housedeedIn his latest book “The End of Lawyers?” legal IT guru Richard Susskind speaks of the inevitable movement from bespoke work to commoditisation. Susskind cites the 5 stages as Bespoke, Standardised, Systematised, Packaged, and Commoditised. Conveyancing is a typical example of a service on its way to being commoditised.

Sure, it is overseen by a conveyancer, but generally it is the paralegals that do the work. In South Africa, the rigorous process of property transfer has prevented conveyancing from being deregulated, although there were attempts to wrest conveyancing from the profession a few years ago. Of course, in the current recession law firms are less worried about deregulation than they would have been two to three years ago, when conveyancing was a major contributor of fees for many practices. But as property slowly regains momentum, it is worth assessing whether conveyancing will continue to be worthwhile for law firms, and indeed whether conveyancing will continue to be reserved for the legal profession.

As we have seen over the years, change doesn’t happen easily. Having said that, there are 7 potential factors that could drive change in Conveyancing:

1. The first modifier will be that banks will steer almost all of their work to empowered law firms. They have certainly been speaking about this for long enough, but with the slowdown they are actively starting to implement this strategy. So for non-BEE firms, they may find bank work drying up, if it hasn’t already.
2. Banks are also limiting their panels, whereas in the past it was near impossible to do so because property developers and originators dictated which firms would do their conveyancing. But now that the banks have the upper hand once again, they are trimming their panels substantially.
3. Banks are also starting to take control of their own bank-critical mortgage documentation which was previously produced by conveyancing software vendors. In time, banks may take this one step further where they bring mortgage document production in-house entirely. For a long time now banks have been unhappy with their lack of control of the conveyancing documentation, and by doing this themselves, they will be better placed to manage all aspects of mortgage registration.
4. Previously, mortgage originators and large estate agencies fought hard for deregulation so they could get into the lucrative conveyancing market. However, post recession, mortgage originators and large estate agents have lost their clout, and banks have seized back control of their destinies. But, given the reduced commissions being earned by originators, they may well renew their call for deregulation once the property market picks up.
5. The Deeds Office has been talking about the electronic registration of Deeds for many years now, but 18 months ago it finally looked like some real progress was being made. Unfortunately, the economy faltered, and the Deeds Office found itself short of funding to develop the e-DRS system. Of course, there are many who argue that it is unlikely that we will see an electronic registration system in South Africa for many years to come, but if and when it does happen it is going to greatly simplify the registration process, since data will be registered – and not documents. This will mean that there will be substantially less for the conveyancers to do.
6. The recession has also caused a restructure in many of the larger firms who were mainly focused on conveyancing. As a result, a number of lawyers elected (or were pushed) to go out on their own. As the property market comes back, it is likely that these new breakaways will vie strongly for a share of the transfers market. More importantly, it is also likely that they will be prepared to discount their services since they will have lower overheads than their larger counterparts, and they will also be hungrier. This competition will significantly reduce the profit margin from conveyancing, to the point where many of the established firms will think twice before chasing the conveyancing market again.
7. The other aspect that will affect the conveyancing market is the establishment of ‘factories’ – law firms or vendors providing back office processing. In the case of law firms, they’ll need big volumes in order to survive, and will either look to win this business themselves (at a discount), or will provide a processing service for law firms who are prepared to outsource their conveyancing. Either way, this will remove some of the profitability associated with conveyancing.

Of course, having said all of this, apathy and fear of change may mean that things remain as they are for a long time to come. Electronic registration could continue to be on the back-burner, until something changes which forces the introduction of electronic registration. Banks might be content not to incur the costs of doing their own conveyancing, and perhaps conveyancers might realise that creating a price war (again) is not the way to go. But as Susskind says, there will always be a slow and inexorable move towards commoditisation. And commoditisation appears to have conveyancing firmly in its sights.

Contributed by:
Chris Pearson
O2Smart Group of Companies
Also available in their December 2009 newsletter

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