Comments in Financial Mail and response from IEASA National President



Fairy Lights over property prices - Financial Mail 18 July 2003 South Africa’s first residential property boom in more than 20 years is beginning to highlight weaknesses in the estate agency industry. Entrepreneurs from more transparent sectors of the economy are buying up these agencies, only to encounter serious flaws in the business model they find themselves having to manage (Property July 4). A common accusation is that it is far too easy to become an estate agent, and in consequence standards are low and sharp practices rife. One widespread malpractice is that agents will overvalue properties to entice initially delighted sellers into signing long-term sole-selling mandates. This has the double benefit of providing the agent with a property to sell when stock is short, and of cutting competitors out. However, it is the market that ultimately determines prices, and once thus snared, the seller may well find that the promised capital gain evaporates. In the end, sellers are persuaded to accept a price far lower than the original inducement. Most agents say they object to the practice but are unable to stop it. What is a bad habit in SA is a crime in other countries. States in Australia, for example have laws against agents who repeatedly overvalue properties and the culprits face fines of up to R100 000. SA needs similar legislation – against this ruse and all other practices that corrupt the free market. Response from IEASA National President - Bill Rawson With reference to the editorial "Fairy Lights Over Property Prices" (July 18): The Institute of Estate Agents (IEA), as the estate agency industry's professional body, agrees that it is far too easy to become an estate agent. The only qualification required is the ability to pay the Estate Agency Affairs Board (EAAB)'s modest registration fee. A compulsory entrance qualification was introduced in 1984, but it was abolished in 1993, because it prevented too many people from entering the industry! Calls by the IEA and the industry for the reinstatement of the compulsory exam have consistently been turned down, evidently because the Department of Trade and Industry (DTI) sees it as a barrier to admitting historically disadvantaged people into the industry. New agents who have not passed the exam voluntarily are required to spend their first twelve months as "candidate estate agents", being supervised and trained by their principals. However, the EAAB has never prescribed what they must be taught. Regarding the call for legislation against the deliberate over-valuation of properties in order to obtain sole mandates: legislation has already been in place for ten years. Clause 3.8 of the Estate Agents Code of Conduct, which was issued by the DTI in 1993, expressly prohibits agents from knowingly or negligently over-valuing in order to obtain mandates. The Code is enforced by the EAAB, whose powers of sanction range from a reprimand through a fine to expulsion from the industry. However, the EAAB acts only if consumers complain to it. So perhaps consumer education rather than additional legislation is the solution. No seller should accept an estate agent's valuation unless it is in writing and is supported by details of similar properties with which the agent has compared it. Today's estate agents have several sources - including online databases - from which to obtain that information, and sellers should not accept valuations which are not in line with the recorded data. And, if a seller finds that he is a victim of deliberate over-valuation and its resultant problems, he should report the agent to the EAAB for disciplinary action.