Problems Of Real Estate Agency In Nigeria

The Problems & Solutions In Real Estate Agency Practice In Nigeria

Gazumping occurs when a buyer has made a verbal agreement with the seller of a house to purchase that property at a given price. However, in the intervening period between the verbal agreement being reached and a sale agreement being signed and deposited upon (the point at which the offer‘s acceptance becomes legally binding) the seller receives a higher offer from another would-be Purchaser and accepts that instead‘The original buyer, who thought he had a deal, has been gazumped.

Gazumping raises ethical questions for the seller of whether he, having given his word to the initial buyer to sell, should honour that word. On the other hand, this is not a popularity contest for the seller and he would have gone to market justly seeking the best deal for his property. Buying process has two distinct phases: First, there is the verbal or written offer to purchase followed by the verbal or written acceptance of offer. This is a necessary stage in the buying process but cannot be seen as a commitment either to buy or sell. Secondly, having made an offer that has been accepted by the seller, a verbal agreement can then be reached that is usually meaningful, and gives the agent time to draw up a sale agreement and have it signed by both parties and deposited upon. The speed with which this agreement is signed and some consideration is paid is crucial to minimize the possibilities of another offer being received in the interim. The seller does have the right to sell to the highest bidder, and most properties are offered on a non-exclusive basis which means that the seller is fielding competitive offers from a number of agent. There are definitely people of integrity who shake hands on a deal and stick with it, but to be safe, signing and depositing must be seen as the point at which a binding contract has been made. An offer to purchase and an acceptance of offer are just that; they are not binding on either part in our legal system.”

The issue of gazumping, and the mitigation of it, often comes down to the length of time lost between the acceptance of the verbal offer and the signing of the sale agreement. The more this danger area can be reduced the less time is available for other offers to be put forward. It is a particular problem in Nigeria where this hiatus period can last for anything up to ten to twelve weeks. To speed up the process agents have a standard sale agreement which we have had drawn up by our attorneys. We can download this directly from our system.
On average it’s signed within one-to-two days of the verbal offer being accepted. But the process of offer being made, sale agreement drawn up and part of deposit being secured on behalf of the vendor by the agent, can actually be processed within the same day. The only way the deal can be broken after that is if the vendor’s title is bad or if the purchaser fails to complete by the completion date, in which case the deposit will be forfeited.
Also if you foresee that the sale agreement will take some time to prepare or simply want peace of mind you should get a written Letter of Offer signed by both the buyer and seller. Signed by both parties, agreeing to the terms, it’s as good as a sale agreement.”

Unscrupulous Agents
Issues may arise when there are a lot of an agents charged with selling the property, as is normally the case in Nigeria.
A lot more control can be exercised where an exclusive listing has been awarded by the seller to a selected agent and where all offers to purchase must be channeled through that single agent. This is the more desirable situation because it is more formal; it ensures greater accuracy in the listing and provides a better service to the seller. However, not all sellers see this as serving their best interests and most insist on listing with a number of agents. Obviously the more agents involved the greater the chance of a competing offer being put forward, even when another one has already been verbally accepted.
Unfortunately, there are some unscrupulous agents who, even though a seller may call and tell them they’ve accepted an offer, might say ‘Have you signed a sales agreement yet because, if not, I could still get you a higher price.

Gazumping is a big problem in Nigeria. It is often a greater possibility when dealing with desirable, high-end properties which are more likely to instigate a bidding contest. The advice is, when making your offer, to be prepared to progress with everything as swiftly as possible. In particular, have your finances in place so that you can move forward as soon as you make the decision to buy. The more time that is available after your offer has been accepted the more opportunity there is for another offer to be made. There really is no way around it, just get your sale agreement signed quickly.

Major Problems of Estate Agents

Common problems of estate agents in Nigeria: making secret profits, providing wrong information for advertisement and transaction, corruption, misrepresentation under the lack of professional knowledge as well as argument on commission fee.

