The South African property market functions primarily on a seller agency model - despite experiencing the strongest buyers market in living memory. Buyers are never really represented to the same level as sellers with a properly constructed and executed sole mandate and according to a marketing plan. At best buyers experience a “dual agency” service where they are making use of estate agents they originally contacted on the back of an internet or printed media advertisement. This approach forces estate agents into working “at their own risk” for buyers – constantly incurring costs without any payment security. Buyers on the other hand have to fend for themselves - facing the risk of divulging sensitive information to estate agents who are at times contracted to sellers on a sole mandate. The absence of a contractual relationship with a specific buyer's agent could not only damage their position in the negotiations, but might cost them a lot of money if they do not know the market as well as local estate agents.

Even if buyers do contact an estate agent on a referral basis (via a friend or business associate), the lack of protection in the relationship between the estate agent and the buyer very often creates frustrations and most of the times not only incurs unnecessary costs, but also lead to time wastage for both parties. This improperly constructed business relationship very rarely flowers into a lifelong informal business relationship – where the estate agent becomes the buyer’s entrusted confidante in all matters relating to the property. At present, selling agents who are unsuccessful in selling their mandate to prospective buyers, quickly changes their approach to that of “informal” buyers agents. The lack of any contractual relationship (buyer’s mandate) between the estate agent & the buyer however creates a very uncomfortable relationship. A culture of distrust has unfortunately been created with this loose relationship – with at times vastly different experiences. The property buyer who “employs” different informal buyer agents often creates confusion – as each buyer agent will try to introduce the buyer first to his or her own mandates & only after that to other agent’s mandates where he or she earns less commission. If the buyer would end up working with an agent whose agency do not have a good working relationship with other agencies due to their e.g. unfair commission sharing policies, the buyer will not be introduced to all properties on the market.

At the heart of the matter are two contrasting viewpoints. The buyer sees the property transaction (especially for his primary residence) as the most important financial decision in his personal domain. The agent logically views it as a business transaction – and more specifically the application of his expertise & knowledge of the specific segment of the property market to the benefit of the buyer.
In the absence of a formalized agreement, the agent nearly always will not be remunerated for his input or efforts, irrespective of his expertise or qualifications – placing the “transactional cost risk” solely on the agent. This equates to the payment of doctor’s fees becoming dependent on e.g. the results of the patients medication or the quality of doctor’s advice. Such an open-ended relationship will surely have a disastrous effect on the doctor’s practice. The buyer will always ensure that he makes an informed buying decision. Getting to the point of making such a decision therefore hinges on the source and scope of knowledge to the disposal of the buyer. Buying a property can however take much longer than prescribing the right medication - despite the fact that the level of technical information necessary for each decision can never really be compared. Building up a working relationship with an estate agent as your dedicated (read contracted) confidante can have a healthy outcome. The real question should not be whether the buyer should contract the services of a professional buyer’s agent, but rather if he does have more knowledge & a larger contact basis than the buyers agent inside his or her preferred area to identify the right property, negotiate for the right conditions & price with either the seller or the seller’s appointed estate agent.

All top estate agents strive to establish themselves as true professionals in their property market and like all top producers across all sectors of our economy, they constantly strive to become the “most trusted or respected” professionals inside their own market. The same principles of excellence that can be found across all sectors of our economy apply equally to the property industry. The top 30% of estate agents (not agencies) actually do handle the majority of transactions in any property market.
The present market conditions therefore call for a realignment of the role players in the property market. Employing contractual security for the buyers’ agents will be to the benefit of both buyers & sellers. Selling agents have a contractual obligation towards sellers to negotiate & obtain the highest possible price on their behalf. The inherent uncertainty of a commission based model always generates doubt as to the real agenda of the selling agent handling negotiations on behalf of both the seller and the buyer – begging the question to whose benefit is the conclusion of the sale, the agent or the seller / buyer? There is however a contractual & fiduciary obligation on a selling agent to always negotiate to the benefit of the seller.

If one agent handles the transaction – i.e. if only the selling agent with the sole mandate negotiate with the buyer, the buyer will always have to fend for him or herself as the selling agent could directly or indirectly gain access to very sensitive information about his or strengths and weaknesses in the negotiation, including their financial limits and how much they really want the property. This opens the gates to unethical practice – as a selling agent would in the absence of a buyer’s agent earns double sided commission, and can therefore try to emulate a “fair position” between the seller & buyer. One of the biggest reasons most estate agencies in South Africa have never ventured into rectifying this glaring grey area, is that the creation of a buyer’s agent model will dilute their income by 50%. In practice that means that the estate agent working for the average company (majority of companies work with dependent agents on a 50/50 split of commission) will only earn 25% of the commission.
The easy way out of this is to regulate the property industry disclosure policy – as most of the States in the USA has been doing for years. Dual agency (i.e. when one agent from the same company represents both buyer & sellers in a property transaction) should be explained to each contractual party – it should in fact become part of the FAIS legislation & the Estate Agency Affairs Board Code of Conduct. The creation & usage of a formalized buyer’s agent platform in the real estate industry will at the same time go a long way into rectifying the lack of trust between estate agents & especially buyers which has evolved over the last few decades.