I recently engaged in a constructive dialogue with Dr. Rachael Mirembe, a distinguished figure within Uganda's real estate landscape. Our conversation stemmed from a past encounter on Twitter Spaces, during which we held differing opinions on the practice of real estate agents charging search fees. My intention of reaching out to her was to bridge our perspectives and establish common ground.
Initially, Dr. Mirembe strongly supported the elimination of search fees within the Ugandan real estate market, citing her experiences in South Africa where such fees were not customary. Her argument was centered on the belief that an agent's income should be derived solely from commissions earned after a successful sale and not from search fees.
However, our recent conversation led us to a shared understanding. We both recognized the necessity of search fees to deter time-consuming property tours by speculators and casual real estate enthusiasts. Nevertheless, the challenge remained: how to address those unscrupulous agents who misuse search fees by not rendering any services worth the fees.
Our deliberations led us to the consensus that the most effective remedy for search fee misuse lies in the implementation of legislation to regulate the activities and licensing of real estate agencies. In the meantime, we resolved to raise our voices in condemnation of those who exploit search fees only for personal gain and not the buyers benefit.
Dr. Rachael also raised another pertinent issue concerning the adoption of appointment-based property viewings by local brokers. Drawing from her experiences in South Africa, she suggested that property viewings should be scheduled at specific times, allowing agents to wait at the property for potential buyers within designated hours on specific days. This approach, she argued, would be more efficient than ferrying multiple buyers to the same property on different days, and that this method of work would partly make search fees irrelevant.
However, we both acknowledged that our local real estate market had evolved organically, and thus appointment-based viewings or open houses were not part of its historical growth. Our market's history differs significantly from that of South Africa in this regard.
The decision to charge a search fee (also known as inspection fee or showing fee) is ultimately up to each individual real estate agent or brokerage, as different approaches may work better for different businesses and markets. However, there are some potential pros and cons to consider:
Pros of charging search fees:
Cons of charging search fees:
In situations where the agent is not receiving any commission from the landlord or property owner, the imposition of search fees on the property buyer can become the sole means for the agent to generate income from the transaction. This scenario is particularly prevalent among buyer's agents who exclusively serve property buyers and typically do not receive or need any compensation from landlords or from the sellers.
Furthermore, there are instances where the expenses incurred in showing a property outweigh the commission earned from its sale or rent. For instance, when dealing with properties in very remote locations especially agricultural land, the costs associated with transporting potential buyers and the logistical challenges plus the time involved in the journey can become burdensome for the real estate agent. In such cases, it becomes reasonable to request the client to cover these expenses, especially if they are genuinely committed to the process.
Dealing with a particular category of clients who are simultaneously renting while searching for a superior alternative presents another notable challenge. These clients often seek an upgraded dwelling at an equal or lower cost than their current rental, which can be an unrealistic expectation.
Complicating matters further, they tend to lack urgency in relocating and therefore do not feel compelled to accept any of the presented options until they find one that is not only better but also more economical than their existing residence. This pattern leads them to shift from one agent to another, mistakenly believing they will secure a more affordable or improved property, ultimately resulting in the wastage of agents' valuable time by refusing to accept any of the options presented by multiple agents.
In these specific scenarios, charging a fee for search services can be deemed necessary and justifiable to ensure that the agent's time and expertise are adequately compensated. Nevertheless, as an overarching principle, maintaining transparency and fostering clear communication with clients remains indispensable for building trust and upholding ethical standards.
Presently, the Real Estate Database (RED) uses three methods to monitor and also deter the inappropriate use of search fees by its members:
Review and Rating System: RED offers a mechanism where buyers can share their feedback by writing reviews and assigning ratings to the services provided by individual member agents. This includes an assessment of whether the search fee aligns with the quality of services received.
Direct Action Line: Furthermore, RED's website features a dedicated contact number that allows buyers to get in touch if they are dissatisfied with the services they've received while searching for a property. This channel empowers buyers to demand action against an agent when their expectations have not been met.
Having worked closely with most real estate agents in Uganda for several years, my observation is that the agents who deal with high-end clients and high-end properties (in places like Kololo and Naguru) do not usually charge search fees. This is based on the fact that such high-end clients are generally decisive and typically want to see only one or two properties.
On the other hand, those who deal with low-end clients generally have to charge a search fee, as their clients often include many time-wasters. These clients usually want to see at least 5 properties before making a decision. Additionally, some of such clients are so slippery, if not charged upfront, they will pretend not to like everything they have been shown and may return to the property later without the agent in order to dodge paying the search fees.
Ultimately, the decision to charge search fees or not should be based on the individual circumstances of the agent or brokerage, and should be communicated clearly and transparently to clients. It's important to remember that the real estate industry is highly competitive, and agents (especially those who are listing on the RED) should focus on providing more value to their clients and differentiate themselves in the market in ways that work best for their particular business model.
Kind RegardsJulius CzarAuthor: Julius CzarCompany: Zillion Technologies LtdMobile: +256705162000 / +256788162000Email: Julius@RealEstateDatabase.netWebsite: www.RealEstateDatabase.netApp: Install the RED Android AppFollow me on: Twitter, LinkedIn, Facebook.