EVALUATING THE LIMITATIONS OF GHANA’S REAL ESTATE AGENCY ACT, 2020 (ACT 1047): A CALL FOR POLICY REFINEMENT AND INCLUSIVE REFORMS
A couple of months ago I was officially invited by the new management of the Ghana Real Estate Agency Council (REAC) to their office at Cantonment to meet the new Chief Executive Officer. They had seen my contributions as an industry thought leader and wanted to engage me further for a discussion to better shape the Real Estate Sector for the common good of Ghanaians. It was indeed a fruitful session. All thanks and appreciation to this young and intelligent National Service gentleman, Mr. David Dzantor, who facilitated the invitation and the scheduling of that all-important meeting.
Whilst I was leaving the office after the meeting that day, they handed me the hard copy of the Real Estate Agency Act, Act 2020 (Act 1047). In the Act I found a small leaflet, in it were highlights of the purpose and mandate of the Council. This was put in a Socratic form of presentation, a question which read “why regulate” and the answer given was “market failure” occasioned by one, “lack of professionalism two, uncontrolled pricing three, transaction risk four, “incidence of fraud and five, “money laundering”.
But the question however is, is the Real Estate Agency Act 2020 (Act 1047) inclusive enough to address the issues in the above five (5) thematic areas?. Let me leave this as a rhetorical question for readers to mull as we share our perspective on this all-important subject.
But before we go into the substance of the discussion, let me set a few records straight, that our contributions, opinions and suggestions in this article are to help shape not just the real estate agency sector, but the whole real estate industry at large.
We do not have any parochial interest whatsoever, implicit or explicit; our contributions are borne purely out of a nationalistic position in pursuit of the common good for all Ghanaian citizens. We have no prejudice against anyone, neither is there any motive intended to target, attack, denigrate, or frustrate anyone individual or a group of people. We therefore appeal to all stakeholders of the real estate industry to accept our opinions or views as nationalistic and must not be construed to mean anything else apart from this.
Now, without wasting time, let us get back to the basics. The Ghana Real Estate Agency Act, 2020 (Act 1047), represents a significant legislative step towards regulating the real estate agency sector aimed at enhancing professionalism, transparency, and consumer protection. While the Act introduces commendable measures, several limitations hinder its full potential in transforming the real estate agency landscape.
We shall be discussing a few in the foregoing paragraphs among which are these; the exclusion of the informal sector participants, rigid transaction requirements, discretionary commission system, double commission system, the charging of inspection fees, and the exemptions given to nonresident real estate professionals.
Exclusion of Informal Sector Participants
The Act mandates licensing for real estate agents and brokers, requiring the writing and passing of standardized examinations pursuant to Section (24) (a) (i) and (ii), which says, (24) The Board may issue a license to a person if the person (a) is an individual who has passed a qualifying examination conducted by (i) the Board; or (ii) an independent testing service designated by the Board.
This criterion potentially excludes a significant portion of the informal sector participants who, despite lacking formal education, possess practical experience in real estate agency business. Their exclusion we think is not only counter-productive in our opinion because of the unemployment it could cause but also the challenge of exclusivity. We are of the opinion that the exclusion of the informal participants who existed years before the coming into force of Act 2020 (Act 1047) is too draconian and will require a solemn introspection by policy makers.
The truth is there are many real estate agents and agencies that are doing genuine agency businesses maned by individuals who are not formally educated enough to sit and pass the licensing exam instituted by Act 1047. Conventionally, existing practitioners in many professions before the coming into force of a regulation such as this are normally given in-service training and are being absorbed into the system as the licensing exams apply to only new entrants coming into the space after the regulation.
For this reason, we hereby recommend that all policy makers take a second look at this and make a provision for the absorption of the informal participants to avoid job losses and further market distortions.
Rigid Transactional Requirements
The Act prohibits cash transactions in real estate payments mandating payments through bank drafts, cheques, or electronic transfers, pursuant to Section (45) (1) of Act 1047, which states that, “payment for each real estate transactions shall be by bank draft, cheque, bank transfer, or electronic money transfer”, whilst subsection (2) says, “a real estate broker or a real estate agent shall not accept cash in payment of any real estate transaction”.
Now, this is where the challenge is, while this aims to enhance transparency and curb money laundering, it poses a challenge in a predominantly cash-based economy such as ours.
The lack of accessible banking services in certain regions may hinder compliance and exclude potential market participants. Despite the progress made over the years in achieving universal financial inclusion for Ghanaians, challenges persist, some studies in recent times highlighted low bank account ownership and usage, the dominance of cash transactions and limited access to financial services even in certain district capitals in Ghana, remains a significant challenge to compliance (NFIDs 20222).
In the traditional communities even in the national city Accra such as Teshie, Jamestown, Gamashie, Lartebiokorshie just to mention a few, there are many landlords who do not own neither a bank account nor mobile money account. This will create a serious inconvenience for such landlords who will have to open bank accounts which they will not operate but for the collection of only rents that comes sometimes in two (2) or three (3) years interval.
