edel project 2.pdf - real estate and construction...
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UNIVERSITY OF NAIROBI
COLLEGE OF ARCHITECTURE AND ENGINEERING
SCHOOL OF THE BUILT ENVIRONMENT
DEPARTMENT OF REAL ESTATE AND CONSTRUCTION MANAGEMENT
THE ROLE OF PROFESSIONAL ESTATE AGENCY IN CREATING EFFICIENCY
AND TRANSPARENCY IN THE KENYAN REAL ESTATE MARKET.
CASE STUDY: NAIROBI AREA
BY
LOKO EDEL SHARON
B04/0359/2009
A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT FOR THE
AWARD OF A BACHELORS DEGREE IN REAL ESTATE.
MAY, 2013.
i
DECLARATION
Declaration by the Candidate
I, LOKO EDEL SHARON, hereby declare that this research project is my
original work and has not been presented for the award of any degree in any other
University.
Signature …………………………………………………..
Loko Edel Sharon
B04/0359/2009.
Date ………………………………………………………
Declaration by the Supervisor
This research project has been submitted for examination with my approval as a
University Supervisor.
Signature ………………………………………………………….
Dr. J. Murigu
Date ………………………………………………………………..
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DEDICATION
This research project is dedicated to my dear family; my mother Jacinta. K.
Mutua and my caring brother Raymond Mwaiki for always being there for me,
supporting me, loving me, urging me on and believing in me even when things
have seemed impossible over the years of my academic life.
God Bless You.
I would also like to dedicate this piece of work to my late grandfather, Joseph. M.
Kisongoa for the support, encouragement and love that he gave to me all the years
before his death.
May the Good Lord rest your soul in eternal peace.
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ACKNOWLEDGEMENT
I wish to express my sincere gratitude to my supervisor, Dr. Jennifer Murigu, for
her invaluable guidance and positive criticism throughout the study. Her
contribution and effort towards guiding my thoughts in carrying out this research
project are greatly recognized. I am also grateful to all the lecturers of the School
of the Built Environment and especially those of the Department of Real Estate
and Construction Management who have not only helped me pursue this degree
course successfully, but have also guided me towards being a better person
overall.
I also want to recognize the immense help I obtained from various estate agents,
landlords and members of the Estate Agents Registration Board who took their
time to provide information towards this research. In a special way I want to
thank Mrs. Norah Nyakora of the Estate Agents Registration Board who made
access to any information I needed easier.
I wish to extend my gratitude to all my classmates for their moral support and
encouragement throughout my course and stay in the University. Special thanks
go to my friends; Martin and Njenga, my best friend Maureen, for their support
throughout the best and hardest times of my four year study period in the
University.
I want to thank everyone who in one way or another contributed to the successful
completion of this research project. Special acknowledgement goes to the St.
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Paul’s Chapel fraternity, the community of Fanusi and the Salesians of Don
Bosco who helped me to always put God first in whatever I did.
Above all, I would like to thank the Almighty God for guiding me through my
four years of university education, providing me with all resources needed and
people to facilitate my learning process.
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ABSTRACT
The real estate market in Kenya and particularly in Nairobi, despite its
tremendous growth over the past ten years has remained highly inefficient and
shrouded in mystery. High value transactions are carried out secretly by few
investors and such transactions are rarely recorded. When recorded, many at times
they do not represent the actual facts and situations. Further, the professional
practice of estate agency has not been fully adopted by the industry in general and
real estate agency is carried out largely by non-professionals who compound the
problem of inefficiency and lack of transparency.
The research addressed itself to this particular problem because well-functioning
real estate markets are necessary for any country’s economic growth. They
encourage quick transactions in land hence provide incentives to people to
develop their properties and in addition, they provide reasonable access to
property by all income groups. Although the real estate market has many players,
estate agents are very important as the drivers of demand for the product that is
real estate. Thus, this study undertook to determine the impact of professional
estate agency on improving efficiency and transparency in the real estate market
in Nairobi.
Questionnaires to estate agents, landlords and members of the Estate Agents
Registration Board were issued to find out the effects of laws governing estate
agency in Kenya on professionalism in the practice, to understand the extent of
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public understanding on the practice of estate agency and to determine the role of
estate agents on efficiency and transparency in the real estate market. From the
literature review and field survey, it was discovered that the greatest challenges to
efficiency and transparency in the real estate market are the influx of non-
professionals, the lack of enforcement of the laws governing estate agency in
Kenya and lack of understanding by the pubic of the need for professional estate
agency. The respondents all agreed that the regulation of estate agency and the
professional practice of this field impact significantly on efficiency and
transparency in the real estate market.
The research therefore concluded that there is a need to reform the law governing
estate agency, better professional practice by estate agents, higher standards for
joining the profession and better education of the public as regards the practice of
estate agency.
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TABLE OF CONTENTS
PRELIMINARIES
Declaration …………………………………………………………………….......i
Dedication ………………………………………………………………………...ii
Acknowledgement ……………………………………………………………….iii
Abstract …………………………………………………………………………...v
Table of Contents ………………………………………………………………..vii
List of Tables ……………………………………………………………………xii
List of Charts ……………………………………………………………………xii
List of Maps ……………………………………………………………………..xv
CHAPTER ONE: INTRODUCTION…… ……………………………..............1
1.0 Introduction and Background of the Study……………………………………1
1.1Statement of Research Problem………………………………………………..4
1.2 Objectives of The Study ………………………………………………………7
1.3 Research Questions …………………………………………………………..7
1.4 Research Hypothesis …………………………………………………………8
1.5 Significance of the Study ……………………………………………………..8
1.6 Scope Of The Study …………………………………………………………10
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1.7 Area of Study ………………………………………………………………..10
1.8 0rganization Of The Study …………………………………………………..11
CHAPTER TWO: LITERATURE REVIEW………………………………...13
2.0 Introduction ………………………………………………………………….13
2.1 Real Estate …………………………………………………………………..13
2.1.1 Ownership rights associated with real estate ……………………………...14
2.1.2 Forms of Real Estate Ownership ………………………………………….17
2.1.3 Restrictions in the use of real estate and real property ……………………18
2.1.4 Features of the Real Estate Asset …………………………………………20
2.1.5 Real Estate Demand and Supply …………………………………………..21
2.2 Investment in Real Estate ……………………………………………………22
2.3 The Real Estate Market ………………………………...................................25
2.3.1 Characteristics of the Real Estate Market …………………………………27
2.3.2 Functions of the Real Estate Market ………………………………………29
2.4 The Practice of Estate Agency ………………………………………………30
2.4.1 Law of Agency……………………………………………………………..33
2.4.2 Duties of an Agent to the Principal ………………………………………..34
2.4.3 Duties of a Principal to the Agent ……………….………………………...35
2.4.4 Duties of an Agent to the Public ……………………..……………………35
2.5 Importance of Estate Agents in Real Estate Transactions …………………..36
2.6 Listing Agreements ………………………………………………………….39
2.7 Control of the practice of Estate Agency ……………………………………40
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2.8 Professional ethics and conduct ……………………………………………..45
2.9 Challenges facing Real Estate Agents ………………………………………47
2.10 Summary …………………………………………………………………...48
CHAPTER THREE: CASE STUDY AND RESEARCH
METHODOLOGY……………………………………………………………..51
3.0 Introduction ………………………………………………………………….51
3.1 Background and History of Nairobi …………………………………………51
3.2 Location and Physiographic Features …………………………………….....53
3.3 Climate ………………………………………………………………………53
3.4 Soils …………………………………………………………………………54
3.5 Functions ……………………………………………………………….........54
3.6 Tourism ……………………………………………………………………...55
3.7 Land Use and Planning Guidelines …………………………………………55
3.8 Infrastructure ………………………………………………………………...56
3.9 Graphical Representation of Nairobi Area …………………………….........57
3.10 Research Methodology …………………………………………………….58
3.10.1 Introduction ………………………………………………………………58
3.10.2 Research Design ………………………………………………………….59
3.10.3 Sampling techniques and sample size ……………………………………61
3.10.4 Data ………………………………………………………………………64
3.10.5 Data collection instruments and techniques ……………………………...65
3.10.6 Data Analysis and Presentation ………………………………………….67
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CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION ………….69
4.0 Introduction ………………………………………………………………….69
4.1 Estate Agents ……………………………………………………..................69
4.1.1 Experience and niche’ of respondents …………………………………….69
