Selling fixed property often means selling your most valuable of assets, the process can seem daunting and there are many variables to take into consideration which can ultimately affect the net proceeds of your sale.
Whether your property is residential or commercial you need to understand where the market is in general. What state is the economy in? is there a positive outlook generally or are people more apprehensive when it comes to investment? What is the political environment like, are there elections approaching? Are people waiting to see what happens or are they progressing with their plans regardless? Is it generally a buyers’ market or sellers’ market?
The most important consideration. Do you have a price you hope to achieve and is it realistic? The property can be valued by an estate agent or by a registered valuer. Estate agents are not allowed to give formal valuations, only an estimate of value based on recent sales of properties in an area. Whilst registered valuers use the same method their valuation is more credible and substantiated because of their formal education and training. Agents may be specialists in an area but not in the field of valuation as such. A registered valuer will charge a fee and compile an in-depth document which has to be neutral and fact based whereas an agent may value the property at a higher price in order to secure a mandate on the property, only not to achieve that price later. Commercial properties are mostly valued based on the income capitalisation method which takes into consideration the amount of income the property generates as opposed to comparing similar sales in an area. Once again these can be obtained from an agent or a registered valuer.
Choosing an Agent
If you have decided to sell the property through the use of an agent then you need to select an agent, or agents. It is advisable to use an agent that is active in your area, or even better, comes recommended by other sellers in your area. You will want to know what sales they have recently been involved in and how long they have been involved in the area. You can also query their qualifications and make sure they are registered with the Property Practitioners Regulatory Authority, formerly known as the EAAB or Estate Agents Affairs Board. Newly appointed agents are registered as ‘candidate state agents’ and are not fully qualified agents. They are not allowed to complete an offer to purchase without the supervision of a fully qualified agent and their responsibilities are limited until they qualify as full status agents. Know who you are dealing with.
Type of Mandate
Once you have selected an agent, or agents to work with, you need to decide on the type of mandate you are prepared to commit to. An open mandate means that you are prepared to work with as many or as few agents as you like and whoever brings you an offer that you are comfortable at an acceptable price will get the deal and earn the commission. These don’t generally need to be in writing but it is always preferable to have a written agreement. A sole mandate is when you agree to work with a specific agency exclusively. This means that they are the only agents allowed to market and sell the property. The sole mandate must be in writing with the terms and conditions disclosed including how long the mandate will run for, the sales prices as well as the agreed commission. With a sole mandate the owner can still sell the property in their own capacity to their network or colleague. HOWEVER if the seller agrees to a sole and exclusive mandate with an agency, the property can only be sold with that agency, even if it is to a buyer brought by the seller themselves. READ the mandate thoroughly and ask for a copy afterwards for your records.
There is no set commission or tariff when it comes to selling fixed property in South Africa. It generally ranges between 3 and 7.5% plus VAT. You as the owner are entitled to negotiate the commission with the agency upfront or based on the offer that is delivered to you. Commission is paid by the seller from the proceeds of the sale and only once the property has registered into the buyer’s name. Should an agent not hold a valid fidelity fund certificate as issued by the PPRA then NO commission is payable. The agency, principal and all agents all need to hold valid fidelity find certificates in order to qualify for commission.
Acceptance of Offer
All offers that are presented to you need to be scrutinised and understood completely before being agreed to, especially any special or suspensive conditions. An example of which is the buyer’s ability to raise a mortgage bond. If they cannot get finance from an acceptable bank then there is no deal. So factors too look out for are deposit amount, how much deposit can the purchaser afford to put down? Generally banks favour a higher deposit. How long is the purchaser asking for in terms of being able to raise finance? Once you sign the offer to purchase you cannot accept any offers until that period has lapsed and you may be held to a long time period only for the purchaser not to be able to get finance, at which stage your other buyer or buyers may have found alternative properties. A purchaser with a preapproval carries more weight in this situation as their ability to raise the finance may well be higher. Cash offers carry the least risk but they can often be at a lower offering price so you need to weigh up the pros and cons of each offer at face value. If a sale is subject to the sale of the buyers existing property then this can also hold up the process for a lengthy period of time.
