Can property practitioners buy their own listing?

Can property practitioners buy their own listing?

Private Property South Africa
Kerry Dimmer

Handling real estate daily means property practitioners are not only exposed to valuable industry insights but also means they are likely to be the first to view a property that will be up for sale. This may appear to be an advantage for the agent seeking to purchase a property for him or herself, and it is understood and accepted that this is considered a perk of the job. However, legal parameters need to be followed, some of which are carried over from the Estate Agent’s Code of Conduct into the new PPA. However, this does mean that there are a few grey areas about what is considered compliancy and what is ethically sound.

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Gerhard van der Linde, managing director of Seeff Pretoria East and Jan Myburgh, Harcourts Platinum Director and Sales Manager, both quote and confirm that the previous Estate Agency Board’s Code of Conduct has been reaffirmed under Paragraph 34.3.3 of the Property Practitioners Act: “no estate agent shall purchase directly or indirectly for himself, or acquire any interest in, or conclude a lease agreement in any immovable property in respect of which he has a mandate, without the full knowledge and consent of the person who conferred the mandate, or sell or let his own immovable property which he has any direct or indirect interest, to any prospective purchaser or lessee having full knowledge of his ownership or interest in such immovable property.”

Further adding to the verbosity of the legal dialogue is that the new PPA Regulation 34.3.1.8 states that such an agent may not knowingly or negligently make false representations against the value of a potential property. Tiaan Pretorius, who is a manager for Seeff Centurion, interprets this. “Based on the current regulations, the agent may therefore make an offer, but it is recommended that for transparency, an additional valuation of a property should be undertaken by another agent so that the seller may make an informed decision.”

Valuations

It’s common practice for buyers to be encouraged to secure more than one property valuation, which would immediately reveal whether an agent/buyer is slanted or has under-valued a home. Interestingly, an agent from the same agency is allowed to do this, and, in theory, while this does show the integrity of the agent, some home sellers may question whether this is transparent enough. Myburgh and Pretorius both agree that sellers should, therefore, be encouraged to acquire three or more appraisals, which should always be based on solid market research and current market conditions.

Van der Linde delves a bit deeper, emphasising that agents should also be aware of Regulation 34.2.1.2. “It states that agents shall protect the interest of their clients at all times to the best of their ability with due regard to the interests of the client at all times to the best of his ability with due regard to the interest of all other parties concerned.”

What all this really boils down to, irrespective of what the Regulations state or don’t state, is that property practitioners are encouraged to behave ethically, with transparency, and ensure their client’s desires/needs are prioritised and heeded. If this means entering the market as a normal purchaser, and provided the seller has been told of the agent’s intention to make an offer, there is no sound reason for the agent’s offer not to be considered.

Commission

A little murkier is the question of the commission. It’s really not as simple as ensuring the property practitioner has fulfilled his/her mandate because there are underlying administrative costs that are incurred by an agent’s support team and any technology in use. “Even assuming that the property never goes to market because the seller accepts the agent’s offer, the debate on whether to include a commission should default to the policies and procedures of the company that the purchasing agent works for. If the agent is independent, the decision may be to waive any commission, which is acceptable. An alternative is to prescribe a flat administration fee for seeing the transaction through,’ advises Myburgh.

Competing offers

Another scenario that may be of concern is when an agent introduces a competing offer against traditional buyers. Marsha Haupt-Cooper, the owner of Harcourts Oyster, presents some sound guidance. “As the agent owning, for example, a mandate, you must declare your offer as well as any other competing offer that is forthcoming.

“The basic rule is that neither buyer should have any insight regarding the offer of the other, which prevents an unfair advantage.” But herein lies another problem: the purchasing agent will be aware of a traditional buyer’s offer, and this, as Haupt-Cooper says, may be construed as a form of ‘insider trading’. There are at least two ways to avoid this. “The agent can present his offer first, therefore having no insight of what the competing offer is or will be, or the agent should only make an offer if there are no other buyers. This type of scenario demands full disclosure to the seller to avoid being accused of bidding against a buyer.”

Van der Linde says that the regulations about the duty to disclose and Regulation 34.4.1 are categorical in that no agent may willfully fail to present an offer or cause such an offer not to be presented. “In my opinion, despite it being contrary to codes of conduct, not disclosing is unethical, and the competing buyer may report the agent to the Property Practitioners Regulatory Authority for further investigation.

“Agents should give a lot of thought to whether or not to buy through their own portfolios. Their actions need to be above reproach with full disclosure, especially since there is a duty of care legally and morally to attend to their clients, and at no point should any property practitioner take advantage of their clients.”

Overview

Whilst one can applaud the ethical approach agents take when buying out of their own portfolios, there may still be questions about whether all protocols have been followed, the vagueness of which may remain a challenge until there is absolute clarity. Therefore, it may be in a property practitioner’s best ‘ethical’ interest to pass the property onto another agent to market, especially considering that ethics can be interpreted differently by society depending on the context. After all, in today’s ever-watchful and critical society, even when found innocent, any slur could be ruinous to individuals and brands.

Writer : Kerry Dimmer

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