An estate agent mandate is the legal agreement between the agent and the seller of the property. There are 3 different types of estate agent mandate in South Africa: an Open mandate, a Multi-listing mandate and a Sole mandate.
1. Open Mandate with an Estate Agent
If you want many agents to market your house at the same time, you could sign an open mandate with each estate agent. With this arrangement, the estate agent who brings the buyer gets the commission, and the other agents get nothing.
In fact, you do not even need to sign an open mandate in writing but it is recommended so that the commission percentage is agreed upfront and also so that the estate agent is permitted to list your property on the property portals.
As the seller, an open mandate can seem an attractive option because you could have many estate agents selling for you and thus you would expect to get greater marketing exposure.
But there are significant problems with going the open mandate route and having multiple agents:
- usually agents working on an open mandate are passive and do not spend as much time or money marketing your property as they would on a sole mandate. They know that all their efforts could go unrewarded if another estate agent finds a buyer first. Agents may put a For Sale sign outside your house and list your property on their company website (both of which are essentially free to do), but may not do much more than this.
- there is a risk that you might have to pay “double” commission to 2 estate agents, each of whom may have a claim as to why they were the “effective cause” of the sale. This could happen, for example, if a viewer contacts one agent first, and then views again through another agent.
- since the estate agents are competing against each other to get the sale first, an agent who finds a potential buyer will be so keen for you to accept any offer that he or she may put pressure on you to accept the price offered, even if it is lower than what you would have wanted. So an open mandate can create a situation where the estate agent ends up working more for the buyer, rather than for you, the seller!
- you will have to co-ordinate home viewings with a number of different agents, which can be quite a hassle since each estate agent will need a key, alarm access etc.
- each agent will put up a For Sale sign outside your home and there could be multiple listings on the portals. This can create the impression that your house is less exclusive or that there is something wrong with it and/or you are desperate to sell. None of these impressions will help you secure a sale at the right price.
Having an open mandate with only one or two agents would mean you have the benefit of not being locked in to a contract period without the disadvantages associated with having too many agents.
2. Multi-listing Mandate with an Estate Agent
Some estate agencies have a multi-listing (“mls”) arrangement with other agencies. What this means is that after you sign the multi-listing mandate with the “listing agent”, your property details are sent to the other member agencies in the multi-listing group.
These other estate agents can then also market your property and will approach you directly if they think they have a potential buyer. If one of these other agents does find a buyer, then the commission is shared (usually equally) between the listing agent and the referring or “selling” agent who found the buyer.
The multi-listing mandate may be called a “letter of authorisation” and is technically a shared sole and exclusive mandate (see explanation of sole mandate, below).
In principle, this sounds like a good arrangement to get competition going amongst the estate agents. However, in reality there are definite disadvantages:
- In order to be part of a multi-listing arrangement, the listing agent sometimes must agree to charge a seller a certain (high) commission percentage which cannot be reduced. (As an aside, this could be considered price-fixing and there are some who believe that the Competition Commission may well view it as anti-competitive behaviour and take action against it.)
- Just like with open mandates, mls estate agents try to get the seller to accept an offer from a buyer which they have sourced, which may not be the best offer.
- It can be very inconvenient dealing with independent requests for house viewings from estate agents you may never have heard of. For each one you will have to arrange keys, alarm codes etc.
- If a multi-listing mandate is signed, the listing agent very often does not spend too much money marketing your property since there is a greater chance that the other estate agents might find a buyer first, in which case the listing agent will only get half of the commission. But, as with open mandates, the other agents also aren’t going to exert themselves too much because of the risk that they aren’t first to get a buyer. So what usually happens is that the other estate agents don’t market the property actively either and may only show a potential buyer the available multi-listed properties if the buyer has no interest in the agents’ own listings.
- Multi-listing mandates might increase the potential exposure that your property gets but, equally, there is far less accountability and much more passive marketing than would be the case for a sole mandate or an open mandate with only one or two agents.
3. Sole Mandate with an Estate Agent
A single estate agent is authorised to market your property and, when the property is sold, the agent is paid regardless of who sourced the buyer (although it is usually the agent). As the seller, you are required to sign a fixed period contract, usually for 3 months.
Note that a “Dual” mandate is essentially a sole mandate that is signed with 2 agencies, rather than just one.
The estate agent who has the mandate with you may often market your property informally with other agents whom your agent trusts. If one of those estate agents refer a buyer to your agent, then they will usually get a share of the commission. However, this arrangement is not your concern and you only have to deal with the single estate agent you appointed. Your agent retains control of the selling process and you won’t get calls from other estate agents.
Strictly speaking, unless the mandate specifically states otherwise, if the seller him- or herself finds a buyer then no commission is payable to the agent. However, normally a sole mandate will include wording (such as “sole selling rights”) to make it “exclusive”, which means that even if the seller finds a buyer then the agent will earn commission.
As the seller it may seem unfair that if you find a buyer yourself then the estate agent will still earn a commission. Plus, you are locked in to using the services of that agent for the agreed time. So, as the seller, you do take a risk when you grant a sole mandate and you must be certain you are selecting a great agent who will give your property maximum exposure.