Make Secret Profits
It was a common phenomenon that an estate agent represents both buyer and seller. Under this circumstance, the estate agent could earn double commissions from two parties48. Also, the benefits of both the buyer and seller are not protected as the estate agents have a conflict of interest. Under the dual agency, an estate agent has a business opportunity as he has advance information about the property market price and the property conditions. Also, since the estate agent is on behalf of both the seller and purchaser, he is a representative of both seller and purchaser for price Negotiation. Due to his responsibility, it is not unreasonable for the estate agents to know the lower selling price of his seller and the higher buying price of the purchaser. Because of his advanced position, he can introduce a confirmer who purchases a property with a view to re-selling it for a profit before the completion of the transaction. By purchasing the property at the minimum price from the seller and re-selling it at the maximum price to the buyer, the confirmer can then earn the money of the price difference. Other Situation, estate agents can make secret profit by silence. As estate agents are sensitive to the punctuating market price, they can recognize the change of property market price. Instead of advising the seller to revise the price, they would buy the property for themselves, concealing their involvement in both cases. In some cases, estate agents may create an opportunity for themselves to purchase properties which are below the market once in order to make secret profit. Some estate agents may deliberately keep a property off the market until the seller in desperation lowers the price. At this time the estate agent steps in to buy the property either concealing their involvement or introducing a confirmer.

Provide Wrong Information for Advertisement and Transaction
As advertisement is a good tool to spread the information of the property market to the public and is able to attract the potential tenants/ purchasers’ interest on the properties, many estate agencies like to advertise some properties which are waiting for rent/ sale in the newspapers, leaflets as well as displace windows of the shops.
In order to attract more consumers’ attention, some estate agents would provide some false, exaggerated or fake advertisements relating to properties which were non-existent or no longer available in the market. Such practices of estate agents would affect the free property market as they created an artificial picture of the property market. When consumers who were attracted by the advertisement made enquiry of such properties, they might be annoyed with estate agents for their promotion of other properties in other situation, it is true that consumers may not know the details of the properties, what information they get about the properties is based on the material that estate agents said/ provided. However, without written document, it is difficult to prove that all the information said by the estate agents is true. They may puff to facilitate the transaction. Prospective purchasers may be induced to make an unintended decision on the transaction. Therefore, without holding any responsibilities, estate agents may exaggerate the size or understate the age of the properties. Even worst, some estate agents may provide inaccurate information about ownership, user restrictions and conceal some pertinent information such as orders requiring the demolition of illegal structures. Such behaviors may lead to substantial financial loss to the involved parties and further loss in time and money if it is resolved in court.

In order to sell the property efficiently, the estate agency will usually advertise some properties for promotion. Since it is impossible to advertise all the properties on hand, the estate agency needs to make a selection among the selling / leasing properties. Basically, this service is free of charge for the seller on the advertisement. However, the seller may be forced to pay ‘tea money‘ to the estate agent in order to ensure referrals. As the conveyance process not only involves the estate agent but also the bankers and lawyers, there is a risk for the corruption. Estate agents will take commissions from banks and law firm for referring the purchaser to them for loans and legal services without the principal’s approval. There is no standard form of estate agency agreement for purchase of residential properties which is signed between the estate agent and a purchaser. In some cases, purchasers are cheated to accept some unreasonable conditions before viewing the premises e.g. requiring the interested party to agree on the price or even requiring the interested party to sign the provisional agreement and to pay a deposit before viewing the premises.