It is important to note that appointment of the conveyancing attorney is by law at the choice of the SELLER. Estate agents are not supposed to select or suggest an attorney and an offer to purchase should NOT be presented to a seller with an appointed conveyancing attorney unless the seller has appointed this attorney. A purchaser may want to appoint their own attorney as per the terms and conditions presented in the offer but is up to the seller as to whether to accept these terms. In which case it should be queried as to why they want to appoint their own attorney? Are the appointed attorneys qualified conveyancers? The transfer process is complicated process and can take a long time if not handled correctly as there are various steps that all need to be completed properly before transfer can happen. The cost of the attorney is for the purchaser’s account as well as any costs of transfer.
Electrical Clearance Certificate
The law requires that before a property can register an Electrical Clearance Certificate needs to be issued by the seller which confirms that the electrical installation is safe. If there is an electric fence on the property then an Electric Fence Certificate of Compliance also needs to be issued.
The Sales Process
Once an offer has been accepted by the seller and a conveyancing attorney appointed then the first step is to gather all the necessary FICA documents and secure the purchase price. Deposits should be held in a trust account by the appointed attorneys. Once the bond has been secured then attorneys will arrange for the title deed to the property and check if there is an existing bond on the property that needs to be cancelled. The bond documents need to be drafted and signed by the purchaser. The deed of sale needs to be drafted and signed by both the seller and the purchaser. The attorneys will request guarantees from the bank which in essence means that the purchase prices has been secured so that as soon as the property is registered, the guarantees can be released for the payment of the property and the commission. Before the property can be transferred there needs to be an application to the council for a rates clearance certificate. This means that municipal charges are paid upfront by the seller so that when the property transfers there is no amount owing, this is normally an upfront payment for a few months and if there is any surplus at the time of transfer then these monies are refunded to the seller. A clearance certificate is only valid for a certain amount of time and if it expires during the process then a new application and payment has to be made. These are the types of obstacles that can slow down the transfer process. If the property is sectional title then a levy clearance also needs to be applied for. Once all the documentation is in place and all the monies are secured then the deed is lodged at the relevant deeds office in order to be registered. Everything is checked by the invigilators and if everything is in place then the deed goes up for prep and is then registered. Should anything be missing or incomplete then the deed is sent back to the attorney and needs to be relodged. Once again this is why the whole process needs to be attended to properly in order to prevent unnecessary delays.
Transfer Duty, VAT, and Zero Rating
Existing residential properties over R1 100 000 as of 2023 attract transfer duty as per the South African Revenue Service. New residential or commercial developments may offer no transfer duty based on the fact that the developer is charging VAT instead of transfer duty and only one can be payable, not both. Commercial properties normally attract VAT at the relevant rate, and not transfer duty. In certain instances for the sale of a commercial property an application for a zero rating can be made to SARS provided that certain criteria are met, including that both the buyer and seller are registered for VAT, that the property is a going concern at the time of sale where there is an existing lease in place with rental being paid. It is entirely up to SARS as to whether they deem the payment of VAT at the zero rate or not and if they deem it a Vatable transaction then the full VAT amount must be paid by the seller who can claim some or all of the VAT back as per their VAT payment cycle.
We have written this article in the interests of transparency because we, as agents, have encountered many preventable negative situations purely because of a lack of information and education where clients are concerned. All parties need to be aware of and understand their rights and obligations and the potential consequences involved in the sale of fixed property. The most important consideration is to READ ALL THE PAPERWORK AND FINE PRINT BEFORE SIGNING ANY MANDATES OR OFFERS TO PURCHASE.
If you have any queries relating to the sale of your industrial property then please contact us.