4.1.2 Duties of and Challenges faced by Estate Agents ………………………...71
4.1.3 Factors influencing the success and competence of an estate agent ………75
4.1.4 Code of Ethics and the Estate Agents Registration Board ………………...81
4.1.5 Efficiency and Transparency in the Real Estate Market in Nairobi ………84
4.2 Estate Agents Registration Board ………………………………………….101
4.2.1 Years Served in the Board ……………………………………………….102
4.2.2 Legislation- The effects of section 13 (1e) on the practice of Estate Agency
in Kenya………………………………………………………………………102
4.2.3 Regulation of the practice of estate agency ……………………………...104
4.3 Landlords …………………………………………………………………..106
4.4 Summary …………………………………………………………………...112
CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS……..113
5.0 Introduction ………………………………………………………………...113
5.1 Findings and Conclusions ………………………………………………….114
5.2 Hypothesis Testing …………………………………………………………118
5.3 Recommendations ………………………………………………………….119
5.4 Limitations of the Study ……………………………………………………122
5.5 Areas of further Research ………………………………………………….123
xi
Appendices ……………………………………………………………………..124
Bibliography …………………………………………………………………...135
xii
LIST OF TABLES
Table 3.1: Showing ranking of research questions ……………………………...67
Table 3.2: Showing ranking by a likert scale ……………………………………67
Table 3.3: Showing response rate ……………………………………………….68
Table 4.1: Showing the number of years served by members of the EARB …..102
Table 4.2: Showing a summary of the time taken to dispose property ………...108
LIST OF CHARTS
Chart 4.1: Showing the levels of experience amongst practicing estate agents …70
Chart 4.2: Showing the niche' of estate agents in the real estate market ………..71
Chart 4.3: Showing the duties of estate agents in the real estate market ………..72
Chart 4.4: Showing the challenges encountered by estate agents in the field …..73
Chart 4.5: Showing the influence of academic qualifications on the success and
competence of an estate agent …………………………………………………...76
Chart 4.6: Showing the influence of years of experience on an estate agent's
success and competence …………………………………………………………77
Chart 4.7: Indicating the influence of personal character traits on the success and
competence of an estate agent …………………………………………………...78
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Chart 4.8: Indicating the influence of registration by EARB on an estate agent’s
success and competence …………………………………………………………79
Chart 4.9: Indicating the influence of professional ethics on an estate agent’s
success and competence …………………………………………………………80
Chart 1.10: Indicating the overall influence of factors on an estate agent’s success
and competence ………………………………………………………………….81
Chart 4.11: Indicating the necessity of a code of ethics in ensuring
professionalism in estate agency ………………………………………………...82
Chart 4.12: Showing the opinions of estate agents on the regulation of the estate
agency practice …………………………………………………………………84
Chart 4.13: Showing efficiency of the flow of information between buyers and
sellers ……………………………………………………………………………86
Chart 4.14: Showing efficiency of the stability of real estate values ……………87
Chart 4.15: Showing efficiency of the understanding of estate agency by the
general public ……………………………………………………………………89
Chart 4.16: Showing efficiency of the recording of real estate transactions ……90
Chart 4.17: Showing the overall efficiency and transparency of the real estate
market in Nairobi ………………………………………………………………..91
Chart 4.18: Showing the influence of influx of non-professionals on efficiency
and transparency …………………………………………………………….......93
xiv
Chart 4.19: Showing the influence of professionals not charging according to the
scale of fees on efficiency and transparency ……………………………………94
Chart 4.20: Showing the influence of poor recording of transactions on efficiency
and transparency ...................................................................................................95
Chart 4.21: Showing the influence of high property values on efficiency and
transparency ……………………………………………………………………..96
Chart 4.22: Showing the influence of the lack of a code of ethics on efficiency and
transparency ……………………………………………………………………..97
Chart 4.23: Showing the influence of the lack of understanding by the public on
efficiency and transparency ……………………………………………………..98
Chart 4.24: Showing the factors influencing lack of efficiency and
transparency……………………………………………………………………...99
Chart 4.25: Showing the impact of professional estate agency on efficiency and
transparency ..............................................................................................................100
Chart 4.26: Showing the opinion of members of the EARB on sec 13 (1e)……103
Chart 4.27: Showing the opinion of members of the EARB on the aggressiveness
of the board in regulating estate agency ……………………………………….105
Chart 4.28: Showing the use of estate agents by landlords to sell/let property...107
Chart 4.29: Showing the usefulness of estate agents to landlords ……………..109
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Chart 4.30: Showing the reasons why landlords use estate agents to dispose
property ………………………………………………………………………...110
Chart 4.31: Showing the opinion of landlords on the practice of estate
agency…………………………………………………………………………..111
LIST OF MAPS
Map 3.1: Showing the spatial context of Nairobi in relation to other provinces in
Kenya ……………………………………………………………………………57
Map 3.2: Showing the spatial context of Nairobi in relation to the proposed
Nairobi Metropolitan Region ……………………………………………………58
1
CHAPTER ONE: INTRODUCTION
1.0 Introduction and Background of the Study
The term real estate is commonly used interchangeably with real property to refer
to land and all things permanently attached to it. Property in itself consists of
valuable rights held to the exclusion of others (Betts and Ely, 2008). The
definition of real estate typically includes land, fixtures (attachments) to land,
anything incidental or appurtenant to land that benefits the landowner and
anything which is immoveable by law. Real estate is a tradable commodity with a
specialized market due to its unique characteristics of geographical immobility,
heterogeneity, fixity, indivisibility and indestructibility. In addition, investment in
real estate requires a large capital outlay and is surrounded both by many legal
factors and government regulations (Ventollo and Martha, 2001).
The decision to invest in real estate is fast becoming the preferred choice for most
Kenyan investors who consider it one of the most stable forms of investment. In
addition, the rapid increase in the prices of Kenyan real estate has made many
investors venture into real estate as a source of income. In recent years, the
Kenyan real estate market has seen a new breed of investors who are targeting
capital growth/appreciation as the most important source of return for real estate
investments through their sale.
The city of Nairobi has in recent years been flooded with developers bringing
property into the market for sale, rather than for the purpose of obtaining a stream
2
of income in the form of rent. As indicated by Hass Consult (2013), this is
because property values in the country have increased 3.36 times since 2000.
Areas which were previously zoned as low-density residential areas such as
Upper hill, Kileleshwa and Kilimani are now being re-zoned to high-density
residential and commercial areas to allow for the development of large housing
and business complexes for sale.
Ventollo (2001) simply defines a market as a place where buying and selling
takes place. Due to the unique characteristics of real estate, the market for real
estate all over the world does not conform to the definition of an efficient market.
An efficient goods market is one where the products have close substitutes, many
buyers and sellers who have perfect knowledge of prices and goods exist, there is
little government interference and the product is easily transferable. Going by this
definition, the real estate market is considered highly inefficient. It is
characterized by few buyers and sellers; the product has no close substitute,
imperfect information, segmented markets and high transaction costs. In Kenya
particularly, the market is closed to only a few buyers and sellers due to the high
value transactions that take place. The government exercises tight control in the
form of laws and numerous bureaucratic procedures governing these transactions
which makes it very difficult and time-consuming to trade in real estate in Kenya.
As a result, trade in real estate requires professionals who possess an
understanding of the processes to mediate between the concerned parties who
include but are not limited to financiers, developers, sellers and purchasers. Estate
agents then come in to provide a service; matching demand of real estate with
3
supply. Kotler and Armstrong, (1989) define a product as anything that can be
offered to a market for attention, purchase and use which will either satisfy a want
or a need. It includes physical objects, services, persons, places, organizations and
ideas. In general, an agent is a person who carries out a transaction on behalf of
another. Stephens (1981) defines an estate agent as one acting as an intermediary
in the sale or acquisition of land. Bevan (1991), states that estate agents subsist in
the property market to link or initiate links between prospective vendors or
landlords and prospective purchasers or tenants, so as to create a transaction at the
most favorable prices and best terms possible among other services. They act as
catalysts to the real estate market and carry out the exchange function in this
market.
