R4. Misrepresentations or False Statements

5. Duty not to make misrepresentations or false statements or to use harmful marketing techniques

No agent shall –

Code:

5.1       in his capacity as an estate agent publish or cause to be published any advertisement which could create the impressions that it was published by the owner, seller, or lessor of immovable property, or by a prospective purchaser or lessee of immovable property;

Discussion:

The purpose of this clause is to avoid misinterpretation. A prospective purchaser who reacts to an advertisement concerning a property must know with whom he is dealing, i.e. whether the owner himself or an estate agent.

Code:

5.2       wilfully or negligently, in relation to his activities an estate agent, prepare, make or assist any other person to prepare or make any false statement, whether orally or in writing or sign any false statement in relation thereto knowing it to be false, or knowingly or recklessly prepare or maintain any false books of account or other records;

Discussion:

This clause prohibits an estate from making false statements in relation to his activities as an estate agent from assisting another person in making such a statement. The clause also prohibits an estate agent from preparing or maintaining false books of accounts and other records. Consider the following cases which clearly constitute contraventions of clause 5.2.

  • An estate agent has the mandate to sell a house for R100,000.00. A purchaser buys the property for that price but does not have sufficient funds for a deposit and does not qualify for a 100% loan. To assist the purchaser in obtaining a 100% loan from a financial institution, the estate agent draws up an agreement of sale reflecting the purchase price as 125,00.00 and providing that on registration of transfer the seller will pay 25,000.00 for the purpose of having certain repairs effected to the property.
  • Nor repairs will in fact be carried out and the agreement is so worded solely to mislead the financial institution. This would constitute a contravention of the clause and may well constitute fraud. The same considerations would apply to schemes where the purchase price is loaded in order to deceive the financial institution as to the real value of the property, and to schemes where the purchase price is falsely reduced in order to lower transfer duty.
  • An estate agent willfully maintains false records in respect of his trust account in order to deceive his auditor.

Code:

5.3       claim to be an expert or to have specialized knowledge in respect of any estate agency service is, in fact, he is not such an expert or does not have such special knowledge;

Discussion:

The purpose of this clause is to avoid misrepresentation by estate agents concerning the level of expertise that they possess in respect of estate agency services. For example, an estate agent may not advertise that he is an expert in the field of commercial property transactions is in fact he has very little experience in that regard.

Code:

5.4       advertise or otherwise market immovable property in respect of which he has been given the mandate to sell or let, at a price or rental other than that agreed upon with the seller or lessor of the property;

Discussion:

The purpose of this clause is to prohibit the placing of confusing advertisements concerning the purchase price of a property. Say a seller’s asking price for his property is R100,00.00. An estate agent with a mandate to market the property must offer the property for sale at that price unless the seller has consented to the estate agent using a marketing technique where the real asking price is not specifically indicated. This means that unless the seller has given his consent (verbally or in writing) the estate agent may not advertise the property on the basis that “Offers upwards of 90,000.00 will be submitted”. Nor may he say that the asking price is “R100,000.00 negotiable”.

Code:

5.5    without derogating from the generality of the foregoing –

5.5.1    wilfully or negligently mislead or misrepresent in regard to any matter pertaining to the immovable property in respect of which he has a mandate;

5.5.2    use any harmful or misleading marketing technique or method to influence any person to confer upon him a mandate to render any estate agency service or to sell, purchase, let, or hire immovable property, having regard to the general experience which such person has concerning property transactions and the circumstances surrounding the transaction or proposed transaction;

Discussion:

5.5.1

 

An estate agent given the mandate to market a property must never make any misrepresentations to any person concerning that property. For example, he should not in any advertisement describe the property in excessively glowing terms (for example, where an ordinary house is described as “a palace for a king”) if, in fact, the statements are untrue or unjustified. Further examples include:

  • A prospective purchaser introduced to a property by an estate agent wishes to buy the property but is concerned about the lack of a school in the area. The estate agent may not convey to the purchaser that the building of a school is being planned unless the estate agent knows for a fact that this is statement true.
  • A prospective purchaser introduced to a house by an estate agent asks the estate agent whether or not the roof leaks. The estate agent, eager to close the deal, states categorically that there are no leaks. The estate agent has, however, never made enquiries in this regard and does not know whether his statement is true. It later turns out that the roof does leak. The estate agent will clearly be guilty of improper conduct since he should have indicated at the time he did not know whether or not the roof leaked and that enquiries would have to be made.

