It is only human to see the world through a lens which supports our personal assumptions, beliefs, and perceptions. From birth, our understanding of the world is crafted by our experiences, by what we identify with, and our choice of career also definitely colours our perspective.
Although I am estate agent now by profession, it was not always so. I started out as an attorney, qualified as a notary, and given my love for property subsequently as a conveyancer (specialist property lawyer who can effect transactions in the Deeds Office etc).
From early in my legal career, I thrived on being detail orientated, negotiating deals, and crafting win-win agreements. I enjoyed closing deals so much that I also wrote the EAAB exam with the conveyancing exam. In those early naive days, I had the idea of possibly getting the commission on the sale and maybe the transfer, by owning an agency and a law firm. However, with experience and the invaluable knowledge and tools I gained studying towards an MBA, I realized that these two professions do not do well together.
Some factors that aggravate against a practicing lawyer acting as an estate agent:
Property is indeed a complex transaction and fraught with risk, which is why it is so important to have an independent agent and an unconnected, independent conveyancer. This provides the necessary protection to the parties against risk, as there are the required checks and balances in place. It also follows that these checks and balances are behind the rationale of promoting the independence of professions. If one looks at the separation of functions in government, all too often we see what goes wrong when one function captures another – it simply does not end well for the end user.
It also follows that these checks and balances are behind the rationale of promoting the independence of professions. If one looks at the separation of functions in government, all too often we see what goes wrong when one function captures another – it simply does not end well for the end user.
Imagine the situation: an estate agent makes a mistake, it can happen, we are all after all human. The estate agent works for the lawyer’s firm. The lawyer should address the issue with the seller but this exposes the lawyer’s company and by extension the lawyer. Given that this can have severe negative financial and reputational consequences for the lawyer’s estate agency and law firm, will the lawyer still take the same action he or she would had it been an independent estate agency?
In nature, competition is vital because it keeps everyone at the top of their game. Although we have a professional panel, that panel is constantly being reviewed, which means that our clients benefit from great service. But what happens when the agent or more likely the person acting as the agent for the lawyer, has sold a property. He or she knows that they have to refer it to their boss’s company or there will be consequences. This is even more so if a low commission structure business model is used for the agency. This model will only work if they can secure the registration of the transfer and maybe also the bond. But what about the scenario where the lawyer’s office’s service begins to be less than adequate because there is no competition? What about the client, are they now simply grit for the mill?
Competition is what keeps standards up, in its absence, standards fall.
I can remember that as a young law student you get it drilled into you that risk is everywhere. I once heard it said if you need 10 quick reasons why an entrepreneurial idea will not work, ask a lawyer. The estate agent is someone who recognizes risk, sees the opportunity, and with the professional team, makes it happen for the client. These differing approaches make a massive difference in the market. It is important to remember that the two professions have very different scopes of practice and foci.
There is also a perception amongst some attorneys that estate agents do not have the same level of legal knowledge as lawyers and since property is governed by law, they reason that practicing lawyers would theoretically make better estate agents. I must admit initially, I also shared this view. But I was wrong, very wrong. There is so much more to being a good estate agent than meets the eye and which our legal colleagues do not see. But in reality, a good agent draws on knowledge and experience, which is no less valid. A good agent also knows the law as is required at our place in the transaction cycle, after all, if all agents knew every detail, we would not need lawyers.
A wise businessman once said of sales that it is almost always one of the highest paying positions in any company because, without sales, nothing happens. It is also the hardest part since so much must be negotiated and dealt with before a contract of sale lands on a conveyancer’s desk.
The law societies do not allow multi-disciplinary practices because it subverts the independence of the legal practitioner.
The question arises if a lawyer owns a separate company, which practices from different premises; does this not have the exact same effect?
I understand that some lawyers actually use their law firm employees to do the work of an estate agent, which is something they should consider checking with the EAAB and their local law society, as there are limits to what a lawyer’s employee can do in terms of the Act.
As a professional estate agent, I have built up a professional panel of attorneys whom I can recommend. This was based on results, client feedback, reputation, and most importantly, the lawyers who can get things done. Very often, these practices are popular amongst other estate agents exactly for this reason. These well-established practices obviously would never operate an estate agency because they would lose their agent’s support because they would become direct competition for the other agents. It is also these practices which have a massive name to protect and base their service on always trying to do the best for the client. The most important reason though is because blurring the boundaries between professions creates an environment in which conflicts of interest can flurish.
Rightly or wrongly estate agencies are more stringently audited than law firms. I recently spoke to an auditor who mentioned that an estate agent is audited to the same risk profile as a listed company.
Now I do not agree that that is necessary, but as an attorney, only my trust account was audited and as an agent, both trust and business are audited. It is also important to remember that as agents we don’t touch client money in our practice. So if your estate agent has a current FFC, it comes with a great degree of peace of mind.
Now, I understand the refrain, lawyers know more about the law, which I appreciate being a qualified conveyancer (though now non-practicing). In the past, it could have been said that that agents had rudimentary knowledge but that has changed considerably over the last years with much more thorough exams and continuing education.
But let’s put the legal side into perspective. There is a lot of law out there but that is why we work so closely with our panel conveyancers. They specialize in keeping themselves at the cutting edge of the law and we leverage that in our practice. It is rather simplistic to say that an in-depth knowledge of the law is the sole criteria, as an agent I know that law only constitutes a fraction of the skill set required. Time also simply does not allow one to proverbially ride two horses at the same time.
