, what I did not find is a neutral view listing the pros and cons.  My intention here is to provide a neutral view of the benefits and risks associated with a sole mandate and leave it up to you, the reader to decide which is better.  

What does an estate agent do?

In order to better understand the benefits of a sole or open mandate, it is important to better understand what value an estate agent brings to the transaction first.

They:

·         Help the seller establish a fair market value for the property. This is usually done through local knowledge of the area and properties recently sold that are similar in size and setting. There are also information platforms they have access to that can help guide the seller with historical sales in the area.

o    A good agent will present this information to the seller when pitching his/her sale.

·         Have access to a wide network of potential buyers.

·         Have knowledge of the current market conditions, which help guide the seller with expectations.

·         Manage the offers presented and sift through opportunities presented.

·         Manage the contractual aspects of the offers.

·         Help negotiate and conclude the sale.

·         Work closely with the transferring attorneys and track the registration process.

·         Act as intermediary between buyer and seller.

 Assuming the above would be carried out by an agent irrespective of the type of mandate sold makes it very difficult on the surface to see why anyone would consider signing a sole mandate. There is however differences in the way each task is carried out. Taking into account that a mandate is only relevant to everything prior to concluding the sale, a closer look at the nuances within the sales process is needed.

Open Mandates……

An open mandate allows the seller the freedom to list with more than one agency and market the property all over. One can also sell privately by listing the property yourself on websites and property portals that can facilitate online sales, saving the estate agents commission in the process. In fact there are agencies that operate on lower commissions and will list your property free of charge on line. Naturally when the property does sell, there is still commission that’s payable. Whilst this may seem like a relatively easy process, one must consider the impact of trying to sell privately and factor in the time constraints and challenges posed when trying to balance work and sell you property  or sell through more than one agent.

The risk of being exposed to a double commission claim could arise as the buyer purchasing your property could have been to your property more than once with two different agents. Who gets the commission, agent1 or agent 2? This is a very real risk considering that agents all pull from the same pool of buyers in the market.

Selling a property is a stressful process at the best of times and listing with more than one agency means collating show house days and scheduling visits with potential buyers after hours. Who gets preference? Agents will also not aggressively market a property where they are not guaranteed a fair chance to sell, ultimately derailing the thought that an open mandate should introduce more buyers.

With more than one agency marketing the property, one could expect more than one selling price being advertised. A buyer shown the same property with two different selling prices could jeopardize the opportunity to secure the best selling price upfront. Not to mention the fact that an incorrectly priced property will sit for longer on the market resulting in more costs and possibly less buyers showing up. The current national average time a property spends on the market is around 15.4 weeks. The longer a property spends on the market the less attractive the selling price becomes.

There is also the varied final product being advertised, no agency will market the same property in the same way. This would result in varied photo’s of your property appearing in the back end of the property paper as no agency will carry the financial risk of a glossy advertising campaign with color photo’s on the front page, if there is no sole mandate in place.

There is also the risk of buyers offering less on the property if there is no agent’s commission payable.

Sole Mandates…….

One of the most difficult things to do when trying to sell privately is effectively marketing the property to a large network of potential buyers. A sole mandate contractually ensures that the agency and the agent will do everything possible to market the property effectively.  Glossy colour front page advertising, window display advertising and wide network advertising are some of the benefits a sole mandate could bring once signed.

The agency and agent should also position the property with other agents and their networks, the difference with a sole mandate is the agent can negotiate the best selling price based on what’s on offer and maximize the opportunities presented, whereas an open mandate could result in the agents trying to undercut each other to close the sale.

Some of the benefits on a sole mandate are:

·         Diary and time allocations become easier as there is only one agent to deal with. One would not have to try and slot all agents in to show house days and after hour visits.

·         Advertising becomes a priority and the property gets the advertising space it deserves.

·         The safety and security aspect is limited to the seller and the agent only.

·         The agent keeps the seller updated weekly on the progress being made.

·         Price negotiation is filtered through the agent and the selling price maximized.

·         No risk of varied selling prices being advertised.

·         Double commission claim can be easily avoided.

