Since the advent of 3%.Com, a nationwide franchise made up of attorneys, many traditional estate agents have been complaining about their impact on the industry, especially the deliberate marketing of only 3% commission for their services. Are they allowed to undercut the standard commission so dramatically? John Gilchrist, director of Property Law Publications, weighs it up.

ARE THERE ANY TARIFFS GOVERNING AGENTS’ COMMISSION?

This brings to the fore a long debated aspect of agents’ commission – are there any limits either minimum or maximum as to what agents may charge for their services? The answer is no. Estate agents are free to charge any fixed amount as a commission (including a defined percentage) for selling a property as long as their principals and the sellers, agree to it. This means that any agency including 3%.Com is entitled to agree to any percentage as a commission for any sale. Agents cannot complain that this is unfair marketing by attorneys who are disturbing the tried and trusted average commissions that agents charge for their services.

Any agency can market a fixed percentage that it will charge for negotiating the sale of a property, even if it qualifies it by saying that the commission is still negotiable in certain exceptional circumstances. It cannot, however, advertise 3% as a bottom-up figure from which negotiations can commence. Estate agencies and attorneys acting as estate agents are not obliged to become financial service providers, but they are bound by the Consumer Protection Act as suppliers of their services and may not engage in any marketing that is in any way misleading. 3% must mean that, and no more.

ARE ATTORNEYS ACTING AS AGENTS UNFAIRLY PRIVILEGED?

3%.Com, through its founder Maartens Heynike, a practising attorney, has argued that the era of high commissions is over and that, in future, the standard commission charged for property sales will level out between 3% and 5%. As attorneys can conduct their practices and real estate businesses as a single enterprise, they do seem to have an advantage in being able to keep their expenses down which estate agencies don’t enjoy. Is this not the reason why they can so easily undercut the normal range (5% to 7.5%) and compete unfairly with normal agents for real estate business?

Normal market conditions can provide the answer. It has often been said that the market value of any commodity is purely the price the buyer is prepared to pay for it, and sellers will pursue a selling figure relative to what the market can bear. The same applies to real estate commissions. Sellers have been paying commissions around 7.5% because they are willing to do so, knowing that the service agents provide is crucial to getting their properties sold and properly marketed. It is always a matter of give and take in the normal course of business – the final figure agreed upon reflects the minimum (for the agency) and maximum (for the seller) that they are prepared to pay when these finally coincide.

Estate agencies do not enjoy a monopoly over the real estate industry when it comes to commission charges. Any agency can promote 3% as the figure it is prepared to charge so long as the takers (property sellers) do not find that this is purely a bottom-line figure still subject to negotiation. If attorneys acting as agents are prepared to accept 3% commission on their sales this cannot be objected to as unfair marketing nor as a deliberate attempt to undermine the normal real estate industry. They may appear to enjoy an unfair advantage here but for as long as agents’ commission is purely negotiable without any restraints either way as to what can be charged, all legally qualified roleplayers in the industry will continue to enjoy complete freedom in marketing as well as negotiating their commissions.

EAAB INTENDS AN ENQUIRY INTO 3%.COM

At the latest Multi-Stakeholder Group Meeting the Estate Agency Affairs Board (EAAB) indicated they intend to launch an enquiry into whether it is legal that attorneys selling property as part of 3%.Com don’t have to adhere to the same legislation that estate agents have to comply with. The EAAB reckons these attorneys should be registered as estate agents.

Gilchrist says the Estate Agency Affairs Act clearly states that a qualified attorney may act as an estate agent as long as he does so within his attorney’s practice. The EAAB will have to get the Act amended (that will take a few years) but there is no alternative available to the EAAB. The Act is quite clear.

The exemption applies only for attorneys, it does not apply to their interns or staff.

Original Article supplied by the Property Professional Magazine: http://propertyprofessional.co.za/attorneys-charging-commission/