Property Advice

Five agency heads talk sole mandates and property value

Private Property South Africa
Kerry Dimmer |
Five agency heads talk sole mandates and property value

The controversial topic around whether agents are inflating home values to secure a sole mandate is once again under the spotlight. This is usually the case when the market shifts as it has been doing over the past three years with the pandemic-induced interest rate changes. Regardless, the practice of inflating a property value is not a common practice among professional property practitioners, but it does happen occasionally.

Examining the current market

It’s not simple to define the market in 2023. Heads of some of the largest agencies present a mixed response:

  • Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, says it is 'balanced, but moving slowly towards a buyers’ market.
  • Dr Andrew Golding, Chief Executive of the Pam Golding Property Group, says that defining the market must take into account the varying supply-and-demand factors specific to different geographical locations.
  • John Herbst, CEO of Fine & Country SA, points out that inland provinces are in a buyers’ market, but coastal regions like Southern Cape and Western Cape metro and Winelands are inclined to a sellers' market, which they have been experiencing since the latter part of 2020. However, in a shifting market and multiple economic variables at play, these too can change rapidly as demand wains.
  • Herschel Jawitz, CEO of Jawitz Properties, adds that the Cape presents as a balanced market, whilst Gauteng is clearly on the buyers' side. He also emphasises that supply-and-demand cycles do, however, depend on where properties are located.
  • Richard Gray, the CEO of Harcourt’s Real Estate, weighs in, suggesting that SA is likely inclining towards a buyers' market, but he, too, says we have to account for variables such as metro or non-metro, as well as price brackets.

How thick is the portfolio?

One of the best indicators of a market cycle is the size of the listing portfolio. When a market is fluctuating or balancing out, it is normal for portfolios to be lighter while property values adjust. There are again some interesting and differing responses from the agency heads interviewed, who do, however, collectively agree that property portfolios reflect market movements and trends specific to regions, towns or cities.

Currently, Fine & Country SA is finding its inland listings good, but “there are coastal inventory shortages in key markets like Cape Town Metro and the Garden Route,” says Herbst. Harcourt's Gray mentions that some of its offices in high-demand towns and suburbs are finding it relatively challenging to secure properties.

Neither CEO is complaining, though, because overall, property portfolios remain relatively well stocked, even if it does take longer for homes to sell, as Goslett confirms, due largely to the escalations in the interest rate and tightening measures by banks that protect the consumer from the threat of debt resulting in financing being considered very carefully.

Insight into the inflating of value

Sellers often have the expectation that their homes are worth more than they are. After all, most have spent years investing in maintenance and improvements and want to see a return on those investments. As a result, there is often an expression of shock when a seller is made aware that similar properties that sold three years ago are now selling for up to R100 000 less or more.

This is a reality in my own experience. Having sold my property a year ago, my neighbour, whose home is practically a duplicate, was expecting a valuation in line with the sale price of my property but is now having to manage his expectations down by R200 000. Similarly, my parents have just sold their property, which sold for R100 000 less than they paid for it five years ago!

It is a critical role of an agent to temper a seller's expectations by keeping them informed about where buyers see value. Sellers, however, must believe the agent is taking them seriously and is prepared to test the market to see if the seller's price aspirations can be satisfied.

Could it also be that it is not so much an agent that inflates a value but rather driven by the seller? Again, it's possible, even likely, because even when a seller is presented with credible, comparative market analysis and feedback from prospective qualified purchasers, which all five agencies include in their strategies, yet still insist on marketing the property at the over-inflated price, the reality will become evident when it sits on the market for more than three months or longer.

It is somewhat difficult anyway for a property practitioner to inflate a property’s value under any circumstances or during market shifts. An agent simply ‘holds a mirror up to the client, reflecting what is happening in the environment and will present similar listings in the area to prove what buyers are paying for homes,” says Goslett.

Is there a relationship between property value and a sole mandate?

The sole mandate remains the set and most attractive way to market a property, says Golding, more so in challenging times, as a sole mandate enables agencies to offer superior marketing and enhanced visibility to their clients.

"Strategic marketing is critical in a slow market, and without it, sellers may find it difficult to sell their homes.” This is something Herbst endorses: “A sole mandate is especially beneficial to an anxious seller where the marketing plan to provide optimal exposure for the property will attract the right buyers. It also mitigates the risk of a pricing war, especially in a shifting market.”

Something that Jawitz highlights is that many sellers have the idea that ‘the more agents, the merrier’ if a seller needs to sell quickly. "The key to achieving higher prices is competition between buyers, not between agents.” Goslett agrees, adding: "The truth is that when multiple agents are working on the home, none are solely focused on selling that property which means that your home might not be getting the attention it needs in order for it to be sold timeously.”

Gray emphasises that with a sole mandate, the agent is able to work with all interested buyers "and create competition, forcing anyone looking to make an offer to purchase to present their very best offer."

When valuing a home, property practitioners should be singing from the same hymn sheet, given that they all tap into the same, if not similar, resources and data for the area in which a property is situated. However, if those values are exceptionally different, it's a red flag, and sellers are advised to do their own research, using sites like Private Property to compare their property with similar ones in the area and the prices at which those are being marketed.

Writer: Kerry Dimmer

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