Trust accounts: unnecessary expense or necessity?
Trust accounts – for many owners of small estate agencies being forced to have a trust account, which an estimated 70% of estate agents don’t use, has for many years been a costly and bitter pill to swallow. Considering the tight-fisted economic times of late, some say it’s time to rethink this policy of the Estate Agency Affairs Board (EAAB) while others say enforcing trust accounts for all is a good thing.
According to recent comparisons by statistical analysts, the latest property sales figures are comparable to those last seen in 2010, every rand counts especially if you are a small independent estate agency fighting to keep your place in the sun. Should they really be forced to have a trust account, especially if it remains unused and thousands are spent annually to have it audited and send an audit report to the EAAB?
One of many asking this question is Loraine Botha, the director and the sole agent of her estate agency. “Just me and myself. The costs for running this small company the legal way is very high,” she says. Botha says she doesn’t use a trust account as she doesn’t do rentals or take deposits. It costs her R75 every month to keep the account open and the invoice for the annual audit this year amounted to R5 750. On top of that she had to pay an additional R3 450 this year to send an audit report to the EAAB to qualify for the renewal of her Fidelity Fund certificate.
“I really do hope that someday the EAAB will change its view on the trust account issue as there are plenty agencies out there not making use of it but are forced to have all these unnecessary expenditures,” concluded Botha suggesting maybe a debate could be started on the issue.
Others say they understand the necessity of having trust accounts as a means to protect the consumer. One of them is Clive Levy, who opened his own estate agency ten years ago. He also doesn’t take deposits, but when doing a sale makes it payable through the conveyancing attorney and he does not handle rentals. However, he says, he fully supports the EAAB with their mandatory requirement for all agencies to have a trust fund as that protects the consumer.
“The public’s money is sacrosanct and despite the many criticisms we have about the EAAB as our representative body, this one they have right. There are still many fly-by-night agencies that have not registered with the Board and have not been caught. Any requirement such as trust account audits are vital in trying to protect the public,” says Levy.
He says of course he would prefer not to pay the fees for being audited annually for zero transactions in his trust account, but he does so happily. “Audits are vital in trying to protect the public,” holds Levy.
Property scams unfortunately are a reality. Just last year the Cape Town newspaper Weekend Argus uncovered an alleged property fraud syndicate operating in the Delft area where unsuspecting prospective buyers would be duped with Gumtree ads and persons posing as sellers and estate agents into buying properties that were not for sale, losing thousands of rands in the process. In June that year, in a separate case a man from Paarl, allegedly also posing as an estate agent, was charged with fraud and theft in the Bellville Commercial Crimes Court for taking deposits from would-be buyers who then later found out no sale was registered and never saw their deposits again as reported by local newspaper PaarlPost.
On the other hand trust funds aren’t theft-proof either as was seen in 2016 when an alleged R6 million ‘disappeared’ from the trust account of the Beyers Realty Group in Cape Town. The EAAB obtained an interim court order to appoint a curator to take control of the trust accounts and finances of this agency that was declared insolvent.
All estate agencies being compelled to have trust accounts is one thing, but should the new Property Practitioners Bill be approved, this mandatory requirement will extend to ALL professionals defined as property practitioners under the new act. This will include estate agents, rental agents, valuators (in certain instances), property managers and more.
Rebosa, an NPO representing the property sector, obtained legal opinion on the matter and included this with their submission on the bill in 2016. In short, their attorney Cliffe Dekker advised against imposing as a requirement that every property practitioner have a trust account.
“We estimate that in excess of 70% of property practitioners do in fact not utilise trust accounts (any payments by way of deposits in relation to property transactions typically being made into the trust accounts of conveyancing attorneys),” says Rebosa in the statement.
They propose that a property practitioner should only be required to open and operate a trust account if they actually take money into trust (as would be the case in the instance of letting agents). Annually auditing a trust account that is not used imposes an unnecessary financial burden says Rebosa.
They argue that the very fact that an agent has a trust account may be used by that agent to induce the public to deposit funds with it; in that sense the presence of a trust account actually increases the risk to the public (and thus the Fund) rather than reduces it. (Note the Beyers Realty Group case referred to above, Ed.)
“The logical consequence is that it is in the interests of the public and the Fund that agents who do not need to operate trust accounts should in fact not be required to do so,” states Rebosa. They propose that only a registration certificate be required of property practitioners who don’t use trust funds.
Let the debate continue. Email your thoughts to email@example.com.