Misrepresentation under Lack of Professional Knowledge
There were no specified requirements for people to do the estate agent’s work. Anybody could act as an estate agent to complete the property transactions by bringing a seller and a purchaser together into a contract. When the transaction was completed, such agent could receive an appreciable commission. Under such attractive income, many people would like to be estate agents as their part- time jobs. However, as they were lack of knowledge on the property market aspect, the property market was rife with many arguments and misrepresentations. Many part-time estate agents were innocent. They might not have knowledge on the procedure of the property conveyance. It was not uncommon that the estate agents did not provide a land search for confirming the properties’ information before signing agreement. They may make a misdescription of premises by giving the buyers all the information provided by the sellers without k,proving. Such careless behavior could cause trouble on the property transaction. Under this circumstance, buyers needed to take a risk with these unreliable estate agents.
On the other hands, the vendors may suffer from the property price as well. As some estate agents were not professional and familiar with the property market trend, they could not provide some accurate analysis and suggestion for the adjustment of the property price. Therefore, the vendors may earn less for the selling of the property or may have difficulty to sell the property with higher pricing than market price.

SEE :  Why Investors Who Buy, Sell or Lease Properties Hire Estate Agents

Argument on Commission Fee
Commission fee is the charge that the principal gives to the estate agents when the transaction is completed. Before the completion of the transaction, it involves many expenses e.g. advertisements, documentation, land search, etc. All these services are free of charge for the principal but these costs are paid by the estate agency. The only way to get back those expenses and earn the profit is through completing the transaction with the commission. Therefore, to facilitate a transaction, estate agents gain either the whole commission or none. However, some principals may want to avoid the payment of commission by terminating the agent’s authority and then directly selling to the party introduced by the agent, whether on the same or different terms. Under this circumstance, it is unfair to the estate agents with zero return. As a result, many arguments on commission fee may happen frequently. In order to get back the commission fee, estate agents need to prove their effort on such transactions. The main difficulty is that there may be lack of written records for purchasers’ inspections or without signing an estate agency agreement to protect the agent’s right. In other situation, the rate or amount of commission may still not be confirmed at the beginning which is subject to the contract. During the process, the rate or amount of commission may be changed orally by the principal. It is common problem to cause dispute on such commission. The principal may refuse to sign the contract, simply because he has changed his mind for the sale/ rent or has received a better offer69 from other purchasers or was unable to proceed further without holding estate title.

Conveyance Procedure
The conveyance procedure is examined in order to understand the duties of estate agents in a property transaction and their potential means to cheats can be identified. Estate agency is a platform for the property transaction. Estate agents are middlemen to bring together sellers and prospective purchasers, lessors and prospective tenants. They accompany their clients to visit target flats and mediate between the two principal parties in price negotiations. Where an agreement is reached, an agent prepares a Provisional Sale and Purchase Agreement (PSPA) to be signed by the seller and purchaser. The contents of PSPA are including the date of provisional agreement, names of the parties, property address and the price, payment method, agreed date for signing the formal agreement, the amount of deposit, the provisional deposit paid, the parties‘ responsibility and liability, list of items transferred with the property, etc. The purchaser needs to pay the seller for the provisional deposit when signing the PSPA. The estate agent is paid a commission for his service. Both the seller and purchaser should appoint the respective solicitors for legal documentation. The PSPA will be passed to the solicitor of the seller for drafting the formal Sale & Purchase Agreement. After the negotiation and amendment, the formal agreement will be prepared and sent to the purchaser’s solicitor for signing first. The remaining deposit, usually 10% of the property price, will then be sent together with this signed formal agreement to the seller’s solicitor. After the seller signs this formal agreement, this agreement will return to the purchaser’s solicitor for drafiing the Assignment of the property. If the purchaser needs to borrow money for the property transaction, he should make an application for the mortgage after signing the formal agreement. The banker will deposit the loan to the purchaser’s solicitor account and prepare the mortgage agreement to be signed by the purchaser.
The Assignment of the property will be signed and then sent to seller’s solicitor with the remaining purchasing price. The seller’s solicitor will give the property‘s keys, signed assignment and property lease in return. The purchaser’s solicitor should make an arrangement for property register. The transaction is completed. As mentioned before, if there is a mortgage, the property lease will be kept by the bank until all debt is repaid. Otherwise, it will be kept by the purchaser.

