Property Agents Seek New Retainer Fees - 08-26-08

August 26 - In the current South African property market, it comes as no surprise that one decision to stop the development of a new project affects everyone involved.

However, Pam Golding Properties, which has worked on several of these projects, only to have the developers halt the process because of any number of factors, is now rethinking its business model and considering the introduction of a retainer fee so as to cut its losses in the event of a project collapsing.

It was recently learnt that Nedbank decided to back out from its commitment to carry a high-end Sandton project, La Residence, valued at R1.6 billion. The bank told property agents last month that increasing costs in building materials, as well as a slowdown in housing contributed to this decision.

Not only was Pam Golding Properties badly affected by this decision, having invested the exclusive services of five of its property agents over an 18 month period to push sales in this project, but also buyers who had bought into the project and were now forced to re-enter the market at higher prices.

At the launch of La Residence, Pam Golding property agents had R150 million worth of commitments by potential buyers in their back pockets. With the collapse of the project, however, the company simply has no recourse to recoup its losses in terms of time, potential commission, money spent on marketing and loss of other income that could have been made if the property agents had been freed up to sell other projects.

The company's chairman, Andrew Golding said: "We understand the risk and reward nature of our industry. However, the current economic reality necessitates a drive towards more of a consultancy based industry."

As a result, Pam Golding Properties is considering a retainer structure that could be developed to cover its company, and others, in the case of new project development crashes.