Legal Agreements between Agents and HOAs
“Under certain conditions the conclusion of marketing agreements between estate agencies and homeowners associations (HOAs) are lawful,” said Jan le Roux, CE of Real Estate Business Owners of SA (REBOSA).
Since February, HOAs have been under attack for what was deemed an unfair and unlawful practice, namely, requiring that estate agents pay “accreditation” fees in return for the sole right to market properties situated within an HOA. Matters came to a head when the Estate Agency Affairs Board (EAAB) issued a notice to stakeholders, telling them to prohibit unlawful practices and to promote acceptable standards of conduct when entering into agreements between estate agencies and HOAs.
Le Roux said he welcomed the board’s decision to interrogate this practice: “REBOSA’s primary objective is to look after the interests of real estate business owners and this is a matter that affects them directly.”
Following the publication of the EAAB notice, several REBOSA members came forward with concerns, as did the Association of Residential Communities (ARC), especially since the practice was labelled “unlawful”. HOAs are established as non-profit companies or as common-law associations to manage particular communities, which are often gated and operated separately from the surrounding properties. Although HOA fees purportedly protect property values, the rights of its members to participate in the free-market economy also need to be guaranteed.
The law is less than crystal clear on the matter. It has become common practice for HOAs to engage with estate agencies that they then accredit upon such terms and conditions as may be acceptable to the parties. It is the norm for these accredited agents to pay a monthly or yearly accreditation fee, and a fixed or other fee in respect of sales concluded, to the HOA. This flow of income into the estate is one of the reasons homeowners are prepared to propose, accept and consent to a restriction of their rights to appoint an agent of their choice.
The EAAB obtained further legal advice and consulted with REBOSA, ARC and others, and on 5 September it issued a new practice notice stating that, notwithstanding homeowners’ freedom of choice to appoint their estate agent of choice for the marketing, selling or letting of their property, entering into marketing arrangements by HOAs who choose to do so is permissible, on condition that any fees payable constitute a reasonable cost recovery for services rendered by the HOA for, inter alia, but not limited to:
- supply of security access cards;
- supply/erection of advertising boards;
- supply of maps/directions to properties;
- branding opportunities.
The legal guidelines state that “an estate agent acting in any way in contravention of the ethical provisions of the Code of Conduct may be subjected to a disciplinary process which may result in him/her being sanctioned, upon a guilty finding, by a committee of enquiry of the EAAB”.
Le Roux said the practice of paying fees to HOAs could be justified if it was fair and equitable in relation to the services being rendered. REBOSA, however, does not support the exclusion of all other estate agencies to carry out business within HOAs.
Said Le Roux: “We operate in a free-market system and no seller or buyer should be refused permission to use an estate agent of their choice. Preventing other estate agencies from effectively entering and competing within HOAs goes against our industry ethos and could have long-term detrimental effects on our sector. We have welcomed the revised notice and continue to cooperate with the board and other industry stakeholders. Although not perfect, the latest notice brings more clarity.”