Sole mandates: effective cause

Private Property South Africa
Home Front

It is illegal to market a property without being officially authorised by the property owner to do so. The term “mandate” is the term used to describe the right or instruction to market a property on behalf of a seller. There are two different types of mandate. The first is an open or multiple mandate – where more than one agent can market a property simultaneously. The second is a sole mandate, where one person or agency is given exclusive rights to market a particular property for an agreed period of time.

Ian Slot of Seeff points out what could be regarded as the sole mandate’s only possible negative: “The key distinction that sellers must be aware of is that in most instances, in an open mandate, the instruction given to the agent is to find a willing and able buyer. In order to be entitled to their brokerage, they have to show what is called ‘effective cause’ – that they as agents were the effective cause of the transaction”. In the sole mandate environment, generally speaking, effective cause is excluded. In other words, the agent who has rights to the sole mandate has the right to the commission.

However, he does believe that over and above this, sole mandates are undoubtedly a superlative option when marketing a property: “There may be a tendency to be nervous about giving sole mandates, but I would argue that they are by far the best way of achieving the best result for the seller.”

Lew Geffen, chairman of Sotheby’s International Realty, operated by Lew Geffen, agrees: “Sellers who want to sell their property by using several agents are disingenuous – it’s like having five conductors for one orchestra. Many people think that they will get a better price because more people will see it, but in truth the seller is likely to get a much lower price. If a joint mandate is given, the agents effectively prostitute the property as they scramble to be the first to bring the seller an offer just to establish their right to commission – even if it’s not the best price that could have been achieved. The seller is therefore unlikely to sell at the highest free-market price and may be confused about what to do as he’ll probably get conflicting advice from different agents.

Berry Everitt, MD of Chas Everitt International, believes that property sellers should also make it a condition of awarding a sole mandate that their agent will fully pre-qualify any potential buyer: “And this pre-qualification must extend beyond checking to see whether the prospective buyer will qualify for the requisite home loan. Prospective buyers must also have sufficient cash to cover all the additional costs of a home purchase, including inspection fees, bond registration, stamp duties and legal fees as well as the transfer duty – otherwise the transfer will be delayed or even fall through”.

Property owners need to be extremely careful when awarding mandates, and commissions should not be the only factor taken into consideration when choosing an agent. Aida group CEO, Alex Fenwick, believes that you ultimately get what you pay for and warns consumers of so-called discount agencies: “At first glance, an offer to market a property at a ‘discount’ commission of one or two percent of the purchase price may look to the home seller like the benefit of a free market in which there is currently strong competition for his business.

“Discount agencies may also claim that they work on the volume principle, offsetting their lower commission rates with large numbers of transactions. What they will generally fail to disclose, however, is that their ‘discount’ usually comes at the price of excluding many of the vital services provided by a full-service agency, including buyer pre-qualification, mortgage origination and transfer administration, as well as the more visible advertising and marketing activities.”

Indeed, he says, the rates that many discount agencies are currently quoting would, in real terms, barely cover their phone bills – let alone any advertising or marketing costs: “And apart from the obvious question that raises about how such agencies can possibly give a property enough exposure to find a buyer, it should make sellers wonder how interested they really are in doing so – and what know-how and experience they would be taking into the negotiations if by some chance a sale actually did take place”.

Written by Nicolina Meerholz, reproduced with permission from Home Front, April 2005

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