It is with this knowledge that the importance of estate agency not just as a
commercial practice but also as a professional one comes to light with respect to
the real estate market in Kenya. A professional estate agent is not only concerned
with the buying and selling of property but is also qualified in skills which do not
directly concern the ordinary consumer. As the real estate market in Kenya
continues changing and developing to better accommodate the needs of
consumers, the agent‟s role as an interpreter of the market, its state, its values and
the way it is likely to move becomes very important to developers seeking to join
the real estate market.
A well-functioning real property market transforms the potential energy in
property and generates money for the economy by facilitating the exchange of
rights in real property which is the ultimate incentive for economic development.
4
1.1 Statement of Research Problem
The practice of estate agency is not a new concept in Kenya. However, it has for a
long time been associated purely with the commercial transaction of letting
properties for landlords, buying and selling land, factories, houses, commercial
premises, businesses as going concerns, hotels and the ownership rights
associated with them. The agent acts on behalf of the seller or on behalf of the
buyer for a commission. In this regard, in addition to the firms registered to carry
out this practice, there have also been a large number of estate agents practicing
without any background knowledge and/or understanding of real property as a
commodity and the real estate market as a special one.
The city of Nairobi in particular has seen these agents involved in the marketing
of both residential and commercial properties. They operate in an imperfect
market where there are few buyers and sellers and where sales prices are not
usually reported and when reported, untrue information is given which then
becomes meaningless and misleading to the participants.
Estate agency in Kenya is governed by law; The Estate Agents Act chapter 533 of
the laws of Kenya. In its preamble, the Act provides for the registration of estate
agents and for the regulation and control of the professional conduct of such
persons. The Estate Agents Registration Board (EARB) is the body responsible
for the registration of agents. Sec 13 of the Act prescribes the requirements for
registration. In addition to professional qualifications, subsection 1(e) of the
Estate Agents Act allows for the registration of any person who is of good
5
conduct and satisfies the Board that he has not been convicted of an offence
involving fraud or dishonesty.
Section 13 (1e) of the Estates Agents Act has been a source of contention with its
opponents emphasizing that it lowers the bar for professionalism in estate agency
and advocating for its removal. This section is a major source of inefficiency and
lack of transparency in the real estate market because it allows just about anyone
to take part in the practice of estate agency. Furthermore, the understanding of
estate agency only as “house agency” and bringing together property buyers and
sellers has allowed the field to be penetrated by quacks and conmen who have,
through defrauding innocent investors, given the public a negative image of the
profession.
Inefficiency in the real estate market in Nairobi comes about because of
imperfect information. Investors are not informed about which products are
selling, there is no stability of prices and the high value of the products is a
limiting factor in that many people cannot afford to get into the market. The lack
of adequate price and value information makes it difficult for any investor to
make an informed decision and the few buyers and sellers who can afford have to
pay an extra premium for price information which further heightens this
inefficiency by raising the total cost of real estate investments.
Lack of transparency on the other hand comes in because most people who come
into the property market as investors do not quite understand the practice and
value of estate agency and are not aware of the services of estate agents who act
6
as the market stimulants. As such, they are likely not to use the services of
professionals in the practice which creates a compounded problem because they
are likely to be defrauded and the value of the transactions carried out not
recorded hence a newcomer in the market has no source of background
information and is likely to get a distorted picture of the market and the
profession.
Although the real estate market in Kenya and especially in Nairobi has been
growing rapidly, it is not uncommon to see developers put up billboards and site
signs to advertise their property and specifically stating that no agents are
involved. It follows from this that the public has a negative image of the practice
and that estate agency in this country has been regarded for far too long not as a
profession, but as a field where any person can venture.
However, with more and more foreign investors seeking to develop real estate in
the country and requiring more professional agency services, it is necessary that
information is made readily available thus contributing to efficiency and
transparency within the market.
The realization of the above problems has resulted in this study seeking to bring
to light the role of professional agency in bringing about efficiency and
transparency in the real estate market, to identify the challenges faced by estate
agents when carrying out their duties and to provide viable solutions aimed at
making estate agency in Kenya more professional.
7
1.2 Objectives of the Study
The overall objective of this study is to ensure that estate agency in Kenya is not
just viewed as a trade, but as a profession that incorporates business aspects and
as its major function stimulates the real estate market towards efficiency and
transparency.
More specifically, the study‟s objectives are:
1. To determine the contribution of the services of professional estate agents
towards efficiency and transparency in the real estate market in Nairobi.
2. To identify challenges affecting the profession of estate agency.
3. To find out the level of awareness by actors in the real estate market about
the need for professional real estate agency in creating efficiency and
transparency in the market.
4. To give relevant recommendations aimed at overcoming the challenges
facing professional real estate agency in Kenya hence improving the
efficiency of and transparency in the property market.
1.3 Research Questions
This study arose from the need to answer the following research questions:
I. How does professional estate agency contribute towards creating
efficiency and transparency in the real estate market?
II. What are the challenges faced by professional estate agents in
performance of their duties?
8
III. Do actors in the real estate market recognize the need for professional real
estate agency in improving efficiency and transparency in the market?
1.4 Research Hypothesis
The hypothesis for the study is as follows:
Null hypothesis: “Professional estate agency has no impact on efficiency and
transparency in the real estate market in Kenya”.
Alternative hypothesis: “Professional estate agency has a significant impact on
efficiency and transparency in the real estate market in Kenya”.
1.5 Significance of the Study
The need for this study arose because estate agency as a profession in this country
has seen an influx of numerous unqualified persons because there exists a conflict
between professionalism and commercialism in the practice. These people come
in to provide agency services in the real estate market yet they have no knowledge
of either real estate or the market within which it is traded. As a result, the real
estate market and particularly in Nairobi, is plagued by inefficiency and a lack of
transparency. Transactions involving great sums of money are carried out in
secret which keeps shrouding real estate in mystery and prevents many people
from getting into such investments for fear of being defrauded.
In addition, the real estate market in Kenya has seen a sky rocketing of prices of
land and buildings as a result of speculation by investors. Valuers, who have as
9
their basic role the determination of an estimate in monetary terms of the value of
property, have played a major role in directing the prices in the Kenyan real estate
market resulting in very high values for property. Although some valuers operate
as both valuers and estate agents, there are those who have specialized in
valuation and in most times these do not work hand in hand with their
professional counterparts; the estate agents who are actively involved in the
exchange of property. Without the involvement of professional estate agents to
provide advisory services, property in the country has become too costly and
these prices have ceased to represent the value of property which in turn has
distorted the market and locked out potential investors.
The study therefore seeks to serve the needs of investors who may want to venture
into the real estate market in Kenya and particularly in Nairobi. The needs of the
professionals in the practice of estate agency will be addressed therefore
contributing to the practice of real estate agency professionally and if the research
findings are implemented, estate agents will understand better their job
descriptions and cope with the changing needs of a more vibrant real estate
market. Hence, the study aims to contribute to better estate management practice.
Developers/landlords and tenants will also benefit from this study since it will be
brought to their attention why they should only do business with professional
estate agents and therefore protecting them from fraudulent practices. Finally, the
study emphasizes on the need to amend section 13(1e) of the Estate Agents Act
cap 533, which allows for the registration of anyone with good conduct though
10
not necessarily qualified as an estate agent. This will foster increased
professionalism in the practice of estate agency.
1.6 Scope of the Study
This research is undertaken to investigate the role of professional estate agency in
improving the efficiency and transparency in the real estate market. Particularly,
the study seeks to understand how estate agency in Nairobi can be made more
professional and make the real estate market more accessible to investors.
Further, the study is interested in presenting the role of estate agents as more than
just bringing together buyers and sellers of property and will also look at the
legislation governing estate agency in the country critically; hence its scope
covers estate agents practicing within Nairobi Area, landlords represented by
these agents and members of the Estate Agents Registration Board.
The scope of this study is further delimited by its objectives; already stated above.