Agents have a duty to bring together sellers and buyers of a particular asset, and assists in negotiating an agreement between the parties in exchange for compensation. They should maintain no inventory of the asset, and are usually compensated by a fee charged to one of the transacting parties.
The agent should place the principal‘s interests above those of all others, including the agent’s own self-interest. The agent must be particularly sensitive to any possible conflicts of interest. Being the principal‘s interest as the largest, an agent may not disclose the principal‘s condition to the third party.
However, the real estate agents were blamed that they sometimes act as dealers to purchase property on their own behalf for investment purposes. Some agents, act as a dealer, maintain an inventory and stand ready to sell those who wish to purchase, and buy from those who wish to sell. Dealer compensation is equal to the difference between the amount the dealer pays for an asset and the amount for which the dealer sells it. In addition, under the dual agency, conflict for protecting the interest of seller and buyer occurs by the agent. When the principal is the seller, the agent may not reveal the principal‘s willingness to accept less than the listing price or his anxiousness to sell unless the principal has authorized the disclosure. On the other hand, if the principal is the buyer, the agent may not disclose that the buyer will pay more than the offered price if necessary or that the buyer is under a tight moving schedule or any other fact that might harm the principal‘s bargaining position. On contrary, the agent for the buyer should disclose information about how long a property has been listed or why the owner is selling that would affect the buyer’s ability to negotiate the lowest purchase price possible. And forth. He does not have a fiduciary relationship with buyers or sellers. He will not offer advice to either party. However, the non-agent system as the transaction process will be ineflicient without the professional advice, especially on the pricing issue.

Problems of Sellers and Buyers

Transactions in real estate do involve a great deal of money and therefore the best would be to make thorough investigation and consult with a professional before getting committed in a transaction.

Major Problems Seller:
l. By incorrectly valuing (pricing) the Horne Get your price right from the beginning even if it means paying for valuations. Any property that “sticks” will pick up a stigma. Even those buyers who are attracted to the property will ask, “What have I missed here that makes other buyers so wary?” In that situation they will either walk away or they will seriously discount their offer.
2. Not to prepare the property for sale most buyers don’t want to be bothered by spending extra cash for renovations on a newly bought property.
3. By ignoring the dangers of using more than one agent to sell a property. The risk of being forced to pay legal fees and “double” commission. The safest option is to only employ one agent/agency to do the job. Sellers should never attempt to enter into a private deal with a buyer who has previously seen the property with another agent. While the buyer and the agent do not stand to lose anything as a result of their actions the chances that the seller will lose alarge sum of money are great.
4. By confusing mere activity (lots of viewings) with genuine buyer interest lf you don’t get offers, something is obviously wrong find out what it is and be flexible.
5. By accepting offers from people who are not financially capable of purchasing the property don’t shy away from trying to establish a potential buyer’s financial status and don’t enter into agreements whereby the sale is suspended for longer than 14 days for financial approvals.
6. Fraudulently refusing to disclose hidden problems with the property many un necessary legal costs could have been avoided.
7. By making decisions based on emotion or sentiment.
8. Not pointing out unique features/ benefits of my property to agents and buyers.
9. By ignoring the seriousness and terms and conditions of the signed
contract furthermore keep contracts short and simple to the basics with in formalities.

Major Problems Buyers:
1. By not doing the homework Find out what the property is worth and what price similar properties in the area are selling for. One must have done “comparative shopping” on for the best value before entering into an agreement.
2. By not keeping the resale potential of the property in mind.
3. By not asking questions and doing a thorough home inspection many renovations and hidden disclosures may end up in expensive spending safter wards.
4. By not establishing my exact needs (current and future) and price and not getting my finances in place before shopping starts.
5. By not being patient and making personal remarks in front of seller; this only jeoparclizes the negotiations.
6. By ignoring the seriousness and terms and conditions of the signed contract Furthermore keep contracts short and simple to the basics within formalities.

