Guiding consumers since 2009

Should you award an estate agent a sole mandate?

By Staff Writer
By Angelique Ruzicka, editor, Justmoney.co.za

 
If you want to sell your home through an estate agent, they generally want to be awarded sole and exclusive mandates. This means that they want to be the only ones selling your home. No other estate agent can sell the home and if you sign an exclusive mandate it means that even the owner (seller) will not have the right to sell the property without still paying the estate agent’s commission.


Additionally the seller is also agreeing to allow the agent to handle all the legalities involved in a property sales transaction.

 
Sellers do have the option of choosing an open mandate, which means that a number of agents may be working to find a suitable buyer for the property, but estate agents argue that this is the wrong approach.

 
One of their main arguments is that using a sole agency allows buyers to compete on the property, thereby maximising the realised selling price because of a fear of loss between buyers. They say that on an open mandate agents compete, thereby compromising price. 

 
They also point out that having an open mandate could lead to commission disputes. This means you may have more than one agent claiming that a buyer came as a result of their marketing. Hire more than one agent and you could be compromising on security with multiple agents having access to your property they add.

 
Pam Golding explains how having agents compete to sell your home could backfire. “When a number of agents are vying to close a sale on a property, they will want to do so before another agent does.  This is where another myth comes to mind, that competing agents will close the deal quicker. This is fundamentally flawed by the fact that in haste these agents will ‘throw’ as many buyers at the property as quickly as possible, hoping one will ‘stick’ before one via another agent. These buyers are often unqualified and are probably likely to offer a price way below that which the seller is realistically asking,” says Howard Markham, national manager – business development for Pam Golding Properties. 

 
Markham may have a point about inconsistent marketing strategies and agents racing to the seller with any offers. But what happens if you do your home work and appoint two or three professional agents that have a good reputation and record in selling properties? Surely that then makes their argument moot? Or do agents suddenly become ‘unprofessional’ as soon as they are awarded an open mandate?

 
While agents would then say “Of course not” some of their marketing literature proves otherwise. One brochure I came across categorically states that open mandates get relegated to the bottom of the priority list. One agency admits that their agents aren’t performance managed on open mandates. 

 
So essentially, some in the industry are admitting to having a ‘devil-may-care-attitude’ on open mandates. This, in my view, is like holding the consumer to ransom because the way it translates to me is: “Give me exclusive rights and I will put all the effort in, but open it up and I won’t put in the effort because I may lose out on commission.” 

 
Hardly comes across as professional – does it? Whatever happened to some friendly competition? Generally, competition is a good thing in any industry so why are estate agents fighting so hard not to show each other up in an even fight? 

 
I get it; estate agents want to protect themselves. And they don’t want to be put in a situation where a person that they introduced via their marketing efforts makes an under-the-table offer to the seller and seller dumps the estate agent mid-term to make a saving on the commission which can be as high as 9% of the selling price. 
 
 
But how many people would resort to this if the estate agent was doing their job in the first place? What also doesn’t sit well with me is that if a seller does manage to sell their home privately that the estate agent still gets his commission if it’s sold within the contract term. In my view, I think it’s only fair that if a seller were to find the buyer the estate should not get a cut. 
 
 
What I also don’t like is that even if you are unhappy with the service you are getting some contracts are written in such a way that commission still applies if sell the property after you cancel the agreement mid-term. Contracts generally last three months. 
 
 
It’s hardly fair if you aren’t happy with the service. While the Consumer Protection Act does give you protection if you are not getting good service it could still all result in a messy dispute. One you’d like to avoid, particularly if you want to sell your home quickly.
 
 
So what’s the answer? Ask around and estate agents are loathe to tell you about any benefits to an open mandate. But a law professional was willing to give us his view. Marius De Jager a director at law firm Van der Spuy & Partners is hesitant about sole mandates. “You are limiting the number of people trying to sell your house. You are giving one an exclusive mandate and everyone must stand outside. Why do it this way? My natural inclination is to make it as wide as possible.”
 
 
When presented with the estate agent’s reasons for sole mandates being awarded he adds: “These counter arguments are not entirely groundless. But on the other hand if an estate agent knows they are the only ones selling the property they know they don’t have to go through a lot of trouble because they have this exclusive mandate.”
 
 
He points out it may become difficult to get out of a sole mandate, especially if the contract has been in place for a while. “You can’t just say sorry I don’t like you anymore and terminate the contract because they will insist of getting their share of their commission. The seller could be in a highly insidious situation.”
 
 
He adds: “I would be very loathe to give a sole mandate – perhaps for a month or a short period of time if I can see the estate agent is doing their work. Then if the work is good you can extend it.”

 
If you do decide to award an estate agent a sole mandate De Jager’s advice is to read the contract carefully. “People just want to get it over and done with and some estate agents just tell the seller what they want to hear,” he warns.

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