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Legal Protection – Why Estate Agents And Mandates Matter To Sellers And Buyers

Did you know that one of the benefits of dealing with a qualified and registered estate agent is the protection and legal recourse that their Fidelity Fund Certificate offers? This protection extends to the seller and the buyer and includes protection for deposits paid by buyers. Private sales do not enjoy this protection.

For sellers, it starts with understanding the need to work with a qualified estate agent and understanding the different types of agents and mandates and associated risks, says Samuel Seeff, chairman of the Seeff Property Group.

Estate Agency Affairs Board and Fidelity Fund Certificates

All estate agents (including rental agents) must meet minimum educational and experience criteria and be registered with the Estate Agency Affairs Board (EAAB) and hold a valid Fidelity Fund Certificate. These are issued annually by the board and the agent must produce this on request from a seller.

The Fidelity Fund is administered by the EAAB in terms of the Estate Agency Affairs Act (soon to be replaced by the Property Practitioner’s Act).

Seller’s versus buyer’s agent

The agent who is mandated by the seller to market and sell a property is known as the seller’s agent. The agent guides the seller through the process, provides reliable market and sales information, recommends a listing price, lists the property on its website and numerous portals, introduces buyers and presents Offers to Purchase to the seller.

The seller’s agent earns commission on the sale of a property, payable by the seller, usually as a percentage of the selling price and is provided for in the Offer to Purchase. Buyers have to work through the agent and cannot go directly to the seller (if introduced through the efforts of the agent), especially not in an effort to cut down on the price.

Some buyers who don’t have the time to research suitable properties or live elsewhere make use of a buyer’s agent who would handle all of this for the buyer, work with seller’s agents to arrange viewings, handle price negotiations and guide the buyer throughout the process. They usually charge a set fee or percentage of the purchase price which is payable directly by the buyer and is not be included in the Offer to Purchase.

Other agents involved in the real estate transaction

Managing agent – these are agents who are appointed to manage sectional title schemes and estates. Their involvement in a sales transaction usually centres around regulating estate agent conduct in the complex or estate, issuing of rates clearance certificates and providing other assistance such as the complex rules and plans.

Rental agent – if the seller is purchasing the property with the view to renting it out, a rental agent would become involved. These agents specialise in the leasing of property and are able to provide credible pricing information to the buyer/landlord.

The client will usually provide a mandate to the agent to procure a tenant and then the process is handed back to the landlord to manage the lease. Alternatively, the client may require that the agent procures the tenant and is also mandated to manage the lease. The landlord is responsible for the fees charged by the rental agent which varies according to the services provided. This will be negotiated under a separate agreement with the landlord.

Three types of mandates and their implications

A mandate is a legal agreement between an agent and a seller which sets out the terms upon which the agent would market and sell the property as well as the commission. There are three types of mandates and sellers should note the differences and potential risks, specifically the risk of double commission where more than one agent is mandates to sell a property.

1)      Sole Mandate – this is an exclusive mandate with a single agent for a fixed period, usually three months. The agent would be entitled to a commission regardless of who sourced the buyer, although it is usually the agent. This is the best type of mandate as it provides for a single agent focus and avoids double commission risks;

2)      Dual Mandate – this is also a sole mandate, but signed with two or more agencies, rather than just one. Usually, the agent who sources the buyer will be entitled to commission. Since multiple agencies are working on the property, it is unlikely to receive the focused attention that a single agent would provide; and

3)      Open Mandate – here, the seller would appoint many agents to sell the property. The seller would usually sign an open mandate with each agent and the agent who brings the buyer gets the commission. Much like a “dual mandate”, the agents may not spend as much on marketing or give it much attention beyond listing it. Viewings will also be more problematic. Ultimately, the seller may also risk double commission as the issue of who introduced the buyer and was the “effective cause” of the sale could become an issue.

Multi-Listings and Networking

Many agents form part of multi-listing services or networking groups and should one of the agents on the network refer a successful buyer, they will usually get a share of the commission. This is an arrangement between the agents and does not form part of the Offer to Purchase.