1.7 Area of Study
Nairobi City has been chosen as the basis of the study owing to the fact that it is
the capital city of the country and as such, is the major center in the country with
the highest number of industries, research centers, educational institutions and
recreational facilities. It is home to many international foreign missions and has
the largest urban population in the country. Being the capital city of the country, it
is also a good representative of other towns with regards to estate agency.
11
With increased developments in infrastructure, the real estate market in Nairobi
has grown in leaps and bounds as areas outside the city center have become more
accessible. Investors and individual home owners are choosing to invest and live
farther from the city center where land is more affordable. It therefore follows that
the practice of estate agency although already well developed in the city, requires
more and more effort towards its improvement and use to regulate the functioning
of the real estate market. In addition, there are various instances of fraud that have
taken place in the city as people who have no knowledge of the services of
professional estate agents are duped by con-artists who pose as estate agents.
1.8 Organization of the Study
The study is organized in five chapters as follows:
Chapter one is the introduction of the study and provides a brief overview of the
entire research project. It consists of the background of the study, problem
statement and covers the study objectives, research questions, the hypothesis of
the study, significance and scope, the area of study and the organization of the
study.
Chapter two reviews literature on estate agency as a profession and the real estate
market in general. In this chapter, all aspects of the real estate market in terms of
its functions, characteristics and the characteristics of real estate as a commodity
are dealt with. The role of estate agents in and their contribution to the real estate
market is also examined. Further, all the laws governing real estate and the
control of estate agency in Kenya are covered.
12
Chapter three provides a description of the research methodology. A description
of the study area is given in addition to the methods of data collection, analysis
and presentation.
Chapter four presents the findings of the study.
Chapter five is a discussion of the findings of the research, their implications,
recommendations, and conclusions and tests the hypothesis. Limitations of the
study and areas requiring further research are also provided for in this chapter.
The bibliography and appendices come after the last chapter.
13
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction
This chapter reviews existing literature and provides background knowledge
about the topic under study. It forms the theoretical and conceptual frameworks
upon which the practice of estate agency and its relationship with efficiency and
transparency within the real estate market is proposed. Research findings are
interpreted, analyzed, synthesized, integrated and summarized based on the
information obtained and presented.
In this chapter, the aim is to discuss real estate as both a commodity and an
investment; the functioning of its market and the services that professional estate
agents provide within this market. Further, the role of professionalism in estate
agency is discussed to the extent that it brings about the better functioning of the
real estate market.
2.1 Real Estate
Real estate refers to land and improvements permanently attached on the land as
well as the rights to use them. The term is used synonymously with real property
which technically refers to the legal rights, interests and benefits inherent in the
ownership of real estate. Therefore the ownership of real estate is not so much the
land but a bundle of rights to use and dispose of land and its improvements
subject to various restrictions (Wurtzebach et al, 1994).
14
Betts and Ely, (2010), state that when an object is permanently fastened to the
land it is legally considered to be a part of the land and thus a part of the real
estate. Improvements on land commonly thought of as real estate may include
trees, bridges or buildings. Betts and Ely, (2010) include in the definition of real
estate appurtenances and that which is immoveable by law. Easements and
continued rights to enjoy the benefit of natural features that extend beyond ones
property are given as examples of appurtenances.
2.1.1 Ownership Rights Associated with Real Estate
When people purchase land, they actually purchase a bundle of rights related to
the land which include the right to use, occupy, sell, exclude others from, borrow
against and convey ownership by inheritance or gift (Betts and Ely, 2010). The
legal conception of land under English Common Law is expressed in the maxim;
Cujus est solum which means that land encompasses more than just the soil, but
fixtures, water, and all things found in the aerospace above and in the geospace
below. The common law conception of fixture is expressed by the maxim Quic
Quid plantatur solo solo codit which literally means whatever is attached to land
belongs to the land.
At common law, fixtures were deemed to be part of the land and could not be
removed. However, this principle was modified and certain categories of fixtures
could be removed e.g. trade fixtures to enable a tenant carry out his trade,
ornamental and domestic features if they did not cause substantial damage to land
and agricultural fixtures (Clarke and Kohler, 2005). The common law principles
15
apply in Kenya‟s property law. However, these have been modified by statute law
such as the Water Act Cap 372, the Mining Act Cap 306, the Land Act No.6 and
the Land Registration Act No.3 of 2012. These statutes govern the use of
resources on land hence do not allow the owner of a piece of land to use it
completely as he would want to.
Property rights in land generally fall into three categories namely: Estates,
Servitudes and Encumbrances.
Estates
Estates in land can either be freehold or leasehold. The term freehold implies a
property which the owner holds absolutely and in perpetuity, and of which he is
either in physical possession or in receipt of rents arising from leases or tenancies
which have been created out of the freehold interest (Shapiro et al, 2000). The
freehold estate confers the largest bundle of rights on its owner and is also
referred to as the fee simple estate (Betts and Ely, 2010). Shapiro et al, (2000),
notes that this kind of property ownership is perpetual even though the owner
himself is mortal.
According to Sessional Paper No.3 of 2009 on National Land Policy, freehold
tenure connotes the largest quantity of land rights which the state can grant to an
individual. While it confers unlimited rights of use, abuse and disposition, it is
subject to the regulatory powers of the state. In Kenya today, such interests are
held under the Land Registration Act No.3 of 2012.
16
When a freeholder grants the rights to exclusive possession of land to another for
a certain period usually in consideration of the payment of rent, a leasehold
interest in land is thus created. The grantor of the lease is called the lessor while
the grantee is called the lessee or the leaseholder. As defined by Shapiro et al,
(2000) leasehold interest in strict legal parlance is a term of years. This expression
covers leaseholds of all kinds no matter how long or short the period for which
they are granted. The Constitution of Kenya in its chapter 5, section 65 (1)
provides that any person who is not a citizen may hold land on the basis of
leasehold tenure only and any such lease shall not exceed ninety-nine years. The
leaseholder is bound by observance of covenants contained in the lease such as
keeping the premises in a good state of repair, redecorating internally and
externally at stated intervals and possibly restoring the property to its original
state at the end of the lease term.
A freeholder who grants leases or tenancies retains the right at common law to
regain physical possession of his property when these leases or tenancies come to
an end. For this reason, the landlord‟s interest in the land is known as his
reversion (Shapiro et al, 2000).
Servitudes
These are rights in alieno solo; that is, a right conferring a power on another‟s
land for the benefit of the right holder or his estate. They are non-possessory
interests or rights; none of these rises to the „dignity‟ of an interest that carries
with it ownership or possession (Wurtzebach et al, 1994). At common law
17
servitudes include easements, “profits a` prendre” and restrictive covenants
(Shapiro et al, 2000).
Easements are interests in real estate that give the holder the right to use but not to
possess the real estate. They are usually created by deed or by contract and since
they involve some restriction or limitation as to the right of ownership, land that is
subject to an easement is said to be burdened with an easement, and, to some
extent, its value may be diminished (Wurtzebach et al, 1994).
Profits a` prendre are rights to take such things as minerals, plants, game, fish, a
portion of the soil or gas from land owned by someone else. These interests must
be in writing (Wurtzebach et al, 1994).
Restrictive covenants are agreements by which a proprietor or land owner
undertakes to restrict the use of his land in a particular manner for the benefit of
some other land. The covenants are created by agreements which are registrable
under the law and may be terminated by mutual consent (Shapiro et al, 2000).
Encumbrances
Dasso and Ring, (1989), define an encumbrance as a claim against clear title of or
a limitation on use of a property and it comes about as a result of a defect in line
of ownership or of some action, or non-action, of the owner. Encumbrances are
generally of a temporal nature and include mortgages and charges.
2.1.2 Forms of Real Estate Ownership
Ownership of property may take three forms; sole ownership, joint ownership and
common ownership. Sole ownership refers to a case where title to property is held
18
by one person also referred to as estate in severalty. This form of ownership is
very flexible since the owner can make all decisions regarding the property
without having to get consent from co-owners (Jacobus, 2003).
In a joint ownership, property is owned by two or more owners and enjoys all the
benefits of a single owner. Shapiro et al, (2000), notes that in a joint tenancy the
parties have equal rights to the benefits of the property, but when one joint tenant
dies his share passes to the surviving joint tenants by “survivorship”. Jacobus,
(2003), provides that for a joint tenancy to be created there must be four unities
present namely unity of time, unity of title, unity of interest and unity of
possession.
