Advice and Opinion

Guidelines for property investors when choosing a rental agent

Louw Liebenberg, CEO of SA’s largest rental transaction processor, PayProp says that the correct appointment of an agent to manage a property asset is vitally important in ensuring the investment is safe and viable. “The duty of an estate agent is to ensure that the asset generates the maximum return for the landlord while being optimally maintained so that it will continue to generate income for the investor for a long period of time.”

Liebenberg outlines a few considerations when choosing a rental agent:

Is your Estate Agent really an Estate Agent?

South African law requires that every estate agent be issued with an annual Fidelity Fund Certificate (FFC) in order to be able to trade. This provides assurance to the consumer that should he suffer financial losses due to negligence or fraud by the agent, he is able to claim damages from the Fidelity Fund.

“It is not only illegal for an agent to conduct business without an FFC, but is extremely risky from a consumer’s point of view to engage with someone who is not properly registered to manage what is arguable their largest monthly financial transaction,” says Liebenberg.

Is the mandate clear?

Mandates are generally divided into two categories, namely introduction and managed mandates, and it is important that the owner is clear which applies. An introduction-only mandate means that the agency will find and place a tenant only, and takes no further responsibility for the property. A managed mandate means that the agency will take care of collecting monthly rental payments, make payments for the property on behalf of the landlord and in some instances also take responsibility for the maintenance of the property. It is important that both parties reach agreement upfront about where the role of the agent starts and stops, and that this understanding is recorded in writing.

Who holds the deposit?

The deposit can be kept by either the owner, or by the agency. When it is held by the agency it is important to check that the agency has the appropriate checks and balances in place to be able to regularly report on the balance of the deposit.. If, at the end of the lease, there is damage to the property and the deposit has not been safely kept, it is the owner that suffers.

Do a credit check

It is vital that the landlord has some peace-of-mind about the quality of the tenant and these checks show that the tenant has an acceptable credit record. It is important to ensure that the agency understands the result of the check. Often a check is done, but the underlying scoring is not fully understood. “We recommend that owners ask for a copy of the result so that they can look at it themselves in order to ensure that it has been correctly interpreted,” says Liebenberg.

Communication ground-rules

As an owner you do not want to be left in the dark with regards to the financial transactions that have occurred on your property portfolio. Establish upfront from the agency how they will be communicating with you, how regularly and what the content of the communication will be is important, as well as making them stick to it. A responsible agent will send you monthly statements detailing what has been invoiced to the tenant, what has been received and what has been paid out. If the agency does not have the capability to provide this information regularly and accurately, it should raise serious questions with any responsible investor.

Liebenberg says that its crucial to remember that as an investor, the property is owned by you giving you every right to insist that it be properly managed. “You should also be kept updated on every aspect of the implementation of the lease. If an agency is not able to offer you this basic assurance, there are plenty of reputable agents out there that are able to help,” concludes Liebenberg.

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