When selling a property, an agent may request a 10% deposit from the buyer, which is not refundable if the buyer pulls out of the deal. In a hot property market where there may be many buyers lining up for a property, it makes sense for the buyer to put money on the table to secure the property.
What may surprise the seller is that this deposit is not to compensate his or her if the deal falls through. It is mostly to protect the agent’s commission, and very little may be left to compensate the seller if the deal does fall through.
If the buyer decides not to go through with the deal, he or she may lose the 10% deposit — the lion’s share of which goes toward settling the agent’s commission, which can be as high as 8,55% (7,5% plus vat).
This practice is not at all favourable to the seller, who has lost other potential buyers and has to put the property back on the market, again undergoing the uncertainty of whether or not they will buy.
It may also have a financial impact if the seller has bought another property on the strength of the sale and it becomes a forced sale for less than the original purchase price.
The agent, however, has received commission in full and may possibly have another crack at selling the property — making a further fee — especially if the sale still falls within the mandate period. This does not incentivise the agent to do a thorough financial check on new potential buyers, or to keep a close check on the transfer process.
Attorney Aaron Stanger says all sale agreements are open for negotiation. “People think that because it is printed on a piece of paper it is not negotiable. The seller and buyer are always at liberty to amend the contract.”
Stanger recommends that, firstly, the seller requests that the deposit is held in his or her attorney’s trust account rather than the agent’s.
Secondly, he says, the seller can stipulate a roukoop condition: if the sale falls through, pre-estimated damages that the seller has incurred have to be paid before the agent receives his or her commission.
“It is important to remember that there are three parties involved in a sale, and all three have a right to set their terms.”
Stanger says the seller and agent can come to an agreement about how the deposit is split or certain requirements the agent must meet in order to claim a commission. In this way, the risk of a default is shared by the seller, buyer and agent as opposed to the standard practice where the seller and buyer take all the risk.
A Johannesburg property investor and developer suggests that sellers amend the contract to stipulate that commission is only earned on transfer. This means that the agent has to continue to work for the seller during the transfer process to make sure it runs smoothly.
With standard contracts, although the agent is only paid on transfer, he or she earns commission on the sale of the property, which is why they are entitled to the deposit if the deal falls through.
It may not be easy to get an agent to agree to these terms, but if he or she wants the business and is confident about their service, an agreement should be reached based on risk sharing.