Moral Hazard in the Real Estate Market
Moral hazard is a tendency to take undue risks because the costs are not borne by the party taking the risk. The term defines a situation where the behavior of one party may change to the detriment of another after a transaction has taken place. For example, a person with insurance against automobile theft may be less cautious about locking their car, because the negative consequences of vehicle theft are now (partially) the responsibility of the insurance company. A party makes a decision about how much risk to take, while another party bears
the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.
Moral hazard also arises in a principalagent problem, where one party, called an agent, acts on behalf of another party, called the principal. The agent usually has more information about his or her actions or intentions than the principal does, because the principal usually cannot completely monitor the agent. The agent may have an incentive to act inappropriately (from the viewpoint of the principal) if the interests of the agent and the principal are not aligned. All information about Moral Hazard in the real estate market has been received from the real estate investors and therefore only views one side of the problem. Real estate agents have not been asked for their opinion or been able to defend themselves. Our objective was to get an understanding of how significant the Moral Hazard problem is in the real estate market. When the investors engage an agent there are possibilities that Moral Hazard may occur, but how do the investors apprehend and deal with it. We are more concerned about the consequences that would occur if there is a serious Moral Hazard problem hidden in the agent’s actions. What actions will there be and how should the principal act if a serious Moral Hazard problem was discovered? Some white lies are accepted and are part of business, but giving wrong information and fouling your principal will jeopardize the career of the agent and he will be eliminated from the market as a result. The real estate’ market is a small market and it is therefore interesting to see if the investors think the will to uphold a good reputation for agents are enough to avoid problems with Moral Hazard.

SEE :  How To Handle Rent Increase In Lagos / Abuja Nigeria

Moral Hazard problem can be created in the following ways:
– Market Knowledge
– Supply of Agents and Temptation
– The Fee for Agents
– Short-sightedness
– Secret Market
– Different Services vs. Each Other
– Double Loyalty

Market Knowledge
Market knowledge differs between the participants and therefore the apprehension of the size of the problem is not the same for everyone. For instance, it takes time to understand the mechanism of the market and the foreign investors do not have the same information as the local investors have. Sometimes because of the insufficient information, the investor could feel that there is a Moral Hazard problem, even if it does not exist. To understand the mechanism of the market, you need to know how to do business and be aware of the customs in the country; otherwise there tends to be misunderstandings and disagreements. Since the market participants rely on each other, they do not treat Moral Hazard as a significant issue. By being updated and informed about what is going on in the market, they think the problem is reduced. Nonetheless, even having the same amount of information, Moral Hazard can still exist depending on how the investors interpret it.

Supply of Agents and Temptation
The market consists of agencies, at least of those large and more structured firms. Some opinions are that there is insufficient number of participants, while some think there is enough. lf there is an inadequate supply, the investors do not have an option to choose and that creates a good opportunity for the agents. In some cases, Moral Hazard can occur when the agent does not justify his existence and the investors do not have other agents to turn to. Another problem arises when the selected agents are too few to handle the load of work. Normally, for a good agent the amount of work will grow if the agents are too few.
It is hard to turn down new business opportunities and the temptation to sign up with too much work can occur. Principally, the agents are 100 percent organized; but there is always a risk that the agent cannot give every participant and 100 percent dedication. The reward tempts the agents and it is hard to refuse a business opportunity. Hence, the agents may rush over to the next deal and not perform their duties in the best way, creating a Moral Hazard circumstance. Besides, changes in the workload or other circumstances will also cause setbacks for the agents and leave them behind in the time schedule. This could sometimes be seen as a Moral Hazard problem as a result of deficient communication.

The Fee and Payment for Agents
Moral Hazard can occur when the agent’s fee, paid by the investor, is too low. Some may say “you get what you pay for” and mean it reflects in the effort and easiness of doing business. This could cost the vendor a lot if the agent does not act effectively, for instance by slowing down the process and therefore missing out on other business opportunities. Consequently, it is important to get a balance between the agency fee and the services expected. Agents can either work for a salary or on commission and mostly there is no problem with this, even if there can be a bigger risk in working only on commission. An opinion among the investors is that if the agents were partly on salary and partly on commission the will and motive to maintain good businesses would be higher.

