Wednesday, March 13, 2013

What is a sole mandate and should I sign a sole mandate?

What is a sole mandate? How does it work? Can I cancel my mandate? 

A sole mandate is an instruction to sell a property to one agency. The sole mandate should specify the time, the price and the commission payable together with the terms and conditions of the mandate and further portray the true meaning of the instruction to sell the property. 

As a Seller of the property you employ or rather contract an agency to market your property. You need to stipulate all aspects of the terms and conditions of the agreement, as it is a legally binding agreement. 

This does not mean that you cannot withdraw instruction, there are however certain penalties that may occur when you withdraw your mandate. We will discuss the effects of the CMA (Consumer Protection Act) on the mandate at a later discussion as well as the penalties that it could contain in the agreement. 

Should you sign a sole mandate?
Before we answer this, we think this is important to understand what types of mandates is available as well as the various positive and negative affects of the various types of mandates. We need further to understand why Estate Agents wants you to sign a mandate. 

Lets start by mentioning that only the registered owner can sell his/her property! Not the agent, not the agency, but the owner! The agents market the property to the open market as well as his database of prospective buyers in addition to all the direct, indirect, printed, social and internet marketing. 

Thus the first method of marketing would be - Private Seller - where the seller act as his own agent. Obviously he is not paying a fee for the marketing, but in affect is paying a premium in terms of exposure of the property in the open market, the marketing that the property owner or private seller would do will costs him marginally more than what it would costs the agency, but the best used advertising medium to estate agents would not be available to such a property owner. The expertise of the estate agent with regard to the financial requirements of the financial institutions as well as the costs involved in the transfer of the property would not be available to such a Seller. The problem occurs due to the time-delays that would occur due to the fact that this is not the normal business of the Seller. The biggest risk however remain in security - the Seller open the property to any person without any knowledge of such person. Again this is not something that we as estate agents can guarantee cannot happen when we show your home to the prospective buyer, but we have a couple of contacts prior we start showing a prospective client a home. Just thinking about the risk involving selling a home privately would make me run for the woods! 

The most known method of selling your home would be by means of a sole mandate, where one agency is contracted to attend to the marketing of the property. The terms of the marketing, the exposure, the fee, the access to the property as well as the marketing exposure should be discussed. Normally with agencies that opt for marketing through sole mandates, have certain rules regarding exclusivity in terms of area or type of property. Thus one agent will be the specialist in Farms, and no other agent will be allowed to market or sell a farm. The whole marketing is focused around exclusivity and this is the best and worst feature of such a marketing plan. Let me explain: Agent A working in Area A, then a buyer contact Agent A and view prospective properties, offer to purchase the property but need to sell her property first, which is located in Area B, thus Agent B need to attend to marketing of that property! Will Agent B be the best possible agent? Another problem occurs when Agent A is wonderful and sells 15 houses a month in Area A, how much time will Agent A have to attend to the marketing of your home? 

The second and most popular manner in which to sell your home is where the property is marketed as an open mandate. The common factor is that nothing has been signed with any agency, and anyone can sell the property! First problem is just that, the Seller retains the right to sell privately and where I then introduce a client to the property and he contact the Seller directly could lead to commission claims. The second problem is that any agent can sell the property -??? Only the seller can sell the property, but no one is marketing the property! Estate Agencies does not want to spend money on advertising these properties as it leads to commission claims and normally when the offer is presented to the Seller, he then change the price of the property! This sounds fairly unfair, but this is the norm in the market place, as there are no contractual obligation a lot of sales is lost due to this uncontrolled environment. The third problem is that not all agencies has the same commission or professional fee structure and this leads to the property being advertised in duplicate at various prices and cause problems with potential buyers who is simply not prepared to go into a price war with the Seller. 

The forth manner in which to market a property is by means of dual mandate, where two agencies is instructed to attend to marketing of the property, each independently, whoever obtains the right client will earn the fee. Although better than a sole mandate in terms of exposure is the marketing done independently and price war may occur. Apart from that is the competition between only 2 agencies and whoever introduce the client will be the cause of sale of the property. Normally there would be 2 for sale boards in front of the property and this could also lead to claims for double commission. 

At this point I am sure you think that there is no way that you can sell your property and should we recommend a proper builder? That is not the case, in most areas there are a method that has been proven since 1908 in USA and very successful in South Africa since 1984. Where the best of all worlds are combined - the marketing agreement is with one agency, but the exposure is done by multiple mandate and therefore other agencies is involved. Price and marketing methods are agreed, price is determined and commission is negotiated. This gives the Seller the maximum exposure, limits the risk for the agency as the commission is shared between the mandate holder and the selling agency. This is refer to as Multi Listing. 

The function of the agent is to prepare and follow a marketing plan in accordance with the marketing tools available to him through his agency. As the Seller then "employs" the agent, therefore they require a written contract of employment or mandate! Obviously from an Estate Agency Business Owner, he needs to limits the risks he takes in marketing a property. The functionality is that if such contract exist and the agency does not function is not in accordance with the marketing plan, you can terminate the agreement. 

In the past 20 years the biggest complaint from sellers are that they are not being informed regularly by the agents in terms of the progress they are making regarding the marketing of the property. In most cases I would believe that it is due to the fact that the Agent still believes that he/she sells property! A further effect is that communication has gotten evolved - and again in many cases are the agents still doing things the same way they did back in 1970! This is not effective and the Seller should not employ a person who does not understand how marketing and communication in our day and age function. 

One needs however to understand that is no longer 2006, where properties sold overnight, and that would not happen very soon - thus accept that your agent need at least 4 months to sell an average property and in certain cases even longer period to be able to market the property effectively. 

The answer to the proposed question is thus your decision - just keep track of your decision and be involved in the marketing of your property. 

If you would like to discuss the marketing of your property contact the writer hereof and we will spend enough time with you in order to come up with a practical plan to attend to the requirements of the marketing of the property. 


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  6. Goodday if you give your house to a sole agent and he does absolutely nothing to sell it. Can I take any action against the agent.

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  9. I am a first time seller of a one bedroom apartment, using a property agency (company) in Durban, Kwa Zulu-Natal, South Africa. This agency has recently secured a tenant for the same property as from April 2018 for a one year term. The property has been put on the market by the same agency in the past week or two, as requested by me to do. I am informed that there have been a few responses already. However, no mandate was drawn up and on inquiry if this needed to be done, a form was emailed to me for completion, with suggestions that I was not obligated to make this a sole mandate but have the option to leave it as an open one.

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