Any professional is busy, very busy. Time is never a friend and there is a multitude of things that have to be done. The question I would have for anyone wanting a practicing attorney to sell their property is where is he or she going to find the time?
There are evaluations, presentations, meetings, on site consultations with contractors, stagers, photographers, viewings, open hours, taking of offers, presentation of offers, attending on all the work that comes from the sale, like getting updated plans etc. When is a lawyer going to get the time, unless the lawyer has no work? The only other option is to hire employees to do that work, but then are they as experienced? What caliber of the agent will you get? Real estate is a personal service profession if you are not getting the personal support from the professional, who are you getting it from? It will definitely not likely be the practicing lawyer, which was the whole reason for considering the option in the first place.
In real estate, it is often said that an agent who will cut commissions is often not strong enough an agent to fight for the highest selling price for the client; after all a cut price commission is the easiest listing in the book.
Previously, as a conveyancer and subsequently as an estate agent I have had the privilege of being in many negotiations relating to property. I have also noticed that a great agent very seldom if ever drops their commission because it floats with the selling price. A great agent will also fight for the highest price possible and that makes a good agent indispensable.
But then comes the offering whose main value proposition is a low commission because it’s easy to get listings and it’s not a stand alone business merely add on to the legal work. In the old days, there was a saying “goedkoop is duurkoop”. In a transaction, there is a value proposition and that costs money to bring to the table. If the price is too low, it simply is not financially viable to bring the proposition into being. In the US there are many low-cost companies but profitability has been questioned and with it, their sustainability is once again in issue.
Most value offerings by practicing attorneys have historically focussed on cut commission. There is a practical and important issue is that in Port Elizabeth, we have many shared deals.
A shared deal is where one agent lists the property but the buyer is represented by another agency and they share the commission. A buyer’s agent spends a lot of time and money taking the buyer to different properties. in a buyer’s market, will a buyer’s agent really opt to share a cut commission when they are spoilt for choice?
As an example, a buyer’s agent (X) has 6 possible homes which meet the buyer’s brief, all are 5% commissions, save the cut commission offering. In Port Elizabeth, many agencies will share 60:40 in favour of the listing agency. So X could earn 2% with the standard agencies or 1.2% with the cut commission agency, which becomes crazy when you consider that that X still splits with their agency.
Saying that a practicing lawyer is a better choice than an estate agent really does not make nearly as much sense when properly considered. An estate agent must be an area expert, they must be knowledgeable in aesthetics, trends, finance options, changes in town planning, know what a specific area offers, be able to coordinate and the multidisciplinary team which may include multiple professions, be current on what adds value and what amounts to over capitalization. One could go further but I do feel the point is made that a good estate agent is a professional in their own right and has more than sufficient knowledge for the role they play. In addition, to become a good sales person takes years of practice and it never featured in any law curriculum I came across.
GOING WITHOUT AN ESTATE AGENT
If one looks at trends in the US, which is a market far further ahead than ours, despite Zillo etc, one thing is clear the agent is still here and for good reason. No app can truly give you a realistic valuation. At best it’s a partially informed guess but in property, guessing is not rewarded. In law there is a saying “he who represents himself, has a fool for a client”; in property, the same could be said.
If one looks at the property market never before have there been more apps and products to help a seller sell on their own, yet statistics show that private sales have dropped dramatically. If we consider that family sales are included in this statistic, the role of a good estate agent is made all the more necessary. It is clear that although many people may buy without an estate agent, they are still assisted by the listing agent, which is very often forgotten but those who see the stats out of their context.
DISCLOSURE OF DEFECTS
A good estate agent helps an owner declare all the defects in the property and this can take time. In my personal practice, we spend a long time trying to identify and list the defects to ensure proper disclosure to the buyer by the seller.
We also mention that the buyer is entitled to appoint a home inspector, should they so choose. Thus ensuring that we have performed our professional duty and protecting our client while making sure that the buyer is aware of what they have purchased. This once again takes time which actively practicing lawyers just don’t have.
Real estate brokerage is a professional business and there is a wide range of commissions in the market. In my experience, the majority of agents tend to charge 5%, along with VAT if applicable, although some do charge more. It is a common misconception that the average commission or going rate is 7.5%, as this is most likely not backed up by actual stats. The fact is that commission can be negotiated but knowledge, experience, and specialization should never be.
So in conclusion, would it be a great idea to get a practicing lawyer to sell your property? I would say that in my experience my personal belief is that it does not and that you will not get the same package of value. I am not going to consider the legality of multi-disciplinary practices nor the EAAB’s interpretation of the law about attorneys actively running estate agencies out of legal practices.
The cost of compromising the independence of professions always comes at a cost and it’s usually paid by the client, whether they know it or not.
However, I am in favour of attorneys choosing to become estate agents instead of lawyers because they have a lot of knowledge of the law but they have a lot to learn about real estate before they can become a great agent.
Clinton Begley (PPRE MPRE CEA B.PROC (NMMU)) is the co-founder, Principal/Director at BOLD REALTY, in Port Elizabeth, South Africa. In addition, to his passion for people and real estate, he is also an experienced trainer, coach, and mentor. He holds a B.Proc degree through the Nelson Mandela University and is a non-practising Attorney, Notary, and Conveyancer (with over a decade of experience). His legal and real estate experience is augmented by studies towards an MBA degree through the Nelson Mandela University Business School. This article reflects the personal opinion of the author only, it is NOT intended as legal advice nor may any reliance be placed upon it. The article is purely for information purposes and you are advised to consult an expert before making any decision.