The short-sightedness of agents is another problem. With or without the agent’s fee it is important to enhance the agent’s performance or it may lead to short- sightedness. An agent generally gives l00 percent of effort during the deal but once the deal is completed, the agent will disappear. The connection and the time to search for future business opportunities that gives both the agent and the principal income are not there. The agents are only involved for a short period and that causes a short-sighted relationship. This could be something for the agent to work on and develop. It is more common in Nigeria, investors and agents in UK try to establish more long-lasting relationships.

Secret Markets
Even in such a transparent market like Nigeria, there are still lots of undisclosed information. Many questions are popping up during the deals and some are left unanswered. This can sometimes cause frustration and jumping to the wrong conclusions. The secret market may not be a problem by itself, but it is in the background of the other Moral Hazard operations.
Different Services
It has been discussed how much the investors can trust an agent that belongs to a company that offers comprehensive real estate services, that may conflict against each other. Some investors like when the same real estate consultant offers full in-house service, while others believe that it is creating a problem. For example, sales and valuation, the problem is, how much can we trust the valuation report for a certain building if the agency also handles the sales of that same building? Many companies are talking about the “Chinese Walls” or “Watertight Bulkhead” and that is probably functioning very well, but the difficulty is how to convince the public that it really works. Representing two sides at the same time could cause a Moral Hazard circumstance, as the clients never know if the agent performs in the best interest for the company or the clients. The same negative point of view of representing both the tenant and the owners also correspond here. The remedy is to stay with one side and if that is impossible, you should be able to show and prove the “Chinese Walls” within the company.

Double Loyalty
The entry of foreign investors brings changes into the market. They change and develop the demand on the normal package of information and are also used to have two agents in the transaction process, one representing and paid by the vendor and the other one paid by the purchaser. Some companies perceived it as a drawback when the same agent sometimes represents the vendor and in other time acts on behalf of the purchaser. Since, there is no guarantee that the agent acts in your best interest when he sits across the table next time. This situation, where the agent sometimes represents the vendor and sometimes the purchaser against the vendor could cause hesitation and create doubts if the agent keeps the secret information from the former deal to himself. However, this is not totally a drawback, as some investors believe that it is good to have an opponent you know about and respect on the other side. It can make the process easier and speed up the pace.
The agent can sometimes have trouble in showing his loyalty towards the principal. It is not always as simple as it seems in theory, since the agent could have a close relationship with the other party in the deal. Some of the investors understand that and some take advantage of it and use the agent as a messenger to the other side. Therefore, it is sometimes an advantage for the principal that the agent is 100 percent committed to the deal instead of the principal. This is on condition that the principal knows about the agent‘s morality and relationship during the deal. If the principal is not aware of the agent’s double loyalty, he conceives the problem as serious. The investor believes that if the agent has a double loyalty it will come out sooner or later and then it will have a bigger effect.

Ways and Means of Counteracting and Dealing with Moral Hazard

How to deal with the Moral Hazard problem and ways and means in avoiding it. The most common ways adopted by the investors, are the followings:
– Participate closely throughout the whole Process
– Develop a Close Relationship with the Agent
– Motivate the Agent by Providing Incentives
– Participate Closely throughout the Whole Process

