Dark arts of Cyprus property sales
The situation regarding estate agents is not healthy and it is a cause of constant argument between property sellers, buyers and the agents seeking a commission.
Most of the wrongs were corrected in the past by the Estate Agents Law, but there are still evident problems in the relationship of the two sides, which need correction.
As not all estate agents are angels, similarly not all vendors are angels and I have personal knowledge of this.
There are scams regarding either party, I will address some of the problems that the estate agents are subject to.
Unlike in most other countries, for someone to be an estate agent, they must be registered with the Registrar of Estate Agents (a government body) who in turn require that any registered agent must have basic knowledge of the market and educational requirements, and undergo a written test before registration.
Registered agents must maintain a proper office, have professional indemnity insurance, and follow the rules and regulations.
There are all sorts of people engaging in estate agency activities, ranging from “cowboy” taxi drivers and bar attendants to advocates, accountants and others.
These people, in one way or another, manage to by-pass the law, claiming that any receipts that they get for a sale, is not commission, but disguised under “promotional fee”, introduction fee, etc.
Then we have the tax authorities who will not accept such payments to non-registered agents as being tax-deductible with the vendor being stuck in the middle (the vendor is not able to discount such payments from sales income).
Regarding sales commission, the average charge is 3-5%, if the agent “introduces” a willing and able buyer to a vendor (the word “introducing” is in itself one which is open to interpretation).
The commission is a lot, especially for the upscale market. You must bear in mind that the law stipulates only 3% commission (if no written agreement), but the parties (agent and vendor) can agree on any commission, provided that this is done in writing (tax authorities will not accept more than 3% if there is no such agreement).
For those who claim a commission under the disguise of promotion, the tax authorities will require details on what promotion has been undertaken at the expense of the claimant, whereas the “introduction fee” which is universally accepted, is also questioned by the Cyprus tax authorities.
In more “advanced” economies, vendors or agents have an exclusivity agreement (usually 6 months), but, in general, locals, including foreign investors and funds who operate in Cyprus, do not accept this, hence we have agents promoting a property at their own expense.
Being in a small country where everyone knows each other, interested buyers by-pass the agent and express their interest to the vendors directly to get a reduced price. So, in the end, the non-exclusive agents restrict their promotion.
Trying to avoid the agent’s commission is quite common and this includes even the large multinational investment funds, whereby, if one does not follow strict procedures, they may refuse their obligation by, for example, not filling a certain form. expressed interest through his lawyer.
A lot of toing and froing followed through emails with the vendor being made aware.
The buyer approached the vendor directly and through his advocate both claimed that the agent had nothing to do with the deal with the vendor saying the agent did not have the buyer signing a certain declaration.
The end result, other than the agent, the vendor and buyer are happy to save the 5% commission.
The matter will now take the legal route with the agent placing a ‘memo’ on the property in question, delaying the transaction.
In another example in Paphos, the vendor and buyer tried to bypass the agent who having found out, placed a restrictive order of transfer (memo), the whole thing is now stuck.
The buyer paid the amount, the vendor cannot transfer ownership and of course, the agent was not paid (standstill for the last 8 years – everyone loses). A messy situation.
On another occasion, a Russian buyer demanded that the agent should not be present during the negotiations with the owner. The buyer sued the agent for wrongdoings after trying to get a discount through non-commission payment.
He even sued the agent for EUR 70,000 in damages notwithstanding that the sale was for EUR 140,000.
The buyer lost his case in court, a ?memo? was again placed on the property and everybody is at a standstill.
Part of the problem is caused by the agents themselves trying to “steal” properties registered as such by other agents.
There are numerous examples of bad behaviour between agents, so the scam is not restricted between vendor and buyers, but also between agents.
Unless there is an agreement, it is the vendor who has the responsibility to pay the commission.
So beware that with any “monkey business” on your side it is most likely that you will pay in the end.
Bear in mind that only registered estate agents are entitled to a commission, so any demand by third parties have no right to claim it.