In a tenancy in common, shares are undivided but are not necessarily equal
(Shapiro et al, 2000). Each individual can independently sell, mortgage, lease,
give away or devise his individual interest since each has a separate legal title to
his undivided interest. There is no right of survivorship and on death of one of the
tenants in common, his interest passes to his heirs who become tenants in
common with the remaining co-owners. Any income generated by the property
belongs to the tenants in common in proportion to the size of their interests.
Similarly, each co-owner is responsible for paying his proportionate share of
property upkeep (Jacobus, 2003).
2.1.3 Restrictions in the use of real estate
The use of a property is not just determined by an owner‟s plans and motivations.
Instead, possible uses are dictated by public and private restrictions that affect
19
property (Betts and Ely, 2010). Use restrictions fall into three broad categories:
government, private and market.
The appraisal institute, (1996) explains these restrictions as:
Government restrictions
These include taxation, eminent domain, police power and escheat. Taxation is
the right of government to raise revenue through assessments on goods, products
and rights. Eminent domain is the right of the government to take private property
for public use such as the construction of roads, schools, hospitals upon the
payment of just compensation. Police power is the right of government under
which property is regulated to protect public safety, health, morals and general
welfare. Zoning ordinances, use restrictions, building codes, air and land traffic
regulations and health regulations are based on police power. Escheat is the right
of government that gives the state or a local government titular ownership of a
property when its owner dies without a will or any statutory heirs.
Notably, police power has the most influential effect on the use and value of real
estate. Under the authority of police power, local government agencies adopt
zoning ordinances which specify where various land uses can be located, as well
as the type and density of occupancy allowed (Betts and Ely, 2010).
20
Private restrictions
These can limit the use or manner of development and even the manner in which
ownership can be conveyed. Easements, mortgages and contracts are all private
restrictions that influence the use of property by an owner.
Market restrictions
According to Betts and Ely (2010), it is eventually the market that determines the
ultimate use of land in the sense that each proposed land use must appear to be
financially satisfactory, or investors will not choose that use. Proposed uses of
land must earn enough money, or create enough benefits at that location, to justify
the cost of the land and buildings (Appraisal Institute, 1996).
2.1.4 Features of the Real Estate Asset
Wurtzebach, (1994), notes that the chief characteristic of real estate is in its
association with land. All the features that distinguish real estate from other assets
flow from this association. As such, the characteristics of real estate fall into
physical and economic characteristics.
Physical Characteristics
Immobility: Real estate is fixed in location and cannot be moved. Jacobus,
(2003) states that when real estate is sold, the seller cannot physically deliver the
product to the buyer. Instead, the buyer is issued with a deed that that transfers the
right of ownership and the right to go onto the land and use it.
21
Heterogeneity: Since land is immobile, it follows that every single parcel of real
estate has a location that cannot be duplicated and hence no two parcels of land
are alike.
Indestructibility: Land is indestructible and hence, durable (Jacobus, 2003).
Economic characteristics
Scarcity: This arises from the fact that there is a finite amount of land on the
earth surface.
Fixity: This may also be referred to as investment permanence in the sense that
land, buildings and other improvements to land require long periods of time to
pay for themselves.
Long economic life: Though improvements on land are not indestructible in the
sense that land itself is, they usually have long useful lives.
Modification: Land use and value are greatly influenced by modification;
development has synergistic impact on property value.
Situs: This refers to location from an economic standpoint. It deals with the
preference of people for a given area and explains the interaction of property with
the uses of surrounding land parcels.
2.1.5 Real Estate Demand and Supply
The demand and supply of real estate differs from those of other commodities.
Decisions to own real estate are different first because of the high value of real
22
estate. The ability of most people to own real estate is limited because of their
relatively low wealth or earning capacity. The long economic life of real estate
also influences its demand and supply. High transaction costs and the
requirements for debt financing also influence the demand and supply of real
estate (Dasso and Ring, 1989).
Wurtzebach et al, (1994), notes that the demand for real estate is complicated
because real estate is both a consumer and a capital good. Supply in the real estate
market is inelastic. If the demand for a certain type of property increases, the sale
and rental prices rise due to the supply lag while if this demand changes as the
suppliers are still in the process of trying to satisfy it then there is an over-supply
and unit prices go down slowly because owners resist taking losses on high value,
durable assets. New supply in real estate is only created by new construction or
the change of user of a particular property such as the conversion of commercial
space to residential space (Wurtzebach et al, 1994). Government intervention in
terms of determining new development and redevelopment in the form of zoning
regulations, building codes and tenant protection legislation also affect the
demand and supply of real estate.
2.2 Investment in Real Estate
Decisions to develop real estate are referred to as investment decisions. The
investment decision is essentially a choice between consumption in the present
and consumption at a future time. Investment therefore, is by definition, present
sacrifice for expected future benefit (Jaffe and Sirmans, 2001). Hargitay and Yu,
23
(1993), state that investment has to do with the creation, enlargement and
protection of wealth. The major objective of most investors is to maximize
wealth.
Wurtzebach et al, (1994), notes that return from real estate investments can either
be pecuniary or non-pecuniary. Pecuniary return includes annual cash flow, tax
shelter and gains from sale. Non-pecuniary returns may also be referred to as
psychic income and include items such as self-esteem, ego fulfillment and a sense
of security. Ambika, (2009), notes that before any investment is undertaken, an
investor should take into consideration the various features of investment in order
to choose specific investments.
Security of capital: An investor should ensure that the principal invested
is secure when choosing an investment though the safety is not absolute or
complete.
Liquidity: This is the consideration of the marketability of an investment
and the reversibility of the transaction.
Stability of income: This is an important factor for those investors who
depend closely on income from the investment.
Tax exemption: An ideal investment is one that can be exempted from the
incidence of tax which secures the investment from unforeseen levies by
the provisions of the investment and/or by the provisions of statutory law.
Divisibility: An investment which is easily divided into smaller,
acceptable portions is easier to convert to money and hence is more
attractive to an investor.
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Other important considerations for an ideal investment as noted by Chamberlain
and Wharton, (2010), are potential for appreciation and value as collateral.
However, the most important considerations before an investment is made are
security of capital, stability of income and liquidity. Hargitay and Yu, (1993),
identify the principal types of investments to be money which is lent creating a
debt to be paid on demand or at a specified later date, shares and stocks, real
estate and non-yielding investments such as chattels and works of art.
The market for investment in real estate must be seen as part of the overall
investment market while at the same time being a distinct segment having its
unique attributes and peculiarities (Scarrett, 1991). Investment in real estate does
not seem like an ideal investment due to its inherent characteristics but there is
never a shortage of investors seeking to get into the real investment market. It
provides a hedge against inflation as a result of its ability to offer good income
growth. Income in form of rents is usually subject to upward reviews which take
care of the rates of inflation in the market.
Further, the pride of ownership associated with real estate and diversification of
investor objectives provide additional benefits that investors seek when investing
in real estate. Real estate provides fair return on investment in the form of
appreciation and tax shelters through the depreciation of the value of the property.
The durability, tangibility and the fact that property ownership is usually recorded
and legally protected makes property a good form of collateral to obtain funds for
further investments.
25
The decision for one to invest in real estate requires more careful consideration
than in all other forms of investment. Real estate is difficult to resell, because of
the heavy expenditure outlay required for a single property (Murigu, 2005).
Overall inefficiency in the real estate market also makes it a less than perfect
investment. Complete analysis and market intelligence is difficult to achieve
(Scarret, 1991). Management of real estate involves a high financial cost and
takes a lot of time. Without it, a property is highly unlikely to maximize an
investor‟s wealth. Supply for real estate is inelastic due to the long time periods
required to respond to increases in demand. Further, the planning mechanism in
form of zoning controls is not always concerned with matching supply and
demand of real estate. The heterogeneity and indivisibility of real estate also make
investment in real estate less desirable.
The government restricts the way in which real estate investment is managed and
traded hence affecting the income return and capital values of property. Further,
the government controls land use restricting investors from using their property as
they would wish. Development potential is thus restricted by zoning regulations,
lease covenants and the building code (Murigu, 2005).
