Kickbacks on estate homes marketing compromises optimum price

Just how free is a so-called free market environment when it comes to buying or selling a property in a gated residential estate? 

Well, it appears nowhere near as free as it could, or should be – judging from the perceived ‘kick-back’ policies of some secure estates in Johannesburg’s Northern Suburbs and Sandton.

In one example of this practice, in the Midrand area – the management company of an upmarket residential estate automatically takes 1% of the value of the property. This amount is normally deducted from the estate agent commission.

Furthermore, the selling agent, or his / her estate agency, must be listed on the estate’s panel of real estate agencies before they can sell a home and be confronted with the unpleasant experience of parting with at least 20% of their commission.

So, where – and how – does the free market concept feature in this arrangement? Does it not, in fact, fly in the face of South Africa’s Constitution?

Best agents achieve best prices

In a free market environment, the top performing real estate agents invariably achieve the best prices for home sellers. And they tend to do so in a climate of extremely intense competition. That is the reality of the homes market. And it is unlikely to change in the foreseeable future. Neither should it change. However, gated residential estates, often driven by active, cash flow-hungry Home Owners’ Associations (HOAs), are a different story. 

In the past, HOAs have persisted in charging so-called estate-approved agents an annual (R10 000 - R35 000) ‘accreditation’ fee for the privilege of marketing homes on their estates. This combined with the 20% reduction in their commission is a major disincentive for the top agents to work on these estates.

Limited choices

It is nevertheless ironic that, in doing so, HOAs have inadvertently put tight limits on the choices available to the very clients they were appointed to serve and protect. 

As a result, it is not necessarily the best-equipped agents that have ended up being entrusted with the sale of residents’ most precious assets – their homes.

Furthermore, in the big estates, accredited agents can become so overloaded with properties that their levels of service tend to dilute. In the process, sellers can be compromised from achieving their optimum value.

On the face of it, accreditation is akin to ‘tenderpreneurship’ – where what is paid off the playing field dictates what happens on it.