In a previous article, we
discussed the commissions that real estate agents can charge. In Kenya, the
Estates Agents Act sets scales from Scale 1 to 5 that sets the commissions to
be paid. The rates vary depending on the services rendered.
You may read more on that
here:
Real
Estate Agents Commissions in
Kenya: Understanding what Commissions to Charge
The above article sets
rates for selling properties, letting, management and mortgages. But what fees
should be payable to a real estate agent when they successfully bring parties
together for a joint venture?
In most cases, the real
estate agent who helped find either the land or the capital partner in a joint
venture does not become a partner in the venture. The real estate agent needs
to be compensated by
receiving a commission. This is because had they not been there, the joint venture would not
exist.
A few
months ago, we were approached by a firm that needed 100 acres around Ruiru for
a joint venture. After we introduced them to the landowner, the
negotiations started and an agreement was reached.
While the meetings between
the two parties went on, we reached out to the landowner for a commission. With
the value of the land well over a billion, we were waiting for a hefty
commission.
Long story short, we got way less of a commission than the usual 3% fee. We were not
happy but had to accept the amount.
In hindsight, we
should have prevented the situation. A good way would have been to have the landowner commit
to paying an acceptable fee in writing, before being introduced to the property
owner.
Do not fall into the same
trap that we did. Here are sample Letters
of Authorization to sell Real Estate and Letter
of Authorization to source real estate. You can download these and
personalize them to fit your needs.
The agent’s remuneration
act does not have a clear percentage for commissions to be charged for
negotiating a joint venture. It however leaves room for negotiation between
parties.
In practice, there are no generally
accepted commission rates for
joint ventures. There is also uncertainty in valuing the real worth of the
joint venture. Is it the value of the land? Is it the value of the joint
venture? Should the real estate be paid on the value of the venture even if
they are not a party?
We subscribe to the school of thought that puts real estate agent fees as per the sales and
purchase schedule for the value of the land. This way, they get a
commission in the same way as if they had organized a successful sale or
purchase of land.
As joint ventures take
time, this commission can be paid at once when the joint venture agreement is
signed. It is also acceptable to be paid in installments as the joint venture
progresses.
Remember, you need to
register with the Estate Agents Registration Board (EARB) to practice as a real estate agent in Kenya. Only
EARB registered and licensed Estate Agents with a current practicing annual
certificate can conduct Estate Agency. To learn more here is an article we wrote.
How
to register with Estate Agents Registration Board as a real estate agent in
Kenya
What do you think would be
a good way to charge commissions for real estate joint ventures? Let us know in
the comments section below.