2.3 The Real Estate Market
The function of any market, by definition is trade or exchange. Other than trade,
the market gives signals to change the quantity and quality of the product in
addition to providing price and value information to participants and others
(Dasso and Ring, 1989). The United Nations Economic Commission for Europe
26
(UNECE) in its June, 2012 seminar notes that real estate makes up a large
proportion of a nation‟s wealth and constitutes 68% of the assets of the world
economy. As an asset, it can be bought and sold like any other commodity thus
the real estate market is the mechanism whereby real estate is bought and sold,
prices can fluctuate up or down and the supply and demand for the product is
always changing (Cortesi, 2004).
The operations of the real estate market bring together people from different
disciplines and professions who perform different roles. The whole spectrum of
actors include financiers, developers, insurance companies and the associated
professionals such as architects, land and quantity surveyors, engineers, valuers,
estate agents and property managers (Mukungi, 1997). The government through
various controls such as enforcement of zoning ordinances, sub-division
regulations and building codes also intervenes in the operation of the property
market (King‟oriah, 1987). Further, provision of infrastructure spurs on
development of real estate and raises the values of real estate in a particular
location. Through the central bank, the government determines lending rates
which in turn determine investor capabilities to borrow funds and hence develop
property (Mukungi, 1997).
Financiers provide the necessary capital for the purchase or development of a
particular real estate asset. Developers on the other hand put together various
input factors required to satisfy effective demand (Wurtzebach et al, 1994). The
various professionals work with the government, developers and financiers to
make possible the activities that occur in the real estate markets.
27
2.3.1 Characteristics of the Real Estate Market
The real estate market is different from the markets for other goods and services,
which are more efficient. The Appraisal Institute (1996) states that the efficiency
of a market is based on assumptions about the behavior of buyers and sellers as
well as the characteristics of the product traded.
In an efficient market thus: the goods or services traded are essentially
homogeneous items that can be readily substituted for one another, there are a
large number of buyers and sellers who create a competitive, free market, prices
are relatively uniform and stable and are often the primary consideration in
purchase or sale decisions, the market is self-regulating, supply and demand are
never far out of balance because the market tends to move toward balance through
the effects of competition, buyers and sellers are knowledgeable and fully
informed about market conditions, Buyers and sellers in are brought together by
an organized market mechanism, and it is relatively easy for sellers to enter into
or exit from the market in response to market demand.
The real estate market differs from other efficient markets in that the following
features characterize it.
Local markets: Due to its physical characteristic of immobility, the real estate
market is very local in character and as such, each local market must be
considered separately. In addition, each parcel of real estate is unique with a fixed
location (Appraisal Institute, 1996).
28
High unit value: From both a financial and physical point of view, real estate
tends to have great value (Wurtzebach, 1994). Prices are relatively high, very few
purchasers have enough money to pay for property in cash and hence debt
financing frequently plays an important role.
Market segmentation: The real estate market is segmented in that several
different markets may operate in the same area. The process of identifying and
analyzing submarkets within a larger market is called market segmentation
(Appraisal Institute, 1996).
Government intervention: Real estate markets are not self-regulating. There
tends to be more government intervention in the form of taxation, development
incentives and regulations governing the use and transfer of real property than in
most other markets (Wurtzebach et al, 1994).
Market adjustments: Equilibrium between demand and supply in the real estate
market is rarely ever reached. The supply of real estate suitable for a specific
purpose is slow to adjust to market demand and shifts in demand may occur as
new real estate units are being constructed, so an oversupply, rather than market
equilibrium, may result (Appraisal Institute, 1996).
Imperfect Information: The Appraisal Institute, (1996) notes that buyers and
sellers of real estate may not be well informed. Most people do not buy and sell
real estate frequently, so they are not very familiar with the procedure or
knowledgeable about how to judge a property.
29
Psychic Income: Satisfaction derived from the ownership of real estate is often
non-pecuniary in nature. Such psychological utility derived from ownership is
especially inherent in the housing sector and affects the price homeowners are
willing to pay (Wurtzebach et al, 1994).
Difficulty in entry and exit: It is difficult for buyers and sellers to get into and
out of the real estate market because such activities are complex and time
consuming.
2.3.2 Functions of the Real Estate Market
Real estate markets are important because all form of development depends to
some degree on the availability of land. They are mechanisms that, provided there
are appropriate institutional checks and balances allocate ownership and use rights
in a manner that allows land and its associated assets to be used in the most
economical way (Mahoney et al, 2007).
Mukungi, (1997), notes that a well-functioning property market performs various
functions. By providing a mechanism through which buyers, sellers, landlords,
tenants, borrowers and lenders are brought together, real estate markets and sub-
markets make possible the easy and quick transfer of rights in property. The real
estate market also sets prices for mutually advantageous exchangers. Market
activity by potential buyers and sellers such as negotiations and bids, establishes
the prices at which the transfer of rights will occur. Urban space is allocated
among competing alternative uses in the real estate market at the highest price
offered for its highest and best use. A well-functioning real estate market
30
determines the pattern of land and space use through the price mechanism and
operation of the principle of highest and best use by individual decision makers in
addition to providing jobs and the security of a home to a nation‟s residents.
Further, it can contribute to stability, employment, growth and a greener
economy.
However, an unclear regulatory framework can be destabilizing (UNECE, Real
estate markets). The wellbeing of the property market is inextricably linked to the
economic performance of a country and its success (Scarret, 1995).
2.4 The Practice of Estate Agency
An agent is defined as a person who acts on behalf of another on authority from
him. An agency is created when one person (the principal) delegates to another
person (the agent) the right to act on the principal‟s behalf. Estate agency also
referred to as real property agency can be defined as a function of buying, selling
and letting real property on behalf of others for a fee (Mbangula, 2003).
In Kenya, the Estate Agents Act chapter 533 of the laws of Kenya defines practice
as an estate agent as the doing, in connection with the selling, mortgaging,
charging, letting or management of immoveable property or of any house, shop,
or other building forming part thereof, of any of the following acts:
a) Bringing together or taking steps to bring together, a prospective vendor,
lessor or lender and a prospective purchaser, lessee or borrower, or
31
b) Negotiating the terms of sale, mortgage, charge or letting as an
intermediary between or on behalf of either of the principals.
For a long time all over the world, there has been a conflict in the practice of
estate agency with researchers arguing over whether estate agency is a profession
or simply a commercial activity. Proponents of the view of estate agency as a
commercial activity describe the main function of estate agents as the bringing
together of vendors and prospective purchasers, lessors and prospective tenants
and negotiating between parties. This bringing together of vendor and purchaser
and negotiating between the parties implies that the agent acts solely as a broker
with no specific responsibility to either party (Stephens, 1981). However, in his
argument that estate agency is not just a commercial activity, Stephens (1981)
states that estate agency is a combination of the elements of salesmanship and
professionalism which should be done systematically to the greater advantage of
the consumer. A professional estate agent thus, is likely to be qualified in many
skills which do not directly concern the ordinary consumer such as providing
advice on questions of rent, repair, valuation of property for sale and transfer, and
to conduct sales by auction or private treaty.
When considering the estate agent‟s role in the wider sense, it should not be
forgotten that s/he does not always act for the vendor or lessor; very often s/he is
also acting for the purchaser or the lessee to seek, advice and acquire. Clearly,
considerable knowledge of the market concerned and professional expertise are
required if an agent is to perform his tasks successfully (Stephens, 1981). An
occupation is termed a profession when a specialized kind of skill, knowledge,
32
science and art is applied in the affairs and services of the public. The group
practicing this occupation also gets recognition as a profession through the public.
The Estate Agents Act Chapter 533 of the Laws of Kenya provides for the
registration of estate agents in its section 13 (1b) and gives as one of the
requirements for such registration that the person seeking to be registered has to
hold a degree, diploma or license from any university or college or school which
is recognized for the time being by the Board. This therefore implies that estate
agency in Kenya is considered a profession.
There are two types of agency; sole and multiple agencies. Sole agency involves a
situation where a property is given to one agent to the exclusion of others except
the owner. Multiple agency on the other hand refers to a situation where a
property is given to more than one agent and whoever sells/lets the property first
gets the commission (Chelotti, 2010). An estate agent getting into the practice of
estate agency needs to determine their niche` depending on the various categories
of property.
