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5 days 13 hours ago

Picture: Berry Everitt, CEO Chas Everitt International Property Group; Susan Watts, broker/manager RE/MAX Living; Nomsa Nene, principal Nomsa Nene Properties; Gerhard Kotze, managing director RealNet estate agency group

Do estate agents sometimes act as if they want to control the entire property transaction process, including that of the legal practitioner?

Recently the founder of 3%.Com, Maartens Heynike, wrote in the SA Attorneys’ Journal De Rebus that it appears to him as if the real estate industry is under the misconception that they can “control the entire supply chain in a property transaction. That is from accepting a mandate, to finally paying the proceeds of the sale to the seller, including the role of the legal practitioner”. He wrote this with reference to a newly formed company Proxi Smart Services whose application to provide conveyancing services was recently denied in court.

The legal profession has been involved in the selling of immovable property for generations. However, gradually conveyancers started to rely on estate agents for conveyancing mandates and according to Heynike this created “a perfect storm for a dangerous and unethical relationship between the legal practitioner and estate agent”. Estate agents are legally bound to inform sellers that they have the prerogative who they want to appoint as conveyancer but Heynike says what happens more often is that the clients follow the agent’s lead on which legal practitioner to use because of the relationship of trust that has been built. This state of affairs has opened the way for a situation where legal firms ‘woo’ estate agencies with gifts, free lunches even holidays to get conveyancing mandates.

Of further concern to him is that, according to the new Property Practitioners Act, law firms will not be allowed to handle the transfers of properties they have sold. Concerned about the potential threat this poses to attorneys whether they are acting as estate agents or not, Heynike advocates that these proposed legal limitations should be addressed before the new Act comes into effect. According to Heynike it is in the public’s best interest to use conveyancers to sell their property rather than estate agents. He bases this on the premise that the latter has the legal expertise to better advise the seller at a lower cost than the average commission charged by an estate agent. Also, that legal practitioners are in a better position to train candidate estate agents from previously disadvantaged backgrounds and thus speed up the transformation of the sector.

The local real estate sector naturally does not agree.

Both have vital roles to play

 Law practitioners and estate agents are trained and equipped with two very different sets of skills that complement each other but the one can’t replace the other. Susan Watts, broker/manager of RE/MAX Living compares the process of selling a property to a complex machine with many moving parts that each have a vital role to play for the machine to function properly and removing a part would lead to a less efficient and defective machine. “I see the roles of conveyancers and property practitioners in much the same way,” she says. Nomsa Nene, principal of Nomsa Nene Properties says each of the two parties brings knowledge and expertise from their respective fields of study, so they are supposed to work together.

Real estate requires a special set of skills

 Marketing skills – Selling a home for the right price in the shortest possible time does not simply happen overnight. Estate agents spend a lot of time and resources on marketing as one of their core functions where-as attorneys are not especially well known for marketing, comments Berry Everitt, CEO of Chas Everitt International property group. There are many tools that estate agents use to market a home. In addition to their database of buyers, this includes targeted social media campaigns, home staging, networking with other industry players and other agents to make use of their databases. “Effectively, property practitioners are marketing professionals with the technical skills to attract as many buyers as possible and then conclude the contract while negotiating between two parties who want exactly opposite things (a skill in itself),” explains Watts.

Everitt adds that it also concerns him “that some attorneys may only want to get into real estate in order to bolster a struggling conveyancing business rather than to achieve the best results possible for their customers”. However, he says, real estate is still very much a field in which individual relationships carry a lot of weight, “and there may well be instances where an excellent relationship between an attorney and client makes the attorney the natural choice to sell the client’s property”.

Interpersonal skills – For many sellers selling their home is often a highly emotional experience due to all the memories it represents. A special set of interpersonal skills are required to price counsel a seller correctly that legal practitioners usually won’t acquire in their normal day-to-day work life, according to Daniel Hersch, co-operating principal of Adrienne Hersch Properties. Himself both a qualified legal practitioner as well as a qualified property practitioner, he understands the demands made on practitioners in both fields. “The ability to correctly price counsel a seller, is quite simply an artform and requires a balance of being able to provide a seller with the necessary information he or she requires to make an informed decision coupled with a particular set of inter-personal skills involving sensitivity, empathy and an appreciation of the human element which with all due respect to my learned colleagues in the legal profession, they do not generally possess or develop,” he says.

Having said that, Hersch adds that he is not saying that every estate agent either understands or possesses these skills or abilities. “The truth is, as with any other professions there those that are good and what they do and those that are not. As such, I am a big believer that the percentage of commission charged by a property practitioner should in all cases be directly linked to the value of service that they provide,” he adds.

