Open Mandates
Open Mandates
Posted on September 4th, 2009
Huis-Huis
"Open" does not mean "good"
My mother always insists that, if she ever sells house again, she’ll only grant an open mandate.
No matter what I tell her about the dangers of open mandates, she won’t budge in her determination. And there are many home owners out there who feel the same. So, I wouldn’t be surprised if this article on open mandates don’t convince you either.
In mom’s case, her experience with real estate agents is less than positive. She feels that a more restrictive mandate would hamper her property sale, because once upon a time, a real estate agent she entrusted with a sole and exclusive mandate did not do her job properly and the house took “ages” to sell.
Mom wanted it done in a week, maybe a month tops. And the mistakes I can identify on the part of mom’s long-ago real estate agent, is that she did not bother to inform her client what the mandate meant before they signed, and couldn’t be bothered to keep her clients updated on her efforts in selling the property.
But lets get down to the job at hand and try to tell you all the important bits about open mandates and what selling your home through an open mandate means:
What is an open mandate?
An open mandate is simply the oral authorization a seller gives an agent to market a property. The real estate agent has the right to market the property on the terms the seller instructs.
With an open mandate the sellers have the right to appoint as many other real estate agents to market the property as they wish, or even to sell the property privately. Open mandate sellers usually appoint several agents to market their properties.
The seller also has the right to withdraw an open mandate at any time, for whatever reason. So, real estate agents with only an open mandate can be fired whenever the seller feels like it.
I think that’s what sounds so appealing to Mom about open mandates: She has the right to appoint as many real estate agents as she wants and she has the right to cancel the mandate whenever she feels like it.
You know what’s brewing in her mind, don’t you? Yeah – getting replacement agents if the one she chose to work with in the beginning proves defective.
Who does the agent work for with an open mandate?
The agent works for the seller, even with an open mandate – not the buyer, although in practice this may not seem true.
The seller is the person that appoints the agent to market the property. The agent’s commission gets paid out of the purchase price for the property – the seller’s money. And the agent has an obligation to represent the best interests of the person who mandates him/her – the seller.
But in practice, some real estate agents forget who they work for. Maybe because they’re in such competition with other agents to sell the property that they see the goodwill of the buyers as their only edge over those other agents. Or maybe they think their commissions gets paid out of the buyer’s pocket? I don’t know.
Point is, if something goes wrong, who are you going to blame? If you have more than one agent, how are you going to keep track of what they do and say about your property sale?
Open Mandates and Control
When several agents have an open mandate, it becomes almost impossible to control the marketing, viewing and confidentiality.
Who was it that advertised your property for R50 000 less than you instructed? Who was responsible for telling every Tom Dick and Harry about your need to sell quickly, despite your instructions not to?
“I don’t know. It wasn’t me!“
Who was it that first introduced the buyer to your property? Can you absolutely say that it was the same agent drawing up the contract? When you start asking the money questions, there suddenly might be more than one agent with their hands up! Who will you pay? Or will you end up paying both?
The loss of control due to lots and lots of open mandates can result in the seller being liable for paying double commission!
I find that last point scary, but Mom does not seem bothered at all. But then, she’s a very organized, confident person who’ll make a point of tracking each of her agents’ progress. She’s always been one of those people who can make a plan and get everyone to do things her way. But that would be too much work for most people – especially when you’re going to pay an agent a lot of money.
The Open Mandate Competition
Many sellers assume that more agents automatically mean more buyers – and a higher selling price as a result. But that’s not true.
Buyers hunt houses not agents
The truth is – buyers hunt houses, they don’t hunt agencies! Buyers are looking for a house that suits their needs. If your house is marketed correctly, the buyers will know about it and come to you.
The property and the facts about the property is what gets buyers interested enough to make an offer. If the property fits the buyer’s needs, and the price is right, the property is as good as sold.
The fact that a thousand real estate agencies have a right to market your property is not going to interest potential buyers. The only possible advantage of having more real estate agents marketing the property might be that the advertising exposure may be more than with a single company. But not always!
Some real estate agencies won’t advertise an open mandate property, have a show house, or even place a for sale sign in front of an open mandate house. Those actions might attract buyers, granted, but it will definitely attract the competition! The agent with an open mandate is forced to try and keep the property a secret as long as possible, to try and find a suitable buyer before some other agent gets the listing.
Agents only get paid for a successful sale. So, when several agents market the same property, they are competing to find the first offer that the seller accepts. They are not looking for the best offer, just the first one. An unscrupulous agent might even pressure the seller into accepting a poor offer! This is called the “hard sell”.
Open Mandates Over-Exposure
If you grant many open mandates, the agents will show your property to every buyer they have.
This sounds great, doesn’t it? Mum, sure got excited when I mentioned this. But actually, this means that buyers who are looking for a totally different kind of property, or worse, buyers who can’t afford to buy, get dragged to your house on the off-chance that they might be interested in making an offer.
Those buyers who are looking for something totally different reject your property immediately, because it’s not suitable, or simply because they get ticked-off with an agent who drags them to places they don’t want to see! And once a buyer rejects a property, they don’t come back later.
Those buyers that cannot afford your asking price will also either reject your house immediately because it is too expensive, or make low-ball offers – the only offers they can afford to make – in the hope that you’re getting tired and they get lucky. Your open mandate agent now comes and tries his/her best to try and sell those low offers to you. And you can’t really blame the agent – remember, he/she only gets paid if they’re the one that gets your signature on a contract of sale! The inter-agent open mandate competition works AGAINST you.
If several agencies have for sale signs on your lawn, your property appears in every second agency’s newspaper ad, and hordes of unsuitable buyers have traipsed through your home and rejected it, it is in danger of getting “over exposed”. This is just a nice way to say that you may seem desperate to sell. And seeming desperate is never good for your sale – even if your are.
If loads of potential buyers have come to view your house, and nobody bothered to buy it, does that mean something is wrong with it? If you could start thinking like that, how can buyers not think it? And if something is wrong with the house, and everybody’s already rejected the house, then you must be desperate to sell, right?
Buyers can easily get the impression that you are desperate to sell – and their offers to buy the property will definitely reflect it.
Open mandates and your sanity
So, now you know that open mandates mean more work for you – keeping track of the agents’ activities. And there’s a danger of seeming desperate. And agents compete to be the first to make the sale. And you may very well end up accepting a low offer.
But you don’t yet know about the impact on your mental health. Yes, open mandates make you crazy!
You’ll never feel comfortable about accepting an offer at lower than your asking price, even if it is the best offer you’ll get, because you won’t know what the other agents are busy with.
If several agents are competing and you don’t have firm control over each agent’s progress in selling your house, a much better offer might come around in the hands of another agent, at the exact time you are getting bamboozled into signing a poor one by this agent! You’ll always wonder… Sad, but true! Open mandates will make you paranoid.
The Last Word On Open Mandates
“An open mandate makes your house everyone’s listing, but nobody’s responsibility“, they say (me too). But maybe it is more honest to say, “An open mandate makes your house everyone’s listing, but nobody’s responsibility but your own.”
On top of all the nasty things I’ve said about open mandates, you’re likely to pay more commission with an open mandate than a sole and/or exclusive mandate. Smart real estate agents (who wants an idiot agent anyway?) would be willing to cut their commission for a good written mandate with some exclusivity – if you negotiate, of course.
Mom’s still an open mandate fan. But the woman also thinks pressing harder on the remote control buttons counteracts the fact that the batteries are flat. She’s even convinced I’m “attractive”, for crying out loud!
Okay, maybe I want to believe her on that last one, but…
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