Residential agency is the area of business where most new agents venture, and the
one in which very many practicing estate agents make their living (Jacobus,
2003). Commercial agency deals with income-producing properties such as
apartment and office buildings, retail stores and warehouses. In this field, the
agent is involved in selling the monetary benefits of the property such as income,
capital appreciation, mortgage reduction and tax shelter that a property can
reasonably be expected to produce (Jacobus, 2003). Industrial agents specialize in
33
finding suitable land and buildings for industrial concerns including leasing and
developing industrial property as well as listing and selling it. In agricultural
agency, the agent specializes in the sale, leasing and management of farms and
ranches and in the sale and development of raw land. A thorough knowledge of
farming and ranching and a rural background are helpful (Dasso and Ring, 1989).
2.4.1 Law of Agency
Wurtzebach et al, (1994), defines an agent as one who represents or acts for
another person, called the principal in dealing with third parties. The agent is in a
fiduciary relationship with a principal; he represents the principal and acts only
with the principal‟s consent and is subject to his direction and control. The law of
agency concerns the legal rights, duties and liabilities of the principal, agent and
third parties based on contracts and/or relationships between them.
Jacobus, (2003), states that an agency relationship can be established through a
contractual agreement or by acts of the parties and terminated through expiration
of the written agreement establishing the agency, mutual consent of the principal
and agent, revocation by the principal or the operation of law in cases such as
death, insanity or bankruptcy of either the principal or agent. Authority is the
basis of an agency relationship and the principal is only liable if the agent was
acting in the scope of his authority. It may be implied where it is implied from the
nature of the business or transaction which the agent is engaged to transact or
ostensible when a principal gives a third party reason to believe that another
person is his agent even though that person is unaware of the appointment. If the
34
third party accepts this as true, the principal may be well bound by the acts of his
agent (Jacobus, 2003).
2.4.2 Duties of an Agent to the Principal
Any time an agency is created, an agent also called the fiduciary is expected to be
faithful to the principal, exhibit trust and honesty and exercise good business
judgment. Specifically, a real estate agent is bound to use reasonable care in the
performance of his duties (Dasso and Ring, 1989). It is the broker‟s responsibility
to disclose all knowledge and material facts concerning a property to the
principal. Also, the agent must not become a party to any fraud or
misrepresentation likely to affect the sound judgment of the principal (Jacobus,
2003).
The agent should obey reasonable instructions in that the agent is expected to
follow or obey all reasonable instructions of a principal, assuming that the
instructions pertain to the purpose of the principal- agent relationship (Dasso and
Ring, 1989). An agent has a legal duty of accountability, which is to account for
all the money or property to the principal, keeping adequate records concerning
such money or property. Loyalty by the agent to the principal is paramount.
Representing two principals is called dual or divided agency and contracts
involving such disloyalty are voidable at the option of the principal. If the agent
acts for both buyer and seller with the full knowledge of both, the double agency
rule does not apply and the agent is referred to as a middle-man (Dasso and Ring,
1989).
35
Though an agent is not personally liable for contracts entered into for the benefit
of a principal, an agent exceeding his authority does incur personal liability
(Dasso and Ring, 1989).
2.4.3 Duties of a Principal to the Agent
The principal‟s main obligation to the agent is compensation (Jacobus, 2003). The
principal must compensate the agent in accordance with the contract of
employment. Indemnification and performance are the two other main duties of a
principal to the agent.
2.4.4 Duties of an Agent to the Public
Honesty, integrity and fair business dealing are the primary duties of an estate
agent to third parties. These include the proper care of deposit money and offers
as well as responsibility for written or verbal statements. Misrepresentation of a
property by omitting vital information is as wrong as giving false information.
Disclosure of such misconduct usually results in a broker losing the right to a
commission, may lose his/her real estate license and may risk a lawsuit by any
party to the transaction who suffered a financial loss because of the
misrepresentation (Jacobus, 2003).
When a broker must rely on information supplied by the seller, it is best to have
this information in writing and to verify its accuracy. The estate agent should also
never claim ignorance arising from not knowing all the pertinent facts about a
property resulting from the agent not taking time to check the facts or from not
knowing what to check for in the first place (Jacobus, 2003).
36
2.5 Importance of Estate Agents in Real Estate Transactions
Estate agents are required in the operations of the real estate market primarily
because of the nature of the real estate asset (Wurtzebach et al, 1994). According
to the Real Estate Institute of Australia (REIA) (2001), real estate agents facilitate
business transactions that involve real property or business. The high costs
involved in the purchase of real estate make it difficult for a property owner to
sell such properties on their own. It would be difficult for such an owner to
dispose property because s/he has no customer networks.
Further, because real estate is immoveable, each piece is unique and therefore a
parcel of property often must be seen or described to a very large number of
people before a prospective buyer for that parcel can be found. The owner may
lack the list of prospects and/or an office to which new prospects will be drawn;
estate agents usually have both. In addition, few owners have current knowledge
of the market and selling the property can be a major inconvenience. For most
clients, the purchase of a home represents the largest private transaction in real
estate and in most cases may also amount to the person‟s largest single asset. This
is not an easy task and it requires a person well-versed in the technicalities and
has experience in real estate (Muteti, 1982).
In bringing together vendors and buyers through marketing of property Stephens
(1981), states that the agent advises the vendor or the lessor ensuring that
maximum benefit accrues to the client based on the agent‟s knowledge of the
property market (Mbangula, 2003). The services of professional real estate agents
37
save the buyer and/or seller time and reduce the mental agony associated with
completing transactions within the real estate industry (Dasso and Ring, 1989). A
seller would benefit from employing an agent because usually, buyers do not
negotiate downwards when dealing with agents. Also, due to the low knowledge
level of the seller about the property market, s/he may offer a price that is too high
or too low for the property. The agent is able to get the best price for the property
(Jacobus, 2003).
The Estates Agents Act Cap 533 provides for one of the roles of an estate agent as
being negotiating the terms of sale, mortgage, charge or letting as an intermediary
between or on behalf of either of the principals. As such, the agent acts as a go-
between for either of the principals and tries to ensure that the best deal is struck
(REIA, 2011). In addition, agents keep abreast of lending sources, know their
specific requirements for mortgage loans and are thus a good source of
information for developers and purchasers who need funds for real estate
transactions.
Property management is another role of a professional real estate agent (Muteti,
1982). The aspects of property management include selection of tenants, drawing
up and administering leases, rent negotiation and collection, carrying out repairs
and routine maintenance of the property, collection of service charge, payment of
utilities and insurance and provision of security. (Scarett, 1995). These duties
involve the smooth running of the property and determine the success of an
investment in real estate in terms of its return on investment. In commercial
markets, agents are retained by institutions and multiple retailing companies and
38
many other clients to look for premises on their behalf, advice on suitability,
structural state, and value and negotiate their price (Stephens, 1981).
An estate agent can also be used by his client to provide advice on how to
improve the value of his/her property. This includes expensive modifications and
a property owner needs the advice of a good estate agent as to whether such
proposed modifications will enhance the value of the property in the market. This
will save the owner from spending money that s/he may not be able to recoup on
the property (Muteti, 1982). The estate agent may appraise a property on behalf of
his/her client in order to return a fair market value that the client may use to either
sell or let the property. This information is important to a client as s/he will better
understand the property and hence the value that it would fetch in the market
(Appraisal Institute, 1996).
Through the use of an estate agent, an owner of a property can be able to sell a
property that is difficult to sell through special sale arrangements such as sale by
auction. Such sales reduce the time of sale needed and, as there need be no stated
price or even an indication of the price anticipated, bidding can only move the
price upwards as purchasers compete to state the highest price they could pay for
the property (Stephens, 1981).
Finally, the real estate market is complex and inefficient due to the physical and
economic characteristics of real estate. Transactions require time-consuming face-
to-face negotiations and an understanding of financial statements and legal
39
documents. As such, a trained estate agent is able to provide the needed assistance
to buyers as well as sellers.
