If you have ever rented an apartment in Lagos, you must have noticed the new trend where agents charge inspection fees before they conduct inspections. Although this practice is mostly prevalent among upcoming agents who typically service the low to middle-income segment of the market, it is something that most people frown at.
This is largely because there is no legal basis for such practice and its continuance will undermine the agency profession. Inspection, as we know, is one of the key services of a real estate agent. Ideally, every service rendered by an agent is compensated for through the agency commission he earns at the end of the transaction. In this article, we will be diving deeper to discuss why agents are charging inspection fees and if there is a legal basis for it, among other things.
Why are inspections so important in the property hunting process?
While property inspections are not compulsory, they are often deemed essential for buyers to thoroughly assess a property before paying. Inspections play a key role in helping the buyer/renter access the property fully and ensuring transparency in the process.
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What are the responsibilities of real estate agents to their clients?
Real estate agents serve as intermediaries between buyers and sellers, guiding clients through the complexities of property transactions. Their primary responsibilities to their principal/clients include arranging for property inspections among others. It is within this context of carrying out property inspections that questions arise regarding whether agents should charge inspection fees since they will still charge their commission at the end of the transaction.
There seems to be a regulatory loophole that has allowed for some of the misconduct among real estate agents. To understand some of these problems, we may need to look at the regulatory bodies governing real estate agency business in Nigeria.
Who is supposed to be regulating real estate agents in Nigeria?
Ideally, a real estate agency is a subset of several other real estate services that should be rendered by members of the Nigerian Institution of Estate Surveyors and Valuers (NIESV).
This is according to the Estate Surveyors and Valuers (Registration Act)” Decree No. 24 of 1975 that established the Estate Surveying and Valuation profession in Nigeria. The NIESV was established as a profession for real estate practitioners who render services in property valuation, real estate agency, property management among others. To give it the necessary regulatory backing, the same Decree No. 24 of 1975, now CAP E. 13 LFN 2007, established the Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON). The primary role of the ESVARBON according to the company’s website, is to:
“Securing the establishment and maintenance of a register of persons entitled to practice as Estate Surveyors and Valuers and the publication of the lists of such persons. Regulating and controlling the practice of Estate Surveying and Valuation in all its aspects and ramifications”.
We can see clearly from this law, that only people registered by the NIESV are supposed to act as agents on real estate transactions in Nigeria. In addition, the ESVARBON are the body established to regulate the practice of NIESV members (who ideally are real estate agents in Nigeria).
Since 1975, however, things have not panned out as expected. Due to regulatory loopholes, unqualified individuals have infiltrated the real estate agency business in Nigeria. This has led to a rise in fraudulent activities in the industry, forcing some state governments to establish a different regulatory body. One such body is the Lagos State Real Estate Regulatory Authority (LASRERA). A real estate agent in Nigeria is not deemed qualified if he is not licensed by the LASRERA or registered by the NIESV or ESVARBON
Now that we have established these facts, let’s get back to understanding the reasons why some real estate agents are charging inspection fees and if it is ethical for them to do so.
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Why are real estate agents charging inspection fees?
Many agents charge inspection fees to cover the logistics costs they incur. In addition to this, some clients have been observed to be difficult to please and, in some cases, clients may change their minds upon arriving at the property, even if it meets their initial preferences and specifications. This results in wasted time and effort for the agent. This is why some agents charge inspection fees as proof of commitment on the part of the client. We spoke to some Estate Surveyors/Real Estate Agents to understand their perspective. Some of them justified the fees because of their past experiences with unserious clients.
In view of the current economic situation in the country, agents could be spending scarce resources on window shoppers, but this does not justify any extra charges other than their agency fees. Now let’s talk about the legality.
Is it legal or ethical for real estate agents to charge inspection fees?
The legality and ethicality of real estate agents charging inspection fees are based on various factors, which are; state laws, industry regulations, and contractual agreements.
In Nigeria, like every other part of the world, Agents are paid for their services at the end of a successful transaction. This fee varies and ultimately covers logistics and other costs they incurred in the process of discharging their role.
On February 7th, 2022, the Lagos State Government signed the Lagos State Estate Agency Regulatory Authority (LASRERA) bill into law. The law was enacted to regulate estate agency practices, issue licenses, conduct inspections, collate property data, ensure fee payments, organize training sessions, provide consultancy services, and administer staff schemes, through the Lagos State Real Estate Regulatory Authority.
In this law, the government explicitly outlined the payment of agency fees, which are mandated at 10% of the total rent collected. The law also stipulates that when multiple agents are engaged by the owner/vendor for property transactions, such as the sale or purchase of interests in land and buildings, a fee of 15% of the total proceeds of the sale should be paid. In this law, the Government neither legitimized the collection of inspection fees nor delineated punitive measures against violators.
Although there aren’t specific laws against paying inspection fees, a closer look at the 2004 Estate Surveyors and Valuers Registration Act challenges the ethicality of this practice. According to section 15(1) of this Act, registered estate surveyors and valuers must follow an approved fee scale when charging for their services. Interestingly, this official fee scale doesn’t mention anything about inspection fees.
Charging an inspection fee seems to have no legal support from the LASRERA and the code of conduct of the NIESV.
Speaking on the subject, several practising agents that we spoke to seemed to share the same view. ESV. Chibuzor Arukwue, CEO of Nedcott Consulting said that it is only unqualified individuals in the profession that demand inspection fees from clients. This, according to him, disregards the profession’s codes of conduct and damages the reputation of the profession in general.
He further highlighted that, as licensed and qualified agents in the real estate profession in Nigeria, it is their responsibility to accompany clients for inspections. Additionally, he advised the Nigerian Institute of Estate Surveyors and Valuers to establish consequences for agents who charge inspection fees in the profession
Dr. (ESV) Kuye Olusegun affirmed that qualified and licensed Estate Surveyors Valuers and agents should not request inspection fees from clients, as it contradicts the ethical standards of the profession.
Again, the need for regulation.
In a nutshell, it is unethical for agents to charge an inspection fee before conducting inspections. The government must establish clear rules and regulations for agency practice in Nigeria.
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