The objective of this step is to learn how to do the property deal, how to structure your offer and how to conclude the deal while avoiding some of the pitfalls along the way .
Knowing your estate agent.
It is a relatively little known, yet obvious fact that all agents are not equal! It is imperative that the investor establishes whether the agent is a “seller’s agent” or a “buyer’s agent”. I use inverted commas because technically speaking the agent works for the seller and is therefore by definition the seller’s agent.
However, when agents establish their mandate to sell the property, they tend to overprice the property to do one of the following;
The “seller’s agent”
This agent presents a high price to the seller in the hopes of obtaining a sole mandate for a long period. He then uses the long sole mandate period to either obtain a higher than market price or beat the seller down to a market related price.
The “buyer’s agent”
This agent is solid gold to the investor. She typically undervalues the property on a short mandate in order to do a quick sale and move on to the next deal.
The offer to purchase
Skillful crafting of an offer to purchase can stand the investor in very good stead.
Try to find out as much about the seller as you can.
Ask the agent,
Why are they selling?
How urgent is the sale?
How long has it been on the market?
Do you know if they have had trouble selling before – sale agreements that have failed?
Often the seller can obsess over the size of a deposit, or the occupational rental or the occupation date and miss the vital thing – PRICE!
Try to tick all the seller’s boxes and make the price the only contentious issue. An investor can do a fantastic deal simply because he (or she) has discovered the seller’s primary goal which could, for example be to move to a new town in order to take up that dream job. The seller will often sacrifice his price for the sake of knowing he has a real deal (a big deposit, with no suspensive conditions or short suspensive bond application period) from a purchaser who wants early occupation and is willing to pay a reasonable occupational rental.
The vital elements of a typical offer.
Get the property description right – a copy of the rates account and levy statement will reflect the correct name. It is important to note that the door number and the section number are not necessarily the same. The term “unit” is often used interchangeably with door number and section number. For example, unit 2 can mean either door number 2 or section 2, and these can be very different. Be specific and if you are not sure of the section number, write the words “door number 2, complex name” on your offer.
Price and deposit
The price is conventionally made up of a price that is payable by means of a deposit soon after the offer is made and the balance of the purchase price that is paid by means of bond finance. Always pay the deposit into the transferring attorney’s trust account, to be released to the seller on transfer. NOT BEFORE!
One should be able to obtain an “in principle” decision from the bank within 2 weeks of your application. “In principle” generally means that the bank approves your affordability and credit record, but needs to ensure for themselves that the value of the property is correct and that there aren’t any other “funnies” that could negatively impact the loan. A corporate in financial trouble is one such item that they will check.
Note that bond finance is one of the many safety nets available to you, the investor. If in a rush of emotional enthusiasm, you have overpaid for the property, the banks may refuse your finance.
The most common suspensive condition is a purchase, subject to an “in priniciple” acceptance of bond finance of, say R 600 000 obtained within 14 days of acceptance of the offer by the seller.
This would mean that the purchaser has 14 days to secure bond finance. If finance is refused, the deal does not become a sales contract and all deposits paid are refunded to the purchaser without deduction, unless of course it is stated in writing in the contract that the deposit paid can be retained, in part or entirely, by the seller or agent.
As mentioned in the mentioned in Step 3 of this course, use your investment coach to assist with your first few sale agreements. Resist the urge to bow to the agent’s pressure and “just do the deal”. Take the completed agreement and run it by your coach.
If you don’t have a personal coach then an investment club like the Organic Growth Investors Club can be invaluable.
Organic Growth Investors club provide the following coaching assistance when you buy;
A – Organic Growth assisted sale
The club member sources their own property and may request that Organic Growth assists with their acquisition and the negotiation of a property deal.
B – Organic Growth due diligence service
If the investor purchases a property with sufficient suspensive conditions, she can then ask the club to do a due diligence on the property. The property would have been purchased subject to various conditions (e.g. subject to bond approval, viewing, or a due diligence period of 1 week).
The services included in this due diligence will include:
1) A video of the complex,
2) A video of the property, providing an opinion on the general condition of the
property and highlighting any special features and visible defects.
3) Organic Growth will inspect, assess and give opinion on the following documents:
Lease agreement (if any)
Levy and rates accounts
The body corporate financials
4) They will provide market related estimate of the value of the property
5) They will also provide an estimate of the market related rental for the property.
Avoid this advice on coaching at your peril!
We have seen investors make elementary mistakes that cost them many thousands of rands. These are mistakes that could very easily be avoided by the involvement of your property coach.
An experienced property investor knows the answers to many of the questions you don’t even know to ask. He will also see potential problems or advantages when the inexperienced investor does not even know that they exist!
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