Opening a sale to many estate agents will incentivise a quick sale instead of negotiating the best price
One choice a seller has to make when trying to get the best price for his home is whether to sell it via a sole or open mandate.
A sole mandate gives a single agent the exclusive right to market and sell your home, while an open mandate allows any qualified agent to find you a willing buyer – a case of “may the best salesperson win”.
One would think an open mandate sounds like the better deal as more competition and more exposure means better service and a wider pool of buyers. But Tony Clarke, managing director of the Rawson Property Group, says the opposite is more commonly true.
“Competition creates its own incentives, and those incentives don’t always align with your own.”
In the property market, Clarke says competition between agents tends to incentivise a quick sale over a good price. This is because no one wants to waste time on negotiations when they could be beaten to the finish line by another agent. It becomes safer for an agent on an open mandate to push through a lower offer – and be guaranteed that commission – than to hold out for a higher offer and risk losing out altogether.
“For similar reasons, agents on open mandates typically invest less time and money in great marketing since they have no guarantee they will recoup that investment if the sale goes to someone else.
“That means open mandate homes are often under-represented, despite their many agents, with poor quality photos and careless or unattractive listings.”
Agents with the wrong incentives aren’t the only problem with open mandates, Clarke says. Sellers also have to keep track of multiple agents, make their home available for multiple viewings, get out of the way for multiple show houses, and make room for multiple “For Sale” signs.
“It can become a logistical nightmare and destroys any impression of exclusivity buyers might have had. It also makes it difficult to get accurate feedback on how your property is doing, what buyers are saying, and what market conditions really are.”
Even more importantly, open mandates can cause disputes about which agent is truly responsible for the sale.
“If a buyer visits a show house with one agent but negotiates and makes an offer via a different agent, you could be faced with two parties who contributed to the sale,” Clarke says.
“Unless your contracts are extremely clear and you know exactly who did what and when, that could put you in a position of having to pay double commission – something you’d never have with a sole mandate.”
Almost all the downsides of an open mandate are solved by simply choosing a single agent to represent you.
Clarke says: “With a sole mandate, your agent can afford to give your property their full attention because they’re guaranteed the commission from the sale. That means they’re not going to shy away from spending more time and money on marketing or putting more effort into negotiations. The higher the price they achieve, the better they are rewarded for their efforts.”