In fact, we agree that the rationale behind this provision of the law is to ensure transaction transparency and to check money laundry etc. But the reality is, laundered funds are most often huge that they cannot be channeled through residential and short-term rents or leases etc. Therefore, we believe that the attempt to check money laundry should not come as an inconvenience to the masses.
In view of this provision, we recommend that some level of cash transactions should be allowed in real estate transactions.
We can put in place a threshold, for instance, for residential rent transactions that range between Ghs 1,000 to say Ghs 8,000 can be paid in cash, whilst transactions above this can be paid according to the dictates of the Act.
Discretionary Commission Rate System
It is also important to bring to the notice of policy makers that the Real Estate Agency Act 2020 (Act 1047) is conspicuously silent on the regulation of commission rates that must be charged by brokers and agents. Someone might not see anything wrong with this, but let me share with a few negative implications, leaving real estate agency commission rates entirely at the discretion of agents without clear guidelines or regulations, especially in a developing market such as ours will most likely lead to price exploitation, market distortion, unfair competition, barrier to entry, increased fraud and informality etc.
Price Exploitation: Agents may charge excessive or arbitrary commissions, especially in circumstances where prospective clients have little information about the market.
Market Distortion: Wide variations in commission rates can distort property pricing as agents may inflate prices to increase their percentage cut.
Unfair Competition: Ethical agents charging reasonable fees may lose clients to those offering unrealistically low rates.
Increased Fraud and Informality: Discretionary commissions can attract unregulated or informal agents who exploit clients, especially in rural and low-income areas.
Barrier to Entry: High and arbitrary commission fees may discourage potential buyers or sellers, slowing market growth. This can also lead to public mistrust and confidence in the real estate sector.
The second part of this discretionary commission rate, which has been a threat is the situation where the agent does not agree with the principal on any commission rate. The property owners give a price threshold below which the agent must not list the property, giving the agent the discretion to add a margin as his commission. In attempts to maximize gains, agents may end up increasing the property price by 100% or even over 200% in some cases.
This can make properties list for years without a sale. In November 2020 before this bill was assented into an Act on December 29, 2020, I sold a five-bedroom house in less than 90 days for a client in Tema Community.
According to this property owner, he had given the property to about 6 agents for 5 good years, but the property was never sold. Regrettably, he later discovered that these agents had doubled the price he gave them and some even tripled it. Even when I came into the scene, he had doubts if I would do an ethical job.
The question I would like to ask now is, as whether some of us have witnessed this situation before in the real sector in Ghana, the answer I guess is in the affirmative, hence the need for us to have some threshold or caveat on the rates of commission agents should charge.
Against this phenomenon, we hereby recommend that Act 1047 be reviewed by putting a cap on commission rates for real estate agency services.
This will provide a range within which agents must play and beyond which it will be illegal for commissions to be charged. Even though we acknowledge the fact that real estate agency services differ and must not come with a fixed rate for all transactions, we believe that it will serve the interest of the masses if rates remain negotiable, but within regulated range, with full disclosure to all parties to promote fairness, transparency and professionalism. This will also forbid agents from adding margins to property prices sometimes with or without the consent of the property owner.
Double Commission Charging
Before we address the issue of the double commissions charged by agents which has been one of the serious systemic distortions I my opinion, let me give this disclaimer that whatever I say here should not be construed to mean an interpretation of Act 1047. The Supreme Court of Ghana is the only Court that has the exclusive jurisdiction to interpret the laws of Ghana.
Having said this, let me refer you to Section (48) (c) which says, “a licensed real estate broker or a licensed real estate agent shall not, in relation to a real estate agency practice, do any of the following: act for more than one party in the same real estate transaction without the knowledge and consent of all the parties involved in the transaction”.
Then, subsection (e) states that, “accept, give, or charge any undisclosed commission, rebate, or profit on expenditures for a principal. I am not a lawyer, so I do not know if the above provisions address this double representation and charging of commissions we are going to discuss here, but this is the phenomenon, agents over the years charge the property owner 5% commission at the blind side of the client and charge the client same 5% at the blind side of the property owner.
First, this is a double commission and second, representing the two parties in the same transaction without their knowledge or consent.
Some even did 10% percent on both sides when we were new in this industry around 2019 before the coming into force of Act 1047.
I do not know if this is what subsection (c) of Section (48) meant by saying that no agent should represent two parties in the same transaction without their knowledge and consent, but in our opinion, we think that this is not a good practice and must be stopped. For avoidance of doubt and for purposes of transaction transparency, it is our recommendation that Act 1047 should be reviewed and a clear prohibition of this practice be incorporated.
Inspection Fees (Walking Fees)
It is also worth noting, that the law is silent on the illegal inspection fees popularly known in Ghana as “walking fees” charged by agents. Even though it is known to be an avenue for exploitation by some unscrupulous agents, the intent for its introduction was sound and genuine. This “walking fees” is the fee an agent charges for moving with the prospective client to inspect the property listed for either rent or sale.