The investors handle the deals in different ways; some are working very closely with the agent and are active throughout the whole process, while others let the agent do most of the work and are more or less satisfied with just getting his feedback. By being closely involved in the transaction process, the risk of Moral Hazard can be minimized. Among the investors a majority are actively participating throughout the whole deal. I-low actively they are participating can depend on the agent’s market knowledge, businesses skills, negotiation ability, earlier contacts and relations to the investor. “Some of the top agents are as good as we are” and that is a measurement of how much responsibility the investors are willing to delegate to the agents. To be in charge and control of the agent, the investor can contribute and organize by being in close contact with the agent. They can create a time schedule together over the different deadlines during the deal. They can also act as a group, represented both by the agent and the investor or create a standard model for the agent to follow etc. The crucial issue is to have a clearly defined and structured process that is developed and agreed on by both parties, with the intention that both of them are strictly following
Moral Hazard is an existing problem and to avoid it, the investors demand reporting and feedback from the agent. It can be achieved in various ways, from a strict written report to a normal conversation or mail contact, depending on what the investor wants or agrees on with the agent. The main issue is to enable the investor to follow and understand the actions taken by the agent. Normally, the investor and the agent agree on how to report and how often. The investors are generally very clear about the way they expect the agent to report back to them. lt is mostly done by a few meetings and close contact over the phone but that is individual and differs between the companies. The demand for reporting has changed over the years from a strict report in writing to a more personal contact. A closer and more repeated form of mail and telephone calls are the most common ways of reporting. To have continuous contact is what matters; the investor’s definitely do not want to be left out of the process. The different ways of reporting that are being used are discussed below:

SEE :  Different Strokes For Different Tenancy Situations

Written report
A written report is a way of reporting during the whole process for some investors, with additional e-mails and telephone calls whereas others are using written reports only in the preliminary stage or not at all. The type of reports in the preliminary stage mostly consists of a list of approached purchasers and what contacts have been made. After sorting out the list and having a more reasonable number of interested parties the investors can sometimes lower the level of strict reporting. Some investors demand written reports continuously and usually the investors demand more written reports the more they let the agent handle the process. The agents have to give them copies of all correspondence and full reports with details of every step taken. These investors still use other ways of reporting, but as a complement to written reports. Some investors want to have a log over the contacts between the agent and the other parties. This can be done according to the time schedule but the closer it comes to the end the more personal and frequent contacts are demanded. Others are just demanding to see a log if something goes wrong, to get an explanation of what has happened. Another reason for written reports can depend on the type of property. The reports can be saved and used as information when it is time to sell a similar property in the portfolio.

Meetings and weekly reports
Depending on the business culture there will be differences in reporting and the amount of meetings taking place. Some have a tight process with meetings every week. lt’s a way to go through what has happened and been achieved and normally a weekly report is made. As a security if something goes wrong some investors like to have written protocols from the meetings. Other investors have a more relaxed way and arrange a meeting only when it is needed. Meetings and e-mail/ telephone contact This has the same function as with written reports, but the formal and careful checking against each other is not required. The synchronization runs more through mail than written reports. Some do not even want any written information except for e-mails and want meetings and telephone contacts instead. It is an easy way to follow and engage each other in the process. It is also a supplementary for to the more formal ways mentioned above. In fact, the high demand that is put on the agents today does not give him the time to produce a high number of written reports. The cell phones and emails have increased the speed of information travelling between him and the investor. “Reporting is not big, quick phone calls and answers are enough”. This can be another reason for the decrease in written reports.

A modern type of reporting that is used is the ability for the agent and investor to log in on a website. There they can change information and by that joint link the investor can see and follow exactly what is happening in the process and does not need the same amount of written reports and meetings.

Develop a Close Relationship with the Agent
A relationship is a bond between two parties that can be a common interest or a mutual agreement. By building a relationship the investor and agent look out for each other’s interest and sometimes the business relation also develops into friendship. A well functioning relation is good and healthy for the person and his business and is therefore important. By maintaining a close relationship with the agent, they create a “win-win situation” and reduce the Moral Hazard problems. The investor puts demands on the agent, in order to develop a relationship. The investor wants to work with people they can trust and improve the relationship with. To achieve the goal of a successful relationship, both the investor and the agent need to have an open and honest mind. The agent also needs to have integrity and be able to handle information that is a delicate subject for each property and company. It is of high importance to know what information to share and what to keep to you. Since delivering out information from the investors can be sensitive, the agents need to show their professional ethics in handling confidential information even within their own office. A successful and well-maintained relationship depends on many variables and that is why the agent’s personality is of high importance. When it comes to work, the agent must be professional; he has to take his job serious and have competence. He needs to have a correct attitude and behavior, be innovative and flexible. Another important factor in sales is that an agent needs to be sociable and outgoing. The ability to get along with people is half the way for success of the relationship or business connection.