2. The commission debate

The so-called ‘high commission’ of especially South African estate agents are often used as an argument why using other real estate players such as conveyancers or fixed-fee agencies will result in substantial cost savings for the seller. However, Gerhard Kotze, managing director of RealNet estate agency group, believes that if the law firm were as fully invested in their real estate business as their conveyancing practice, then the commission of their estate agents would not be cheaper. “Although they may deny it, law firms have generally only seen their entry into real estate as a means to secure a pipeline for their ‘real’ business, which is their conveyancing practice, and have not spent anything like the same amounts on agent acquisition and education, compliance and technology as the better-known agencies”.

Offering to sell a property at a low commission versus actually selling it are two different things agrees Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa. “In most instances it is more lucrative for a conveyancing attorney, having studied for years to achieve an LLB, to focus on their ordinary course of business,” he says.

It should be noted that legal practitioners may not directly employ the services of a real estate agent under their attorney fidelity fund certificate. The legal practitioner would have to register a separate real estate firm under the EAAB should they wish to do so.

With reference to the oft raised criticism that South African estate agents generally ask a higher commission than elsewhere, it is pointed out that the fee is individually negotiable. Depending on the area, it could well range from as low as 3-4% to as high as 10%. Everitt says he believes on average it is lower than 5% which would make the US with 6% currently the country with the highest average commission.

Watts also points out that in the United States there are often two brokers involved in a transaction, one for the seller and one for the buyer, with each broker’s commission paid by their respective clients. “You are simply not comparing apples with apples,” she says. That being said, Hersch says he strongly believes that South Africa should move towards the model followed in the United States as the current one where one broker represents both the seller and the buyer often exposes a conflict of interest with the agent. “If anything, this should be the conversation that we as an industry should be having,” he says.

3. Mentorship requires time and money

The Property Sector Charter Council said last year the local real estate sector has shown progress towards bringing in more black property practitioners, but progress has been slow. Heynike proposes that legal firms could help speed the process up by training real estate interns. However, mentorship of candidate estate agents is labour intensive. Nene has her doubts that legal practitioners will have the time to train estate agents. “The estate agents are the ones that can train and teach candidate estate agents as this is a practical job, she says.

Agencies often call on the expertise of attorneys in specific subjects, such as contracts for example, but Everitt does not believe the legal profession would be able train large numbers of interns. Kotze agrees saying from what they’ve seen it is far more likely that law firms would employ estate agents who are already qualified and rather invest financial resources on training candidate attorneys.

The very nature of the estate agent profession – being able to support oneself financially until the first commission pay-out combined with the cost of acquiring the tools you need to become an estate agent, such as a car, smart phone and a laptop – makes it very hard for candidate agents from disadvantaged backgrounds to enter the profession. Hersch therefore suggests that a financial contribution from the legal profession would perhaps be a far more effective contribution towards the issue of transformation in the real estate industry.

The post Legal practitioners: Attorneys not under ‘attack’ appeared first on Everything Property.

5 days 15 hours ago

With the easy access of available information, comes the risk of misinformation and disinformation sending DIY knowledge-seekers on a wild goose chase.

The property industry is far from immune to the impact of incorrect or misleading information says Schalk van der Merwe, franchisee for the Rawson Properties Helderberg Group. In fact, one of the most vulnerable areas is also one of the most critical to property owners: valuations.

Most people are aware of the importance of keeping an up-to-date and accurate valuation of their properties on hand” he says. “This isn’t just for sales purposes, it is also vital for things like monitoring investment growth, assessing the potential for improvements and making sure you have adequate insurance coverage.

What very few people realise, however, is that there are actually different valuation types and methods designed to give the most useful feedback for each of these cases. Without understanding the difference between these valuations, it is easy to be misled into thinking your property is worth more or less than it actually is on the open market.”

Market value

Market value is the most common valuation type and the one most real estate agents provide to homeowners is an estimation of what a property can be expected to sell for on the open market if it were listed at the time.

It is important to understand that market valuations are an art as much as a science – for the most accurate results, you will want to make sure your real estate agent is not just using automated data. They also need to take their own in-the-field experience of current market activity into account and provide a well-substantiated document that clearly explains where your property fits into the sales landscape” he says.

Replacement value

A property’s replacement value is the amount it would cost to replace both the land and the building materials of comparable quality. This is useful for getting an indication of market dynamics, but it has little to do with the amount a seller can expect to get for their property in a sale (its market value).

When replacement value is much higher than market value – in other words, it would cost more to build a home than to buy an existing one of similar quality, it is a sign that the market is leaning in favour of the buyer” says Van der Merwe. “If replacement value becomes lower than the market value, you can assume the opposite is true and market conditions are favouring sellers. We are definitely experiencing the former with replacement values much higher than market values in most cases.”