·         Sole mandates often achieve higher selling prices through competitive price negotiations.

Whilst the option of selling privately or choosing the  sole or open mandate route remains with the seller and careful consideration should be given to all options, Based on my research and taking into account the above mentioned information,  it would seem that a well informed agent with a strong network are key to a successful sale, If this is the case, then platforms like Markitshare ( www.Markitshare.co.za) which allow agents access to a larger network coupled with up to date information and cutting edge technology, to help secure that elusive sole mandate  are perhaps the route to go.

There is always the risk of signing a sole mandate with a weak agent, ultimately impacting on how your property is marketed, that should be picked up in the way the agent pitches the sale. Before deciding which route to go, give the agent the opportunity to present their marketing plan and CV. Previous successes are an indicator of the agent’s ability to sell well and the sales pitch will help determine the agent’s competency.

Securing a sole mandate is a tough ask, Consumers are more informed today than ever before, with all  the information and technology at their disposal, this could be the next generation of securing sole mandates and selling property…..the ultimate decision however, remains with the seller and how impressed they are with the agent positioning the sale…

PROPERTY BAROMETER – being a responsible spender...

How can I avoid a poor credit score?

28 November 2012

Dear Reader.

It’s hard to believe that the festive season is once again upon us.  Considering the current economic climate, coupled with the expected increase in household expenditure over the festive season, It may be best to heed caution in the coming months. I am hoping you will find value in my thoughts on festive season spending and the risks of not managing one’s spending going into the New Year.

In order to best understand what possible pitfalls exist on the lending side, it requires a better understanding of the credit scoring environment and how to avoid being caught unaware when applying for credit.

                                           
Consumer health….

Consumers are unfortunately not all in great financial shape, and it may take some time before we see á strong household sector financial position. The Reserve Bank shows the household debt to disposable income ratio rising again, encouraged by interest rates at a 40 year low, and utility bills are on the up. Household disposable income growth is coming under pressure in a weak economy, potentially running the risk of overexposure on short term debt whilst net savings rates (gross saving minus provision for depreciation on fixed assets) remain at zero. While a bank has a duty to try to lend responsibly, ultimately it is the consumers’ responsibility to make the right decisions and manage their finances appropriately. Hopefully this article will help give some insight into what can be done to improve the chances of getting that elusive loan.

 The National Credit Act….
One of the fundamental shifts in how credit agreements are assessed, since July 2007 with the introduction of the National Credit Act, requires a credit provider to consider all existing credit agreements already in place with a loan applicant. When a client applies for credit, the lender must be able to prove that it was prudent in its decision making, and has taken all existing debt into consideration before granting the additional credit. The credit provider must show that it did not place the client in a position where he could not service all their debt at the time of granting the loan. In the past, exposure at other lending institutions was not all taken into account, potentially resulting in a “rob Peter to pay Paul” scenario. 

It’s not only all existing debt that needs to be taken into account Living expenses are also a factor. Income and expenditure forms have been around for a long time, but unfortunately the importance of this document is understated. The impact of a client declaring incorrect expenditure places him at risk, as the document is a legal and binding declaration. The risk of reneging on an agreement after completing an income and expenditure form showing sufficient surplus income, could result in your credibility as a client coming into question should the credit provider need to quantify its decision in court.

Taking into account the amount of work required to investigate a client’s current exposure, how they service these commitments and the monthly installments required, credit bureaus play a vital role in assisting credit providers with the insight needed to grant or decline an application. The checks and balances required when assessing an application have increased substantially, and relying on an individual to sift through all of the information would result in credit applications taking far longer than they currently do.

What Credit Bureaus reflect…

It is for these reasons that scoring models and automated score cards are used to sift through the volumes of applications. One of the common unfortunate casualties of adopting a scoring model is the risk of a client not having any credit history at all. Hence the adage “you need credit to get credit.” That being said, insurance companies, cell phone companies and even Telkom accounts help in creating a credit score, as the companies update the bureaus with the payment behavior and how well the accounts are serviced. How else would a credit provider ascertain the ability to service debt responsibly and take comfort in the idea that their debt will be paid on time? The converse applies as well, having numerous  limits available, even if  paid up, doesn’t necessarily reflect as a positive., the risk of lending to a client that has too much credit available, even if it’s not being utilized, could result in the client being overexposed if they exercise their  right to access these limits.

