When you buy or sell property, you are entrusting your
biggest investment or asset to an individual who you hope will behave professionally,
ethically, and lawfully. Unfortunately, and occasionally, this is not the case.
When things go wrong, you hope that there is an adequate legislation in place
to protect you from this misconduct. But what if legislation falls short?
A Property Professionals Fidelity Fund Certificate (PPFFC)
has always been a stringent requirement enforced by the Estate Agents Affairs
Board (EAAB). Following its introduction, this mandatory obligation has received
further prominence with conveyancing attorneys now not being authorized to pay
an estate agent commission without them proving that the estate agent is in
possession of a valid Fidelity Fund Certificate. Is this truly in the interest
of the public or is this a legislated moneymaking racket?
As per section 35 of the Property Professionals Act, the sole
purpose of the PPFFC is to reimburse people who may have suffered losses due to
fraud or theft of funds entrusted to a real estate agent. This does not cover
losses suffered due to agencies’ misconduct, negligence, or misrepresentation.
For example, if you believe you can claim from the PPFFC because your estate
agent sold your property to a friend below market value, you cannot.
Most estate agents will tell you that they do not accept funds
from any party to a property transaction until the transaction has been
finalised and registered at the Deeds office. Then only, will they receive the
commission to which they are entitled. The exception to this is where the agent
is acting as a rental agent and received the rental deposit to be held in
trust. But not all agents are rental agents.
Property Factor, property finance specialists, support and
encourage the practice of a purchaser paying the deposit or the balance of the purchase
price into an attorneys’ trust account pending registration of transfer.
“For numerous written, we advise all our clients never to
pay any funds to real estate agencies. The bottom line is that the penalties of
someone in the legal fraternity committing fraud are far more severe, their
reputation forever tarnished and their earning potential drastically
diminished, following a hefty investment into their career. It is no secret that
estate agents do not suffer the same retribution and anguish,” says Tess
Rodrigues, managing director of Property Factor.
“If it is common practice for estate agents not to accept
deposits, why are they paying for a PPFFC, maintaining a zero-balance trust
bank account which accumulates monthly bank charges and have their financial
statements audited at an exorbitant cost? Furthermore, why make it so
unaffordable for previously disadvantaged Individuals to participate in the
industry? The Minister of Human Settlements, Water and Sanitation should be
coerced by the industry into re-examining this unjustified piece of legislation”
“The proverbial wool is being pulled over the consumers’
eyes, leading them to believe that if they employ the services of a real estate
agent with a PPFFC, they are protected. But this is true only if they are reckless or compelled
to depositing funds with an estate agent.”
Property Factor suggests the following alternatives to the
current legislation to effectively protect the interests of consumers
participating in the property market:
- All active property professionals must be
registered with the Estate Agent Affairs Board at a reasonable fee. Only those
agents accepting deposits must contribute to a fidelity fund and produce a PBFFC, before accepting any
funds. Consumers must also be alerted.
- An updated property professional registry must
be linked directly to the Deeds office. A transaction that had been facilitated
by a disbarred estate agent should be cancelled on lodgement and not allowed to
proceed to registration. This no-nonsense approach to unscrupulous behaviour
will ensure that all active agents tow-the-line.
- Section 57 of the Property Practitioners Act
makes provision for the Minister to prescribe indemnity insurance which an estate
agent must take out. In the interest of the public, which the EAAB are
obligated to protect, this must not just be a provision, but a fundamental part
of the legislation. All active, registered agents should have professional
indemnity cover in the interest of the agent, the consumer, and the industry.
- Instead of auditing financial statements, the EAAB
should be auditing qualifications and skills, facilitate training and education
and taking responsibility for maintaining a professional, well-administered and
“The real estate industry is often and unjustly badly chastised. However, if the legislation governing the industry is inadequate in protecting the interests of the consumer, ineptly enforced and even dubious at best, one can expect the occasional opportunist slipping through the cracks to the detriment of the industry as a whole” concludes Tess.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Property Wheel.
Source: Propertywheel.co.za | https://propertywheel.co.za/2020/11/opinion-buying-or-selling-property-are-you-really-protected/