PROPERTY BAROMETER – Sole Mandates...

Is it the right thing to do?

5 October 2012

Dear Reader.

Having spent some time in the market interacting with various estate agents and agencies, in an effort to better understand some of the challenges the industry is posed with. I noticed that there is a common challenge amongst agents in the securing of sole mandates. I myself needed to understand a little better why sole mandates are important and whether there is in fact any benefit to the seller and agent to enter such an agreement.

I initially found plenty of information from both seller and agent as to the reasons for or against signing a sole mandate, what I did not find is a neutral view listing the pros and cons.  My intention here is to provide a neutral view of the benefits and risks associated with a sole mandate and leave it up to you, the reader to decide which is better.  

What does an estate agent do?

In order to better understand the benefits of a sole or open mandate, it is important to better understand what value an estate agent brings to the transaction first.

They:

·         Help the seller establish a fair market value for the property. This is usually done through local knowledge of the area and properties recently sold that are similar in size and setting. There are also information platforms they have access to that can help guide the seller with historical sales in the area.

o    A good agent will present this information to the seller when pitching his/her sale.

·         Have access to a wide network of potential buyers.

·         Have knowledge of the current market conditions, which help guide the seller with expectations.

·         Manage the offers presented and sift through opportunities presented.

·         Manage the contractual aspects of the offers.

·         Help negotiate and conclude the sale.

·         Work closely with the transferring attorneys and track the registration process.

·         Act as intermediary between buyer and seller.

 Assuming the above would be carried out by an agent irrespective of the type of mandate sold makes it very difficult on the surface to see why anyone would consider signing a sole mandate. There is however differences in the way each task is carried out. Taking into account that a mandate is only relevant to everything prior to concluding the sale, a closer look at the nuances within the sales process is needed.

Open Mandates……

An open mandate allows the seller the freedom to list with more than one agency and market the property all over. One can also sell privately by listing the property yourself on websites and property portals that can facilitate online sales, saving the estate agents commission in the process. In fact there are agencies that operate on lower commissions and will list your property free of charge on line. Naturally when the property does sell, there is still commission that’s payable. Whilst this may seem like a relatively easy process, one must consider the impact of trying to sell privately and factor in the time constraints and challenges posed when trying to balance work and sell you property  or sell through more than one agent.

The risk of being exposed to a double commission claim could arise as the buyer purchasing your property could have been to your property more than once with two different agents. Who gets the commission, agent1 or agent 2? This is a very real risk considering that agents all pull from the same pool of buyers in the market.

Selling a property is a stressful process at the best of times and listing with more than one agency means collating show house days and scheduling visits with potential buyers after hours. Who gets preference? Agents will also not aggressively market a property where they are not guaranteed a fair chance to sell, ultimately derailing the thought that an open mandate should introduce more buyers.

With more than one agency marketing the property, one could expect more than one selling price being advertised. A buyer shown the same property with two different selling prices could jeopardize the opportunity to secure the best selling price upfront. Not to mention the fact that an incorrectly priced property will sit for longer on the market resulting in more costs and possibly less buyers showing up. The current national average time a property spends on the market is around 15.4 weeks. The longer a property spends on the market the less attractive the selling price becomes.

There is also the varied final product being advertised, no agency will market the same property in the same way. This would result in varied photo’s of your property appearing in the back end of the property paper as no agency will carry the financial risk of a glossy advertising campaign with color photo’s on the front page, if there is no sole mandate in place.

There is also the risk of buyers offering less on the property if there is no agent’s commission payable.

Sole Mandates…….

One of the most difficult things to do when trying to sell privately is effectively marketing the property to a large network of potential buyers. A sole mandate contractually ensures that the agency and the agent will do everything possible to market the property effectively.  Glossy colour front page advertising, window display advertising and wide network advertising are some of the benefits a sole mandate could bring once signed.

The agency and agent should also position the property with other agents and their networks, the difference with a sole mandate is the agent can negotiate the best selling price based on what’s on offer and maximize the opportunities presented, whereas an open mandate could result in the agents trying to undercut each other to close the sale.

Some of the benefits on a sole mandate are:

·         Diary and time allocations become easier as there is only one agent to deal with. One would not have to try and slot all agents in to show house days and after hour visits.

·         Advertising becomes a priority and the property gets the advertising space it deserves.

·         The safety and security aspect is limited to the seller and the agent only.

·         The agent keeps the seller updated weekly on the progress being made.

·         Price negotiation is filtered through the agent and the selling price maximized.

·         No risk of varied selling prices being advertised.

·         Double commission claim can be easily avoided.

·         Sole mandates often achieve higher selling prices through competitive price negotiations.

Whilst the option of selling privately or choosing the  sole or open mandate route remains with the seller and careful consideration should be given to all options, Based on my research and taking into account the above mentioned information,  it would seem that a well informed agent with a strong network are key to a successful sale, If this is the case, then platforms like Markitshare ( www.Markitshare.co.za) which allow agents access to a larger network coupled with up to date information and cutting edge technology, to help secure that elusive sole mandate  are perhaps the route to go.

There is always the risk of signing a sole mandate with a weak agent, ultimately impacting on how your property is marketed, that should be picked up in the way the agent pitches the sale. Before deciding which route to go, give the agent the opportunity to present their marketing plan and CV. Previous successes are an indicator of the agent’s ability to sell well and the sales pitch will help determine the agent’s competency.

Securing a sole mandate is a tough ask, Consumers are more informed today than ever before, with all  the information and technology at their disposal, this could be the next generation of securing sole mandates and selling property…..the ultimate decision however, remains with the seller and how impressed they are with the agent positioning the sale…