As with anything, all good things must be done in moderation, and consumers are required to act more responsibly when taking on any form of debt. Gone are the days when it was acceptable to pay accounts in alternating months. Even paying late reflects negatively. The onus is on the consumer to be responsible and pay the full amount required, and on time. Due to the complexities within scoring models and the permutations that exist, it’s not as simple as paying all your debt on time that will get you a good credit score. To illustrate the point I have simplified an example below.

Clients A and B apply for the same loan amount, they earn the same income, they have the same qualifications and have the same retail limits. Client A pays his accounts religiously and never misses a payment date, Client B pays every  month as well but doesn’t always pay the full amount, client B pays some on time and the balance a week or two later,  bringing his payment profile up to date within the same month. Chances are strong Client A will get a better deal from the bank and possibly more credit than client B, because he services his debt in line with what was agreed to. When entering into debt that requires a monthly minimum to be paid by a certain date, it is vitally important to pay the minimum or more and never less, and on time. If the payments are erratic and not paid on time, it immediately raises the question of being able to service more debt, if you cannot manage what you already have.

Understanding and Managing the outcome….

 Given the stringent lending requirements when granting long term credit, as in the case of a home loan , the need to make sure that all debt is considered, and that the bank is aware of all exposure, would take a lifetime for an individual to investigate. It is for this reason that credit scoring systems have become such an integral part of lending sector. 

Credit scoring models serve two primary purposes.

a)       They help calculate a client’s propensity to default. In other words, they help calculate the likely hood of a client not paying the loan back on time and or defaulting on the agreement.

b)       They aid in gaining insight into the client’s payment behavior and current exposure.

Considering the upcoming festive season and the temptation to use those credit cards and retail accounts, we must consider the impact of our actions if we are going to apply for credit in the New Year. If buying a home is on the cards, racking up short term credit over Christmas may well stand in your way. Below are some pointers on what to do, irrespective of the time of the year, but, more so now given the hype and temptations.

·         It is important to keep the amount of debt or short term commitments to a minimum. Clothing accounts, personal loans, overdrafts, credit cards and vehicle finance can erode the amount you could qualify for and it would be best to manage these down. Having a facility available but not closing it still means the credit is available and would need to be considered when applying for more. It is best to cancel or close unnecessary accounts if not being used.

·         Do not merely accept the annual limit increases on store accounts or credit cards due to being a “good client”, they can detract from the amount you qualify for.

·          Pay your monthly accounts on the due dates; do not skip payments from month to month. If an account is due on the 25th of the month, do not pay the account late as this will affect your credit rating. Pay on time. If the minimum amount required is R500, pay the R500 and not less as this will reflect as a part payment and detract from your overall consumer score.

·         Whilst it is important to shop around and make sure you’re getting the best deal upfront, be aware of the number of credit checks done on your profile. This indicates a need for credit and detracts from your overall credit score.

·         As far as possible avoid standing surety for others. This is considered when raising finance for your own purposes, and will affect the amount you qualify for.

·         Pay your salary into an account monthly to build up a credit score with your bank. Try not to use everything up all the time, and in so doing continuously be running your account on the minimum balance monthly. This too is an indication that cash flow is tight and extra expenses could be a problem.

·         Don’t overdraw your account. Constant overdrawing of your account shows insufficient cash flow which could raise the question about how you plan on servicing new debt if you can’t manage what is already there.

·         Having a savings account is always a good thing: it shows there is extra money available every month and indicates a prudent approach to managing your finance.

Whilst the temptation exists to extend the credit card and spend a little extra over the coming months, a cautious approach to overspending may help avoid a post holiday hangover that could end up being far worse than initially thought. Credit scoring and score cards have been around since the late 1800’s and continue to evolve. Understanding the impact of one’s behavior  on your own scoring may well help secure that dream home in the new year…..let’s not only be safe this December, but prudent as well…

Regards,