5.5.2

An estate agent should not use harmful or misleading marketing techniques when marketing a client’s property. Harmful or misleading marketing techniques are not defined in the Code and it will depend on the facts of each specific case as to whether a particular marketing technique can be described as harmful or misleading. For example, to submit an offer to purchase a few minutes before midnight (the expiry date of the offer) under the pretence that is the purchaser’ final offer is a harmful marketing technique if this is a scheme engineered solely to bring pressure to bear on the seller to accept the offer.

Specific consideration is whether or not the person to whom the marketing technique is directed has any experience of property transactions. It may be assumed that a person with a legal background and years of experience in property transactions will not easily be persuaded by an estate agent’s marketing techniques to buy a particular property. On the other hand, someone who has never bought a property before and who has very little commercial experience can succumb more easily to certain types of marketing techniques. Experience constitutes an important factor in the contravention of this clause.

The code does not replace an absolute bar on the use of incentives by estate agents. In principle, therefore, an estate agent may offer incentives (such as gifts or cash) to prospective purchasers as part of marketing.

However, in certain cases, the use of incentives may constitute a harmful marketing technique, in particular where the incentive offered is never awarded even though a person has qualified to receive it. An estate agent will have to exercise his discretion carefully when deciding to make use of incentives in any marketing campaign. Should an incentive be offered, it must be made clear who is making the offer (i.e. whether it is the owner/seller of the property or the estate agent) and the circumstances under which a person will be entitled to receive the incentive in question.

Code:

5.6       Use any firm or trading name in respect of his business if such name may give rise to confusion on the part of the public in respect of the nature of the business carried on by him;

Discussion:

The purpose of this clause is to prevent members of the public from being misled by the business name of an estate agent. In the case, for example, where an estate agent’s trading name is “For Sale by Owner” or “Private Seller”, members of the public such estate agent’s press advertisements or For Sale boards will be entitled to presume that they are dealing directly with the owner of the property and through an estate agent. This deception is clearly not in the public’s best interest.

Code:

5.7       inform the seller or purchaser, or prospective seller or purchaser, of immovable property in respect of which he has been given the mandate to sell or purchase, that he has obtained an offer in respect of the property from the purchaser o the seller (as the case may be) unless such offer

  • is in writing; and
  • has been signed by the offeror; and
  • is to the knowledge of the estate agent concerned, a bona fide offer:

Discussion:

Take the case where the seller of a property has conferred an open mandate on two estate agents (agent A and agent B) to market his property. Agent A finds a prospective purchaser who submits an offer on the property. Agent B, sensing that he may lose a potential transaction, contacts the seller and advises him not to accept the offer before considering another off which he (Agent B) has obtained in respect of the property. In fact, no such other offer exists and it is simply a ploy used by Agent B to delay the acceptance of Agent A’s offer. Such conduct is clearly not in the interests of either the seller or Agent A.

Clause 5.7 does not prohibit an estate agent from verbally informing a seller (or purchaser) that he has obtained an offer in respect of a property provided that the offer is:

  1. In writing,
  2. Signed by the offeror; and
  • To the knowledge of the estate agent a bona fide offer.

Code:

5.8       affix any board on or notice to immovable property indicating that such property is for sale or hire or has been sold or let, unless

5.8.1    the seller or lessor (as the case may be) has given written consent to do so; and

5.8.2    the estate agent concerned in the fact has a mandate to sell or let the property, or in fact has sold or let the proper as the case may be.

Discussion:

“For Sale” and “Sold” boards are commonly used by estate agents. Unfortunately, some estate agents, in order to promote their business and maximize exposure, affix “For Sale” and “Sold” boards to properties which they either do not have for sale or which they did sell. The messages which are thereby transmitted as to the effectiveness of the estate agents are false and not in the public interest.

The purpose of clause 5.8 is therefore to regulate the proper use of such boards. The seller’s or lessor’s written consent to display boards may be contained in the mandate given to the estate agent, in the agreement of sale/lease or in any other document. For example, it is permissible for a clause to be included in a sole mandate document in terms of which that seller consents to the estate agent affixing a “Sold” board to the property once it has been sold.

An agreement of sale concluded subject to a suspensive condition, for example, that a purchaser obtains a financial loan from a financial institution or that he sells his property on or before a certain date, is not enforceable as a sale until the suspensive condition has been fulfilled. Accordingly, an estate agent may only display a “Sold” board on a property if:

  1. He has negotiated the transaction in question; and
  2. All suspensive conditions have been fulfilled.

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