Johannesburg - Google the term “Least trusted professions” and the search engine will churn out a multitude of surveys showing who should not be held in high esteem.
Typically, the lists include second-hand car salesmen, politicians and, for our purposes, more often than not lawyers and estate agents.
(Journalists have also been known to occasionally make it on to that list – which proves just how dangerous generalisations can be.)
But for our purposes, lawyers and estate agents are integral to the process of buying property. One is the intermediary between seller and buyer, and the other ensures the laws of transfer are applied and the buyer – in exchange for an agreed price – takes possession of the property.
The process relies considerably on good faith and, provided all parties in the transaction do their bit, buying a property can be painless and even enjoyable.
It’s in the early stages of the process that a proportion of the sale price – more often than not, 10% – is handed over by the buyer as a gesture of good faith.
That deposit is held in trust, either by the estate agent or the transferring attorneys.
Next time you buy a property make sure you specify a couple of things – chief being the size of your deposit, where that deposit will be held and to whom any interest will accrue.
The process of buying a house is massively daunting: chances are it’s the biggest financial commitment of your life to that point. That means you’re also vulnerable and dependent on the advice given to you by the professional intermediaries involved in the transaction.
The Wendy Machanik scandal has exposed the fact that trust accounts aren’t impenetrable and are vulnerable to fraud. And if the disgraced property doyenne is to be believed, the estate agency profession is allegedly riddled with the sort of corruption she’s suspected of being involved in.
Machanik – who is barred from operating as an estate agent amid allegations she used money held in trust for her clients for personal purposes – claims the misuse of those funds is rife.
She told the Sunday Times she was angry at being singled out for what’s allegedly common practice in the industry.
Pam Golding property group CEO Andrew Golding is also the serving president of the Institute of Estate Agents. He warns not all agents should be tarred with the same brush.
“Larger, more reputable real estate companies know what’s required in terms of trust accounts. It’s an important part of a real estate agency business. We go out of our way to ensure the Pam Golding trust accounts are properly audited. Most if not all of the industry is aware of the seriousness of our duty of responsibility when it comes to holding public money,” says Golding.
So where is best to place your deposit for safekeeping? It makes no difference, says Golding, as both lawyers’ and estate agents’ trust accounts are protected by their respective fidelity funds – both of which have deep pockets, estimated to be between R50m and R100m.
Technically, trust accounts held by lawyers are just as vulnerable to unscrupulous activity as those held by estate agents.
It all comes down to who has more to lose, says property specialist Julian Scher, at Strauss Scher Attorneys. Lawyers study for years to qualify and stand to be barred from practising in that profession if found to have fiddled the books.
Individual estate agents are able to switch careers more easily, as they have less invested over the long term.
However, in the Wendy Machanik case that’s arguable. She built up a strong reputation over 30 years. That reputation is unlikely to recover, even if she’s acquitted of any wrongdoing when the matter eventually comes to court.
Property lawyer Pieter Niehaus, of Denys Reitz, warns: “Ensure the interest accrues to you. If you fail to stipulate that the interest should accrue to your trust account – there’s a chance that money could find its way into either the attorney’s or estate agent’s fidelity fund, which serves as an insurance against underhand activity."
With approximately three-quarters of SA’s estate agencies and 28 000 agents under investigation by the EAAB – as it seeks to ensure the Machanik matter is an isolated rather than a general problem – attorneys are anticipating buyers will be more careful about stipulating where their funds are placed.
Until, of course, there’s a high profile blow-out in a well-known law firm.
* This article first appeared in Finweek.To read more Finweek articles, click here.