Beware hidden defects when buying that ‘bargain’ property

urrent conditions in the property market are causing some sub-standard properties to come onto the market as sellers come under pressure to discard unwise investment properties or they find themselves under cost constraints due to less disposable income.

Gerhard Kotzé, CEO of the ERA South Africa property group says that while the present market offers real opportunities for investors, buyers should be careful to avoid sub-standard properties.

“In fact in a classic buyers’ market such as prevails right now, investors are in a position to be particularly discerning with a view to realising good profits when the market turns.

“However while some pressured, cash strapped sellers are not preparing their homes well for sale, a minority of desperate sellers are seemingly giving their properties the proverbial ‘lick and a promise’ and are hiding defects.”

The possible outcome, he says, is that buyers who quite rightly perceive opportunities in current conditions to realise good profits down the line, are in danger of being lumbered with fixer-upper jobs that could considerably erode the profit potential of what would otherwise be a good medium-term property investment.

It has to be remembered, he points out, that the voetstoots clause with which most South Africans are familiar and which relates to buying a property ‘as is’,
is not compulsory for buyers and can in fact be written out of an Agreement of Sale.

“The voetstoots clause is commonly used as a defence by the seller should a defect on the property be discovered post-sale and the new owner then has to prove the defect was knowingly hidden.

“While there is nothing fundamentally flawed in the voetstoots clause, if accepted by the buyer, it does nonetheless place the onus on that buyer to ensure that the property is in good condition or, if not, that all defects have been declared and a price agreed accordingly.

“If however the property is sold at a price that does not take into account hidden defects, the buyer could be overpaying. The solution is to have an independent inspection of the property carried out and not merely to rely on a bank inspector’s assessment, which, typically, is based mainly on financial considerations as part of the bond approval process.”
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