The great mandate debate

The great mandate debate

Private Property South Africa
Michelle Dickens

When it comes to finding the right tenant to place in your investment property, there are some important considerations to take into account when deciding on the type of mandate to give your rental agent. Michelle Dickens, managing director of registered credit bureau Tenant Profile Network (TPN), explains that there are some serious shortcomings to consider when issuing an open mandate, as opposed to a sole mandate.

Many property owners and landlords choose to approach a variety of different agencies with their request to place a suitable tenant in their property – known as an open mandate. “The assumption by landlords is normally that this method will be beneficial because it creates healthy competition between agents, and the landlord would then be able to take their pick from a set of highly considered options,” says Dickens.

Demand for rental stock is strong

“However, the high demand for rental stock right now means that it doesn’t take long to rent a property – there are a plethora of prospective tenants on the market. The result is that most agents only earn a commission on placements they secure,” Dickens continues. “Because agents know that their competition will be moving quickly, in many cases they end up recommending the first deal – as opposed to the best deal – they come across, in order to keep up with the limited window of opportunity and avoid losing the deal completely. This ultimately means that the upside of finding a tenant quickly through an open mandate is far outweighed by the risk of placing a potentially bad tenant, which could end up being costly and frustrating for the landlord in the long run.”

On the other hand, when choosing to take a sole mandate approach with just one agent, the difficulty presented is that you won’t have the same competition between agents. “Many landlords assume that they will then not be able to negotiate on the commission offered. This isn’t actually the case, and landlords can in fact negotiate on the commission upfront, after which they give the agent the opportunity to go and source the best potential tenant for the property,” Dickens says. “Especially in the current market where demand for properties is so high, landlords think that it should be easy to find a tenant, but one in two South Africans has impaired credit so it isn’t as simple as just placing a tenant – you need to ensure you are placing the right tenant.”

Take just accept the first application

“Don’t be misled by the fact that there are so many tenants eager to submit their applications, deposits at the ready – this doesn’t necessarily mean they are the tenant you should choose. It is better in the long run to show your property to 10 different potential placements and take time to choose the right one, than to place the first person who has the right deposit amount, and end up dealing with the headaches of a delinquent tenant,” Dickens says. “It is definitely worth the wait for a good tenant, even if your property stands empty for a while during your search.” Landlords should also avoid placing someone who is trying to move urgently – this can raise questions marks, especially if it’s the middle of the month, such as the possibility that they are absconding from their current rental agreement, and the reasons behind it.

“You absolutely must receive a copy of a full credit report on the tenant before you go ahead and place a new tenant,” Dickens advises. “This simple action can save you from months, sometimes years, of financial, legal and time burdens on yourself.”

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