According to history, it was introduced to ward off persons who may not be ready to rent or buy properties but will call for inspection, waste the time and resources of agents and will eventually not show up to make the purchase or rent the property. So, to compensate for the agent’s precious time and resources spent on the inspection exercise, the so called “walking fees” was introduced. Unfortunately, it was later being abused and it is still being abused today.
This is where the abuse comes, some agents book clients for viewing knowing very well that the listed properties in question are no longer available for rent or sale. They collect “walking fees” take the client around only to tell them upon arrival that the property has just been sold the previous day.
So, they apologize to the client and that ends it because the “walking fee” is not refundable. This act can deliberately be played on many unsuspected clients. In other jurisdictions such as the United States of America, it is not a convention to charged prospective buyers inspection fees (walking fees).
This reminds me of a personal experience when I relocated from Sunyani to start life in Accra in 2018. I had Ghs 2,800 looking for a single room to rent in Teshie. In a space of 21 days, I had spent Ghs 800 out of the cash paying this fraudulent “walking fees”. In some instances, it was the situation I described above, the other cases were the deliberate showing of properties that did not even match or meet the specification given, but you cannot request a refund because the “walking fees” are not refundable.
Eventually, I got the room but had to go borrow the Ghs 800 to top-up before I could pay for the rent. After getting the Ghs 800 top-up in three (3) days’ time, we went back to the landlord only to be told the room had been taken. So, I had to start the routine again, paying agents “walking fees” out of the money again.
In fact, this experience is that bad that I wish I don’t remember it. For these reasons, we believe it is unfair and fraudulent, and we recommend that Act 1047 be reviewed to give an explicit prohibition to this act.
Exemptions for Professionals from other Jurisdictions
The Act provided a weird exemption for real estate professionals from other jurisdictions to be given automatic certification to practice real estate in Ghana without having to go through the training, examinations and certifications in Ghana. I do not know what the reasoning was or is behind this exemption by the framers of the law.
This is categorically spelt out in Section (24) (c) which says that “the Board may issue a license to a person if the person (c) “who is not resident in this country, is a licensed real estate broker or a licensed real estate agent in the country of residence of that person”.
Conventionally, a certified professional in one jurisdiction will have to be trained in another jurisdiction or somewhat sit a basic exam and pass or be given in-service training before that professional in question may be given the certification to practice. Take for example the legal profession, the engineering profession etc.
Why would such an exemption be given to other professionals from different jurisdictions. It is unpopular and does not serve national interest in our opinion and we recommend this provision too be reviewed.
Recommendations
In summarizing the recommendations, first, policy makers should take a second look at exclusion of the informal participants and make a provision for their absorption into space to avoid job losses and further market distortions. Second, some level of cash transactions should be allowed in real estate transactions to cater for smaller residential transactions between Ghs 1000 to Ghs 8,000 whilst transactions above this may be paid in accordance with the dictates of Act 1047.
Third, we may consider adding developers, making it mandatory for developers and investors to use certified agents or brokers to sell, lease or rent their properties, this will curb the money laundry problem which most often targets the developers. Fourth, there must be a clear-cut threshold or range for commissions to eliminate the existing discretionary status quo.
Fifth, abolish the current double charging of commissions by agents and finally, explicit abolishing of the inspection fees popularly known as “walking fees” and last, review the examination exemption clause given to real estate professionals from other jurisdictions.
In conclusion, we wish that, a broader consultation would be carried out this time round to include not only developers as suggested earlier, but also to rope in property owners to regulate the arbitrary and speculative property and rental pricing which has put a lot of burden on people.
This can further put a cap on how long rent advances must be charged etc. It does not make sense to take in bulk a rent advance for three (3) years. This has made many homeless in Accra over the years. We may also consider including facility management et cetera if deemed fit to make the Act more comprehensive.
But before we take leave, let me be quick to issue this disclaimer also that, views or opinions expressed in this article or any article by this writer are not to be relied on without obtaining legal or other professional advice when taking a step or entering into a legally binding agreement or may any opinion shared be construed to be the interpretation of the law.
For real estate consultancy services, land banking investment strategies, property development, brokerage services, title registration, project funding consultancy services, feasibility studies etc across Ghana and Africa, contact the Africa Continental Engineering & Construction Network Ltd. We have you covered 360℃.
References
- Real Estate Agency Act, 2020, (Act 1047); date of Gazette Notification: 29th December 2020.
- NFIDs (2022); National Financial Inclusion Development Strategy’s Report: Measuring Financial Inclusion in Ghana.
- The Anti-Money Laundering Act 2020 (Act 1044) (and where there is any conflict, the provisions of Act 1044 shall prevail).
About Author
- Daniel Kontie
- Email address: d.knotie@acecnltd.com
- Website: https://www.acecnltd.com/
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