In case it isn’t obvious enough, I’m definitely a nerd. Specifically: I’m not afraid to read a contract, in detail, with a highlighter. And for a variety of reasons (not least of which the fact that I’m a serial renter), I have read my fair share of lease agreements.

Enough lease agreements to have a favourite clause.

This one:

“The Tenant represents that he was not shown the Premises by any real estate broker or agent and that the Tenant has not otherwise engaged in any activity which could form the basis for a claim for real estate commission, brokerage fee, finder’s fee or other similar charge, in connection with this Lease.”

In this age of the internet, twitter, and online selling platforms, I dislike the fact that estate agents still exist. Their websites are full of benefits attached to “marketing” and “marketing dollars” and “you might end up paying double fees if you don’t give us a sole mandate”. Also, the ever portentous “private selling, as ill-advised as it may be” line that just gets dropped around as though this somehow justifies an estate agent’s commission.

Why We Needed Estate Agents

In a world before the internet, twitter, and online selling platforms, how did you sell your house? I mean, it wasn’t exactly easy to find a buyer, unless he arrived on your doorstep and declared “I want to buy this house – and I will pay you a price for it that you will find impressive but one day will look back on and ask your children if they can believe that this is what you sold your house for…”

And the same thing went for people wanting to buy a house – either you already knew someone selling, or you had to make unsolicited offers.

So the real estate market needed those cheerful and optimistic ladies with perms to keep their well-annotated lists of people that they knew were buying and people that they knew were selling in order to find matches and be a general point of reference for other cheerful and optimistic ladies that might know a potential buyer for their potential seller and vice versa and it was all very necessary and successful and a good career path for women with few marriage prospects.

Or, in economic terms, you needed estate agents to make the market. Without them, the buyers would struggle to meet sellers, and the sellers would struggle to meet buyers. So estate agents performed the valuable service of introduction. And because the sellers would meet more buyers than they would otherwise, this allowed for higher prices in areas that had more demand. And because of these higher prices and quicker sales, the estate agent was justified in charging a commission.

Today?

Today, the market is already made. There are plenty of property websites and classifieds. Buyers and sellers are prepared to be fairly public about their interest – which calls into question the need for estate agents.

In South Africa’s market, the roundabout 7.5% commission is justified by “marketing reach” and “professional price advice”. Oh, and some experience with sale documents (although that side of things is generally covered by the conveyancing attorney – because, well, why would you get an estate agent to check a sale document?).

So let’s say that you’re selling a R3 million home. If you get your R3 million asking price within the first month of offer (because there’s the old and convenient adage “your first offer is generally your best one”), you’d be paying your estate agent R225,000 for their marketing expertise, excluding VAT. And I’m not sure why they exclude VAT, because most homeowners are individuals who cannot claim the VAT back, and therefore their paid fee is more like 8.55% and/or R256,500 on that R3 million home.

So you’ve paid R256,500 for the following:

• Some offhand advice on price – like “We can definitely get you R3 million” before you sign the sole mandate, and “It’s a buyers market, we’ll be lucky to get R2.5 million if you really want to sell it” immediately after.
• Some advertisements in the property sections of the Sunday Times, the local classifieds, gumtree, and on www.privateproperty.co.za*.
  *Definitely NOT “private” property any more.
• Some placards advertising the estate agent on and around your house.
• Visitors at irregular hours.
• Plenty of phonecalls when you’re busy, and straight to voicemail when you actually want an answer about something.
• Emotional manipulation.

And there’s plenty of the last, for two reasons:

1. There is informational asymmetry: you’re not familiar with the property market (but the estate agent is), and the estate agent is speaking to both the buyer and the seller while you are only speaking to the estate agent. So there is plenty of opportunity for manipulation. And lying exaggeration.
2. The estate agent only earns their commission when the sale goes through. True, they may earn a higher commission if the purchase price is higher – but they also earn more money if they sell more houses. So there is plenty of incentive just to close the deal.

So if you’re really looking for the help with selling, then I’d make some observations:

• Valuations can be done separately. You can pay for one that gives you details of trends and asking prices in the vicinity and closed sales in the last few months. Here’s a website that does it: propiq.property24.com. For R69.99 (at least, that’s what it wanted to charge me).
• Promotional ads on privateproperty.co.za and gumtree.co.za are not all that expensive. You could do those yourself for less than R2,000 a month.
• A 50 square cm full colour advert in the Sunday Times will set you back around R20,000.
• Some professional “For Sale” signage might set you back R1,000.
• All of which are cumulatively less than 8.55% of the purchase price (unless your home is a really really cheap one – in which case, probably no Sunday Times advert for you).
• If you really want someone to hold your hand, there are estate agents that will work for a fixed monthly fee.
• And as for the helpful advice on buying/selling a home, that’s what the internet is for.

Perhaps I’m unnecessarily biased.

But here’s the real question: would you pay yourself 8.55% of the final selling price to manage the sale yourself?

I would.

But then again, I’m a serial renter. *shrugs*

I just think that it’s worth considering before you sign that mandate.