Insight

Buying or Selling Property: How Protected Are You Really?

Buying or Selling Property: How Protected Are You Really?

Whether you are buying a property or selling one, you are entrusting your biggest investment or asset to an individual who you hope will behave professionally, ethically and lawfully. Unfortunately, occasionally, this is not the case. When things go wrong, one hopes that there is adequate legislation in place to protect the victims of 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 the introduction of the Property Professionals Act this mandatory obligation has received further prominence with conveyancing attorney now not being authorised 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 folk who may have suffered losses due to fraud or theft of funds entrusted to a real estate agent. It doesn’t cover losses suffered due to agencies’ misconduct, negligence or misrepresentation. So, for example, if you think you can claim from the PPFFC because your estate agent sold your property to a friend below market value, you can’t.


Most estate agents will tell you that they do not accept any 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 receives the rental deposit to be held in trust. But not all agents are rental agents.


We support the practice of a purchaser paying the deposit or the balance of the purchase price into an attorneys’ trust account pending registration of transfer. 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.


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.


What should be done 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. What is it that they say about fish rotting from the head…?


We always aim to make you aware of potential pitfalls when transacting in property so that you can take adequate measures to protect yourselves.

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