How Efficient is the Practice of Real Estate Agency in Nigeria?

Agency is described as a relationship existing between a principal and an agent, where an agent is given rights of authorization from the former to act on his behalf.

Such relationship could be established when principals are convinced that the involvement of agents will produce more effective returns usually due to their vantage in training, commitment and knowledge in the prescribed endeavour.

Hence, it can be argued that its application is in various spheres of life as most of life endevours could be centred on business.

In real estate practice, where the market is fraught with dearth of information, the role of the estate agent cannot be overemphasized particularly in bringing together parties of divergent interest in attaining specific goals.

The practice of real estate agency has been certified by various nations around the globe. For instance, in the UK where most laws governing the operational laws in Nigeria are fashioned from, estate agency practice is controlled by the Estate Agents Act 1979 as amended by legislation such as the Consumer, Estate Agents and Redress Act 2007.

The practice of Estate Agency in the UK has transcended from the highly fragmented industry to a more robust practice.

In the 1970s, small, locally based, independent businesses dominated the industry. This industry structure meant that estate agency was seen as a typical entrepreneurial activity.

By the first half of the 1990s, however, most estate agencies were in the hands of large institutions in the financial services sector; independent estate agents who have begun to reappear on the high street recently has characterized the industry by differentiation strategies where small firms wishing to establish a long-term position in a market need to assess both the market environment and the market position of their rivals, the larger firms.

In Nigeria, Section 25&26 of Decree 24 of 1975 empowers the Estate Surveyor and Valuer in carrying out operations as an estate agent. The organized body recognized for the regulation of practice is the Estate Surveyors and valuers Registration Board of Nigeria(ESVARBON).

However, the Corporate Affairs Commission (CAC), body statutorily empowered for registration of every business outfit in the country, regards estate agency as a business concern and classifies it under general business practice.

This has partly accounted for why non-professionals engage in estate agency. The agency practice is regarded as an all comers’ affairs as lawyers, engineers, accountants and even laymen learned in numeric details carry out this operation.

An expression has become synonymous with the estate surveying profession calling every other profession dabbling into agency as quacks.

However, there are no clear cut-out edicts granting the estate surveyor and valuer the exclusive preserve of operation even when series of protest has been made to that effect.

For no clearly defined reason, two principal different types of agency for property disposal have developed. No matter the form agency practice takes, it usually revolves around any of the two major types.

“Sole agency” as a method of operating in the property market means that only one agent is appointed to act for the vendor and “Multiple agency” or “mixed agency” has been used to describe the practice, where vendors may instruct more than one agent, and often several, each to act independently of the other(s), with only the successful agent receiving the commission.

The Monopolies Commission (1969) published their report which found that estate agency practice in Britain, although not regular, revealed that the north of a line drawn roughly from the Wash to the Bristol Channel, generally practiced sole agency as the accepted method of operation while the South of the line, had multiple agency practice as the general rule.

Another prominent type of real estate agency is “Joint agency”, which refers to the method of operation when two agents agree to market the vendor’s property together and split the commission. The use of “sub-agency” is spelt out in Decree 24 of 1975, where agents are to be co-opted by the main agent and have their fees based on the commission given to the main agent.

Nevertheless, it can be impressed that sub agency can be submerged into sole agency while joint agency is a variant of multiple agency.

A different agency practice system is adopted in the USA where the agency relationship between agent and seller is formalized in the listing contract and there are several types of listing arrangements.

Under an open listing (similar to multiple agency in the UK), the seller can list the property with multiple agents and is liable to pay commission only to the agent that procures the sale. The seller does not pay any commission if he finds the buyer himself.

Under exclusive agency listing, the contracting agent shall be the only (exclusive) agent that will be entitled to a commission and no other agent will have a direct contractual relationship with the seller. The seller alone may sell the property without incurring liability to pay the contracting broker.

These two contracts are now rarely used in residential markets in the USA under multiple listing services (MLSs) system (Miceli, 1988). The most common listing arrangement is exclusive-right-to-sell contract, which entitles the contractual agent to compensation regardless of who sells the property, including owner or other agents.

The individual agent who is usually more important than the firm he represents when considered for engagement in agency practice by clients could have preference for the adoption of any of the various agency type.

In the UK, Ke, Jayne and Isaac confirmed that the estate agents with a sole agency practice charge a lower agency fee, help clients to achieve better selling price and are more efficient; whereas multiple agency practice facilitates liquidity in the housing market, but experiences higher fall-through rate.

Multiple agency which is being adopted in the country does come with its challenges. Aids in the speed of transactions is fraught with certain inefficiencies such as farness of selling price from initial asking price; and purchase fall through.

Sole agency being the antidote for these inefficiencies is seldom practiced in the country.

Researchers opine that since the practice of sub-agency is well abreast amongst agents, both parties (agents and principals) can use that as a tool to enhance market efficiency.

Appointment of agents can be as a result of a consortium where a main agent is commissioned by the principal, whereas such agent is allowed to collaborate with other agents recognized by the principal for effective disposal of properties.

However, whosoever gets the client can receive the greatest commission while every other agent in the link is compensated based on his contribution to the marketing/disposal of such property. This should be done to bridge the gap between sole and multiple agency and as such give every party involved in real estate transaction a stake to be committed to.

When real estate researchers in the country begin to air their voice in real estate agency, the war of exclusive dealings in handling this conceived semi-professional area in real estate practice can begin to be won by the estate surveyors and valuers.