Business & Economy

Thursday, 16 April 2009 15:40

Buyer's Benefit of Having Exclusive Representation

{pp}Having assisted hundreds of clients over almost eight years in procuring property finance, we at Property Factor are often astonished at how even the most learned buyers enter into sale agreements without reading or fully understanding the contents of their contracts.

Some buyers believe they are signing a “standard” offer to purchase and simply fail to amend the contract to protect their interests. Others are unaware of their rights as a pertinent party to the transaction. The reason is that the transaction is driven by an agent whose core purpose is to protect the interests of the seller.

This phenomenon, coupled with some of our clients requesting assistance with property negotiations, led us to investigate how business is conducted internationally and why South Africans neglect to exercise their freedom of choice and right to representation. 

But first, let us look at how property transactions happen in South Africa. Sellers mandate an estate agent to market their property. As per the estate agents code of conduct, the seller is the agent’s client and therefore the agent is obliged to:

  • act in utmost good faith towards the seller
  • act in the best interests of the seller
  • sell the property at the highest possible price
  • avoid situations where a conflict of interest may arise
  • not retain any money or obtain a benefit as a result of the transaction, unless agreed to by the seller
  • avoid disclosing any confidential information divulged by the mandated client (the seller)

rovision for the buyer is also made in the code of conduct by stating that an estate agent must act professionally, legally and ethically towards the buyer or possibly face disciplinary action. This merely means showing the buyer the property, disclosing any known defects and assisting the client in completing an offer to purchase.

But to what extent are agents expected to play out this dual role without compromising their integrity to the seller? With the presumption that they are adhering to the estate agent’s code of conduct, the seller’s agent should not assist the buyer in obtaining the property at a lower price. Without the seller’s consent they should not, for example, disclose that “this is an urgent sale” or that the seller is in financial difficulty. Unrealistic powers of negotiation are expected of agents in performing their tasks.

In countries such as Australia and the USA, a transaction seldom occurs without both parties having their respective representatives. Bill Carey, a former director of the California Association of Realtors and the author of various books on the industry, estimates that in approximately five years it will be illegal in the USA, due to a clear conflict of interest, for an estate agent to represent both the buyer and the seller. Yet, in South Africa, the agent is merely required to inform the mandated buyer that they are working for a previously mandated seller. Even though exclusive buyer agencies are not a new concept to the South African property market, it is not widely advocated. 

If this is such a sensible approach and an accepted way of doing business in other parts of the world, why is it not standard business practice in South Africa?

The average estate agent rarely takes a buyer’s mandate, preferring to work with sellers. However, they will often, without a mandate, offer to find a property for a buyer. In order to avoid a commission split, they will first try to sell their own listed stock, followed by what the agency has in stock. If they still haven’t met the client’s needs and the agency belongs to a multi-listing service, they will consider other associated agents’ stock. Very seldom will they source unlisted properties or other agents’ stock for the prospective buyer.
There is no doubt that finding the perfect home or investment property for a prospective buyer is time consuming, hard work and not as profitable as selling a property. It is a lot easier for an estate agent to represent the seller, market the home in various publications and websites, host regular show houses and follow up prospective buyers. However, given the average consumer’s time constraints, lack of industry knowledge and emotionally laden negotiating ability, there is no doubt that exclusive buyer representation is a much needed service.

The perception in the South African property market is that if you hold the stock, you control the market. Hence, estate agents work diligently in canvassing stock rather than buyers and are often reluctant to share their stock. Exclusive buyers’ agents have a tough time gaining access to mandated properties. 

This is shortsighted, especially under the current economic conditions and global financial crisis, where pre-qualified buyers are worth their weight in gold. Before spending time and effort sourcing a property, an effective buyers’ agent will ensure that a client can indeed afford the property. Furthermore, there is no guarantee that the agent will sell the property within the mandated time limit. A buyer will remain a buyer until they find the perfect property. 

You might think that under current business practices the seller pays the estate agent’s commission. But if there is no buyer, there is no sale, hence no commission is paid. More often than not, the seller advises the agent what they would like in their pocket, to which the agent adds a commission percentage. This decides the asking price. So it is in fact the buyer that pays the agent’s commission, yet they go into the deal without any representation.

Consumers are also responsible for the current status quo. We’ve all heard the phrase “penny wise, pound foolish”.  Consumers hesitate to pay professional fees for services they believe they can handle effectively on their own. Yet, we have seen numerous transactions where the buyer signed a sale agreement or offer to purchase in good faith, believing that it was a “standard contract”, but then it resulted in huge financial losses for them. 

Most recently Property Factor had an overseas investor seeking our advice because she purchased a property while temporarily residing in South Africa and obtained a 100% bond through the developer’s bond originator. They failed to tell her that should she leave the country during the term of her loan, she would be required to pay the bank 50% of the outstanding loan. Nobody drew her attention to this condition, because it was not in the seller’s (in this case the developer’s) best interest, as the buyer would not knowingly have entered into the transaction. The end result was that the client had to find R300 000 to meet with the Reserve Bank’s foreign exchange requirements or face legal action by the bank.

There are many such examples – illegal building structures, conditional selling and body corporate financials in the red, to mention but a few. Yet buyers remain hesitant to appoint someone who will exclusively represent them and save them thousands in the short and long term.

Property Factor’s motto, in advising and procuring finance for our clients, has always been that we will uncompromisingly represent the purchaser. Clients have often sought our advice, not only on financial issues, but also on market conditions and how to best protect their interests. Representing our clients in procuring the home of their dreams or their next investment property comes naturally to us. As a result of this investigation and our personal clients requesting this service, we have created a division in our organisation to service this need in the industry. This service currently available only in the Western Cape.

So what can buyers expect from Property Factor as an exclusive buyers agent?

  • Assistance in determining the size of bond you qualify for and price range you should be looking at
  • Full disclosure of all costs and fees relating to the transaction
  • You will only be shown properties that meet your financial and living requirements, saving you time
  • Straight facts about the area, price and property defects
  • Market and recent sales information to enable you to determine the value of the property you’re interested in buying
  • Savings of up to 10% or more on the asking price of the property
  • Terms and conditions that protect your interests
  • Information pertaining to the property as a viable investment vehicle
  • Inspection of the property by a qualified home inspector
  • A copy of the municipal approved plans
  • A copy of the body corporate or home owners’ association latest financial statements (where applicable)
  • Freedom of choice in selecting related service providers such as attorneys, financial institutions and insurance brokers

In every sphere of life, consumers are exercising their right to transparency, freedom of choice and representation. They are making their money work for them, rightfully demanding service and alternative options. There is no better time than right now for you to demand exclusive representation and not settle for an agent who is trying to obtain the highest price for the seller, while negotiating the lowest price for you.

Contact information:
Property Factor CC
0861 106 306
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