Beware the "Freeze Clause" in a mandate

Category Blog

A sole mandate is the right way to sell a property. However, estate agents who fail to sell a home within the period of a sole mandate should step aside and make way for another agent to do the job - with no strings attached to either the buyer or the commission. Commission should only be paid to the agent who does the job and closes the sale. A common practice currently is that agents exclude buyers that they have introduced for a period of 90 to 180 days after the expiry of the mandate, effectively "freezing" them out of the market on that house!

The second agent is reluctant to deal with these buyers because of the clause, and the first agent is equally reluctant as there is a new sole mandate in place, which is not obliged to recognise a long exclusion list.

Solution: The mandate should have a start date and an end date where only one or two buyers, still involved in negotiations with the agent, are excluded for only a week or two.

Calculating the seller's profit

It is the extend of growth of the capital portion of the home purchase that is the silver lining of the transaction. Simply put: If you bought a R2-million property - by way of a R400 000 deposit & an 80% bond of 1,6-million - & the investment grew in value by no more than 5% a year (in line with inflation), the home would achieve a value of around R2,55-million over five years. The point is that your initial personal capital investment of R400 000 would thus have more than doubled over the five years to close to R1-million - while the value growth of the property would have been only 35%over the same period!

Remember, whether we are paying rent or a bond, we all have to live somewhere. For a buyer, it is more relevant to calculate the growth of the capital invested than establish the value of the property as a whole. It is the capital growth that counts.

Author: Ronald Ennik

Submitted 28 Jun 19 / Views 730