Motivate the Agent by Providing Incentives

Financial Incentives
The normal way of creating incentives for the agents is to link their fees to the purchase sum of the property. The primary meaning with incentives is to create a situation where both parties can feel they are gaining from the agreement and are used to keep the agent stimulated in the whole process. The incentives discussed below, are when the agent is working for the vendor.

Progressive staircase
The staircase can be developed in different ways, for example be linked to time and/ or money. When it is linked to time, it can be a complex deal that is time consuming to sell or be about the vendor’s need for a quick deal. Meanwhile, a staircase linked to money is used to stimulate the agent to get a higher price for the property. A progressive scale will give the agent a higher percentage in fee the higher purchase sum he achieves. This creates a situation where both the investor and the agent are gaining on a higher price for the property. The staircase starts with a constant level at first, a level that increases after reaching a certain price agreed between the investor and the agent. A successful agent will reach out in the market and create competition between the purchasers, they will outbid each other and the agent will get a higher price for the building.
Usually the starting level is low (but not unreasonably) to stimulate the agent to make a better performance. After reaching the level of the agreed price, the increase in fee can be very steep, showing the importance for the investor to get a price that is as high as possible. Investors that normally are using this type of agreement assert that it gives them a better price and control; it gives the needed incentives for the agent. There are also some who responded it does not have the desired effect and that they preferred a constant percentage.
Percentage linked to the purchase sum
The agent gets a percentage, connected to the price. Even though it does not make the same difference in fee as the steep staircase it is still an incentive for the agent. With a higher price for the property, the agent gets a higher fee. A reason for using a constant percentage instead of a staircase is that they do not notice any extra work from the agent. Constant percentage can also be used when it is about rare objects, objects that only suits a special type of investors and is not as highly coveted by investors as a normal office building.
Flat fee and success fee
A flat fee is used when the investor and the agent agree on a fixed price for the agent’s contribution to the deal. This is not a preferred choice, from either the investors or the agents, but it can be used in smaller or uncommon deals. A flat fee is probably more common when it comes to residential, private properties. A flat fee gives the same incentives as a salary and is not tied to the agents‘effort. It can be used on a first assignment for a new agent. To put more incentives into the flat fee, a success fee can be added. This can be done for different reasons and in different ways. One reason can be that the investor wants to keep the agent’s interest for the deal and therefore give him an additional amount of money on top of the flat fee, depending on how successful the deal has gone. Other Incentives
Other than the financial incentives mentioned above, the investor can promise the agent another business opportunity if the present deal is successful. It can be applied on both agents the investors already know and on new agents they have not engaged before. The new agent will start with a smaller deal and gets a promise to handle the sales of a bigger property if it goes well with the current one. The agent does not have to be totally new for the investor; he can be new to the type of property or the size of the deal. Some of the interviewed investors are in favour for this idea and sometimes use it, others say they never give a promise, but a good outcome increases the chance for a second deal. If an investor purchases a whole portfolio, the agent who sold it and have the current information, can be promised to sell individual buildings in that portfolio that does not fit in with the rest of the investor’s portfolio. In this case, the agent will get to be paid twice for the same properties. Other incentives that are being mentioned are the same as being used to improve relationships, happenings, activities, etc. Travel vouchers used to be a common way of stimulating the agent, although they still exist, they are not as usual nowadays. It is an economic way for the investor to enhance an agent’s performance, at the same time being appreciated by the agent.

Speak Your Mind