Picture: Berry Everitt, CEO Chas Everitt International Property Group; Susan Watts, broker/manager RE/MAX Living; Nomsa Nene, principal Nomsa Nene Properties; Gerhard Kotze, managing director RealNet estate agency group
Do estate agents sometimes act as if they want to control the entire property transaction process, including that of the legal practitioner?
Recently the founder of 3%.Com, Maartens Heynike, wrote in the SA Attorneys’ Journal De Rebus that it appears to him as if the real estate industry is under the misconception that they can “control the entire supply chain in a property transaction. That is from accepting a mandate, to finally paying the proceeds of the sale to the seller, including the role of the legal practitioner”. He wrote this with reference to a newly formed company Proxi Smart Services whose application to provide conveyancing services was recently denied in court.
The legal profession has been involved in the selling of immovable property for generations. However, gradually conveyancers started to rely on estate agents for conveyancing mandates and according to Heynike this created “a perfect storm for a dangerous and unethical relationship between the legal practitioner and estate agent”. Estate agents are legally bound to inform sellers that they have the prerogative who they want to appoint as conveyancer but Heynike says what happens more often is that the clients follow the agent’s lead on which legal practitioner to use because of the relationship of trust that has been built. This state of affairs has opened the way for a situation where legal firms ‘woo’ estate agencies with gifts, free lunches even holidays to get conveyancing mandates.
Of further concern to him is that, according to the new Property Practitioners Act, law firms will not be allowed to handle the transfers of properties they have sold. Concerned about the potential threat this poses to attorneys whether they are acting as estate agents or not, Heynike advocates that these proposed legal limitations should be addressed before the new Act comes into effect. According to Heynike it is in the public’s best interest to use conveyancers to sell their property rather than estate agents. He bases this on the premise that the latter has the legal expertise to better advise the seller at a lower cost than the average commission charged by an estate agent. Also, that legal practitioners are in a better position to train candidate estate agents from previously disadvantaged backgrounds and thus speed up the transformation of the sector.
The local real estate sector naturally does not agree.
Both have vital roles to play
Law practitioners and estate agents are trained and equipped with two very different sets of skills that complement each other but the one can’t replace the other. Susan Watts, broker/manager of RE/MAX Living compares the process of selling a property to a complex machine with many moving parts that each have a vital role to play for the machine to function properly and removing a part would lead to a less efficient and defective machine. “I see the roles of conveyancers and property practitioners in much the same way,” she says. Nomsa Nene, principal of Nomsa Nene Properties says each of the two parties brings knowledge and expertise from their respective fields of study, so they are supposed to work together.
Real estate requires a special set of skills
Marketing skills – Selling a home for the right price in the shortest possible time does not simply happen overnight. Estate agents spend a lot of time and resources on marketing as one of their core functions where-as attorneys are not especially well known for marketing, comments Berry Everitt, CEO of Chas Everitt International property group. There are many tools that estate agents use to market a home. In addition to their database of buyers, this includes targeted social media campaigns, home staging, networking with other industry players and other agents to make use of their databases. “Effectively, property practitioners are marketing professionals with the technical skills to attract as many buyers as possible and then conclude the contract while negotiating between two parties who want exactly opposite things (a skill in itself),” explains Watts.
Everitt adds that it also concerns him “that some attorneys may only want to get into real estate in order to bolster a struggling conveyancing business rather than to achieve the best results possible for their customers”. However, he says, real estate is still very much a field in which individual relationships carry a lot of weight, “and there may well be instances where an excellent relationship between an attorney and client makes the attorney the natural choice to sell the client’s property”.
Interpersonal skills – For many sellers selling their home is often a highly emotional experience due to all the memories it represents. A special set of interpersonal skills are required to price counsel a seller correctly that legal practitioners usually won’t acquire in their normal day-to-day work life, according to Daniel Hersch, co-operating principal of Adrienne Hersch Properties. Himself both a qualified legal practitioner as well as a qualified property practitioner, he understands the demands made on practitioners in both fields. “The ability to correctly price counsel a seller, is quite simply an artform and requires a balance of being able to provide a seller with the necessary information he or she requires to make an informed decision coupled with a particular set of inter-personal skills involving sensitivity, empathy and an appreciation of the human element which with all due respect to my learned colleagues in the legal profession, they do not generally possess or develop,” he says.
Having said that, Hersch adds that he is not saying that every estate agent either understands or possesses these skills or abilities. “The truth is, as with any other professions there those that are good and what they do and those that are not. As such, I am a big believer that the percentage of commission charged by a property practitioner should in all cases be directly linked to the value of service that they provide,” he adds.
2. The commission debate
The so-called ‘high commission’ of especially South African estate agents are often used as an argument why using other real estate players such as conveyancers or fixed-fee agencies will result in substantial cost savings for the seller. However, Gerhard Kotze, managing director of RealNet estate agency group, believes that if the law firm were as fully invested in their real estate business as their conveyancing practice, then the commission of their estate agents would not be cheaper. “Although they may deny it, law firms have generally only seen their entry into real estate as a means to secure a pipeline for their ‘real’ business, which is their conveyancing practice, and have not spent anything like the same amounts on agent acquisition and education, compliance and technology as the better-known agencies”.
Offering to sell a property at a low commission versus actually selling it are two different things agrees Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa. “In most instances it is more lucrative for a conveyancing attorney, having studied for years to achieve an LLB, to focus on their ordinary course of business,” he says.
It should be noted that legal practitioners may not directly employ the services of a real estate agent under their attorney fidelity fund certificate. The legal practitioner would have to register a separate real estate firm under the EAAB should they wish to do so.
With reference to the oft raised criticism that South African estate agents generally ask a higher commission than elsewhere, it is pointed out that the fee is individually negotiable. Depending on the area, it could well range from as low as 3-4% to as high as 10%. Everitt says he believes on average it is lower than 5% which would make the US with 6% currently the country with the highest average commission.
Watts also points out that in the United States there are often two brokers involved in a transaction, one for the seller and one for the buyer, with each broker’s commission paid by their respective clients. “You are simply not comparing apples with apples,” she says. That being said, Hersch says he strongly believes that South Africa should move towards the model followed in the United States as the current one where one broker represents both the seller and the buyer often exposes a conflict of interest with the agent. “If anything, this should be the conversation that we as an industry should be having,” he says.
3. Mentorship requires time and money
The Property Sector Charter Council said last year the local real estate sector has shown progress towards bringing in more black property practitioners, but progress has been slow. Heynike proposes that legal firms could help speed the process up by training real estate interns. However, mentorship of candidate estate agents is labour intensive. Nene has her doubts that legal practitioners will have the time to train estate agents. “The estate agents are the ones that can train and teach candidate estate agents as this is a practical job, she says.
Agencies often call on the expertise of attorneys in specific subjects, such as contracts for example, but Everitt does not believe the legal profession would be able train large numbers of interns. Kotze agrees saying from what they’ve seen it is far more likely that law firms would employ estate agents who are already qualified and rather invest financial resources on training candidate attorneys.
The very nature of the estate agent profession – being able to support oneself financially until the first commission pay-out combined with the cost of acquiring the tools you need to become an estate agent, such as a car, smart phone and a laptop – makes it very hard for candidate agents from disadvantaged backgrounds to enter the profession. Hersch therefore suggests that a financial contribution from the legal profession would perhaps be a far more effective contribution towards the issue of transformation in the real estate industry.