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” says Tess.
“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 qualified sector.”
“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.