Troubled owners must act quickly
Peter Gilmour of RE/MAX gives HomeFront some insight into distressed property sales taking place around the country
Q AHow is RE/MAX of Southern Africa involved in the distressed property market? RE/MAX of Southern Africa is working with First National Bank, Standard Bank and Nedbank to assist their clients to dispose of the properties they can no longer afford in a timely manner, thereby avoiding the devastating effects of an adverse credit rating.
As chairman of RE/MAX of Southern Africa I head the RE/MAX assisted sales department that manages about 200 distressed sale leads a month. Over the past three years while working for RE/MAX in the US I gained experience in the distressed properties area while working with the Distressed Property Institute and major US banks that faced similar problems to what our banks are experiencing today. Why has the phenomenon of distressed property sales become such a big issue in South African real estate? SA’s financial institutions found out early on that repossessing properties and taking them to auction — which was the traditional way of dealing with a homeowner’s inability to meet bond repayments — was not working as they were achieving less than 50% of the property’s value. Experience has shown SA banks that it is much more beneficial for all parties concerned to create a partnership with real estate professionals who work personally with the homeowners to get the best end result.
For example, Ryno Mey, First National Bank’s (FNB) national quick sell manager, says that the bank’s programme actively offers financially stressed customers a tangible solution in their time of need. This private-sale option enables the customer to sell their property voluntarily in the shortest possible time and allows them to move forward with their lives, clear of a debt burden that they can no longer service. All necessary steps are taken to ensure that the property is marketed and sold in the quickest possible time at the best achievable price, which greatly reduces the time and expenses of the usual recovery processes. How does the distressed property sale process work? Bank-repossessed properties are the result of homeowners continually failing to pay their home-loan instalments to the point where the home loan is cancelled by the financial institution that granted the loan. The repossession process is started when a homeowner defaults on the home loan to such an extent that the only option for recovering the debt is by repossessing the property. A relatively new method of recovering the debt from distressed properties is selling them through reputable estate agents in a distressed sale. Should the bank’s reserve price not be met the bank has the option to buy back the property.
In a distressed situation where homeowners sell their properties for less than the value of their mortgage, the various banks require a percentage of the shortfall to be repaid by the Chairman of RE/MAX of Southern Africa clients.
Properties are only repossessed by the banks when the homeowner continually fails to pay the home loan instalments to the point where the home loan is cancelled by the financial institution. In an effort to assist homeowners who are no longer able to afford their bond repayments the banks are now selling these distressed properties through reputable estate agents for a market-related price.
While the banks’ method of distressed property sales has been successful, homeowners need not wait until they are about to lose their home to sell it through an assisted sale programme.
Homeowners who find themselves in financial difficulty have the option of voluntarily selling their home through the RE/MAX assisted sales department before they are required to do so by the financial institution that holds the bond. A RE/MAX assisted sales counsellor will be able to arrange for the financial institution that holds the bond to enrol the homeowner on the assisted sales programme, where they would then benefit from the discounts and incentives that the various banks’ programmes offer. What is currently happening in the distressed property market? To date the RE/MAX assisted sales department has achieved an average of 80% success on all offers to purchase submitted to the banks on their distressed properties. These properties are sold on average within 30 to 45 days and on average also achieve more than 85% of the asking price.
Our distressed sales leads received from the banks range from properties valued at R200 000 up to homes valued at R3,8m, although most distressed property leads we receive are for homes valued between R700 000 and R2m. To date RE/MAX agents in southern Africa have successfully sold hundreds of distressed properties, which have varied in price from as little as R100 000 to the R4m mark. What is your advice to homeowners? The key for homeowners who see a financial problem coming in the future due to job loss, a reduction in benefits, unforeseen capital expenditure, possible future interest rate rises, a death in the family or any event that would impact heavily on finances, is to contact your financial institution, mortgage broker or a real estate professional to assist you and discuss the options before it is too late. Most people who find themselves in financial difficultly may find this a difficult thing to do as their pride or ego makes them think that the problem will go away. This seldom happens. What is the future for the distressed property market? We anticipate that distressed property sales will to continue to be a reality for the next three to five years. Distressed homeowners should take the opportunity to sell their home and nullify their debt before they get to the point where they could lose it and potentially get a bad credit rating that will affect them for many years to come.
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The RE/MAX of Southern Africa Assisted Sales Department, from left to right: Wrenelle Isaacs, Assisted Sales Counsellor, Mercia de la Cruz, Assisted Sales Counsellor; Faghmieda Mia, Senior Manager Finance; Anthea Johnson, Assisted Sales Counsellor;...
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