Insurance value

This is related to replacement value, but it excludes the cost of the land and it includes the demolition expenses. Essentially, it is what a property owner would need to pay if their home suffered a major fire, for example, and needed to be partially or fully demolished to be rebuilt.

This is a very important value to know to make sure you are adequately insured against a disaster” says Van der Merwe, “but again, it has nothing to do with the market value and it cannot be considered a viable listing price.”

Municipal value

Municipal valuations are, according to Van der Merwe, the least useful – and least accurate valuation type. Conducted by the local municipality, these valuations are entirely automated based on semi-recent sales statistics. They take none of a property’s unique characteristics into account and could be hundreds of thousands of Rand off a realistic market value.

We highly recommend property owners have a market valuation done by their local real estate agent whenever their municipal valuations are updated” says Van der Merwe. “We have managed to save some of our clients thousands of Rand in rates and taxes by helping them appeal inaccurate municipal valuations. I certainly would not suggest basing listing prices off municipal figures unless you want to risk serious under or over-pricing your sale.”

Indexed value

The last common valuation type that a property owner may encounter is the indexed value. This is a useful tool for assessing an investment’s performance but again, it cannot be substituted for market value.

A property’s indexed value is calculated by taking its most recent sales price – what it cost its current owners when they bought it – and then adding the average property inflation to that for each year until the present” he says. “This shows what that property would be worth if it had experienced average price growth over that time. It can then be compared to a current market valuation to see whether the property has matched, over or under performed in the market.”

While all these valuation types have an important role to play, Van der Merwe says knowing the difference is equally vital.

A good real estate agent will not only be able to provide any of these valuation types, they will also make sure you fully understand their different applications” he says. “If you are ever in doubt and your agent is not forthcoming with an explanation, you may want to question their motives and consider finding a new real estate partner.”

5 days 16 hours ago

Sentiment towards global real estate has fallen sharply but the outlook for the Polish logistics sector is proving Covid-19 wrong. Exceptional demand from tenants for space close to urban clusters, growing preference for e-groceries and rethink of supply chains are combining to drive the sector forward according to Poland-focused European Logistics Investment (ELI).

Since 2018, Netherlands based ELI, in which Redefine Properties has a 46.5% equity interest, has developed eight assets with another five under construction and six under due diligence for future development. The company consists of a Polish-focused logistics platform of approximately 527 000m2 of standing assets, 145 000m2 of assets under development and over 1 million sqm of potential development pipeline.

We continue to prioritise efforts and leverage opportunities to expand through the development of well-located assets occupied by high quality tenants. Our strategy is centred on creating a well-diversified and leading Polish logistics platform capitalising on the strong economic and real estate fundamentals in the sector” comments Andrew Konig, CEO of Redefine Properties.

The sector’s buoyancy can be attributed to construction lead times which tend to be relatively short, as well as low capital expenditure. In times of volatility, assets that require smaller capital outlay can be appealing because of their capacity to preserve investor returns.

We see a huge potential in creating a large and diversified portfolio with a good mix between built-to-suit, inner-city, multi-tenanted and single-tenanted developments in prime nodes. Over the next five to seven years, we will be looking to increase our Polish industrial assets to up to 2 million sqm in size and to target €1 billion in gross asset value” says Konig.

Poland is a prime location for the logistics sector due to the country’s position in central Europe. Moreover, it is a liquid real estate market with high investor appeal and producing hard currency free cashflow.” 

Occupier demand in Poland continues to be driven by e-commerce with small warehousing units within the inner-city areas and last mile facilities close to urban centres which are in demand and leads to higher rentals and asset values. Poland is fast becoming a significant logistics hub for international players and it is competitive compared with Western Europe in terms of rental rates and labour costs.  

The industrial sector had its best six months, until June 2020. Twenty deals with a total volume of almost EUR1.2 billion were recorded, mainly driven by large portfolio transactions. Prime warehouse yields stand at 6.25% with quality assets, with long leased assets trading at sub 5.00%, and Warsaw inner city projects at around 5.50%,” says Pieter Prinsloo, Redefine Europe CEO.  

As the popularity of online shopping grows, the demand from occupiers will also increase. During the pandemic, consumers rediscovered the convenience of online shopping, even adding groceries to their checkout baskets. As retailers and logistics firms race to deliver a seamless experience and faster services, demand is likely to rise sharply for light industrial properties near city centres,” 

The sector benefitted from a spike in e-commerce and courier service activity during the Covid-19 period resulting in some tenants taking short-term leases to secure additional space. This was because of many companies holding greater amounts of inventory to buffer their supply-chain responsiveness. 

Poland is also seeing a wave of new businesses wanting to move manufacturing away from Asia and closer to customers in Europe. The supply chain disruptions from Covid-19 is proving to be the biggest motivator. 

 

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