2009/02/26

Property buyers in South Africa are at the mercy of estate agents who are obliged to represent the seller's best interests.

But by appointing exclusive representation for the buyer, money and time can be saved and it will ensure that their best interests have also been taken in account.

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 or simply neglect to exercise their freedom of choice and right to representation.

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)

Provision 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. To what extend are agents are expected to play this dual role without compromising their integrity to the seller?

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.

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

The average estate agent will often, without a mandate, offer to find a property for a buyer. In order to minimise a commission split, they will first try to sell their own listed stock. If they belong 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.

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 climate, 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 and has the necessary funds for a deposit and to cover costs.

Consumers are also responsible for the status quo, hesitating 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 inform 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. The buyer would not knowingly have entered into the transaction if this was previously highlighted to her. The end result was that the client had to find R300k to meet with the Reserve Bank's foreign exchange requirements or face legal action by the bank.

Tess Rodrigues is managing director of Property Factor.

Property24