2.6 Listing Agreements
A listing agreement is an oral or written contract of employment of a broker by a
principal to buy, sell or lease real estate which creates a principal-agent
relationship. It is the foundation of the agent‟s business and out of it arise the
agent‟s relation or trust and confidence with his/her principal and the agent‟s
rights for compensation (Dasso and Ring, 1989). Through it the property owner
appoints an agent for the specific purpose of finding a buyer who is willing to
meet the conditions set forth in the listing agreement (Jacobus, 2003). When a
client signs a listing, the essential elements of a valid contract are a requirement.
The listing agreement protects the agent against the possibility that the owner may
refuse to sell after the agent has spent time and effort to find a buyer at the price
and terms of a listing contract. The agent is still entitled to a commission even if
the owner refuses to sell at the listed price and terms. It also protects the owner by
providing that a sales contract must be concluded within a reasonable time after
the listing expires and that the name of the purchaser must have been given to the
owner before the listing period expires (Jacobus, 2003).
There are five listing agreements in general use: open listing, exclusive agency,
exclusive right to sell, multiple and net listings. For the listing agreement to be
carried out satisfactorily, the agent and the principal must resolve critical issues
such as the asking price for the property, the reservation of the right to sell by the
40
owner, payment of commission, termination of the agreement and agent proof of
performance. Termination of a listing agreement may occur either by action of the
parties or by operation of law (Dasso and Ring, 1989). For an agent to earn
commission, s/he must produce a ready, willing and able buyer at a price and
terms acceptable to the owner (Jacobus, 2003).
2.7 Control of the practice of Estate Agency
The general public, in their interaction with the real estate market may be under
the impression that there is little or no control of estate agency practice in this
country. There are very many unregistered traders in the market carrying out basic
brokerage transactions which indicates that the existing control is inadequate.
Control of estate agency in Kenya is exercised through the law (Estate Agents Act
Chapter 533 of the laws of Kenya) and through the professional body of the
Institution of Surveyors of Kenya (ISK). The Estate Agents Act is an Act of
Parliament to provide for registration of persons who by way of business, act in
relation to the selling, purchasing or letting of land and buildings. The Act also
regulates and controls the professional conduct of estate agents.
The Act provides that for its purposes, a person shall be treated as being a
practicing estate agent if he or a partnership of which he is a member: Receives
payments for acts done by way of practice as an estate agent by him, or by a
partner of his, or by an employee of his or of the partnership or by any person
acting on his behalf; or Holds himself or itself out as being prepared, in return for
payment, to undertake the doing by any such person of acts by way of practice as
41
an estate agent provided that “payment” shall not include payment limited to the
reimbursement of expenses or payment of salary by way of practice as an estate
agent.
Part 2 of the act establishes the Estate Agents Registration Board which is a body
corporate having its functions outlined in the Act, (section 4) as being responsible
for registering estate agents and ensuring that the competence and conduct of
practicing estate agents are of a standard sufficiently high to ensure the protection
of the public.
The registrar of the Board, appointed by the Minister, is responsible for keeping
and maintaining a register in which the details of the persons accepted by the
board for registration are entered. S/he also enters any changes into the register.
The registrar removes from the register any name which is ordered to be removed
by the board upon issuance of a notice. After entering the name of the person in
the register, the registrar then issues a certificate of registration which remains the
property of the board. The certificate is valid and remains in force for one year
after which it is renewable upon payment of a prescribed fee. After entry in the
register, the registrar publishes the name, address and qualifications of each
registered estate agent in the Kenya gazette. Any amendment to the register and a
list containing the names, addresses and qualifications of all registered estate
agents remaining on the register, are also published in the gazette each year.
Provisions for registration under section 13 of the Act state that any individual
who is a Kenyan citizen can have his name entered into the register if he has paid
42
the prescribed fee and provided that he or she is either a member of the Institution
of Surveyors of Kenya; member of the Royal Institute of Chartered Surveyors; a
holder of a degree, diploma or license from any university or college or school
which is for the time being recognized by the board; a holder of a degree, diploma
or license of a university or college or school or a member of an institution the
membership of which is recognized for the time being by the board as furnishing
sufficient evidence of an adequate academic training for practice as an estate
agent with two years practical experience of which not less than six months has
been in Kenya or a person who is though not qualified is of good conduct.
The board also has a duty to deregister persons, by removing a person‟s name
from the register on grounds of death, non-renewal of registration, bankruptcy,
having his qualification cancelled by the body through which it was awarded,
misconduct, being convicted of an offence under the Act, having his name entered
in the register by mistake or by reasons of false or misleading information and
requesting his name to be removed from the register. The person is notified of the
removal of his name through a registered letter addressed to the registered person.
Section 18 of the Act provides that no individual, partnership or body corporate
shall practice as an estate agent unless all the partners and directors are registered
estate agents. The Act in section 19 requires that an estate agent should have an
indemnity bond or policy of insurance entered into or issued by an insurance
company approved by the board as guarantee of payment of compensation up to a
certain amount to persons suffering monetary or property loss due to dishonest or
professional misconduct of the agent. In addition to the above requirements, in the
43
case of death, insolvency or being of unsound mind then the practice may be
carried on by any person authorized by law to deal with the property of that
person for a period not exceeding twelve months from the date of commencement
of death or disability.
If an agent is accused of acting unprofessionally, then the board under section 24
of the act may order the name of the person convicted of the offence to be deleted
from the register, caution the person and may also order that such caution be
entered in the register and finally, it may order the person‟s registration under the
Act to be suspended. Dishonest practices under the Act shall cause the agent to
be guilty of an offence and liable to a fine not exceeding twenty thousand
shillings or to imprisonment for a term not exceeding three years or both. Finally,
the Act provides for the estate agents remunerations rules and a registered and
practicing estate agent should charge clients for his/her services based on this
scale of fees.
The Institution of Surveyors of Kenya is the professional body that regulates the
practice of estate agents in Kenya. In its constitution, it provides that other than
being a non-political institution and securing the advancement and facilitating the
acquisition of knowledge which constitutes the profession of a surveyor, it shall
promote the general interests of the profession and maintain and extend its
usefulness for the public advantage.
Applications for full and affiliated membership are dealt with under section 4 of
the constitution and shall be done by completing an application form by the
44
applicants, signing a declaration and submitting the completed form together with
the requisite fees to the Honorable Secretary. The applicant must indicate the
class of membership and the chapter for which he considers himself eligible.
Rejected candidates may not apply again for membership within one year from
the date of such rejection. Members wishing to transfer from one chapter to
another shall also complete an application form and the council shall consider his
application.
Chapters formed in the constitution include the land surveyors, valuation and
estate management surveyors, building surveyors and land management
surveyors. These chapters represent each of the sections in the institution. Estate
agents are registered under the chapter of valuers and estate managers (VEMS). It
is a condition of membership that each and every full member and affiliated
member of the institution shall conform to the rules of professional conduct as
provided for in the by-laws. For estate agents in particular, the by-laws provide
that no full or affiliated member shall either directly or indirectly, orally or in
writing, seek instructions for business which he knows, or with ordinary care
could have ascertained is in the work of another agent. The Council may
recommend scales of fees for professional fees and determine disputes over fees
in addition to issuing directions for the regulation of members.
Section 3 of the constitution provides that on payment of the first subscription due
to a full member under the by-laws, s/he shall receive a diploma of membership in
respect of the year or portion of a year to which the said first subscription applies
and shall be entitled to renew his diploma annually subject to the provision of the
45
by-laws. Diplomas issued by the council are considered as property of the
Institution and shall be returned in the event of cessation or suspension of
membership.
Through the various controls on the practice of estate agency, it is more and more
evident that estate agency is a profession requiring specialized knowledge and
skill. The hallmark of any profession is its ability to regulate the conduct of its
errant members through in-built regulatory measures, over and above the
satisfactory laws and it applies to all citizens (Chelotti, 2010).
2.8 Professional Ethics and Conduct
The word ethics is derived from the Greek words „ethikos‟ and „ethos‟ meaning
moral and character respectively. Ethics can therefore be defined as a branch of
philosophy that deals with the values of human life in a coherent, systematic and
scientific manner (Harlan and Pivar, 1995). Dr. Albert Schweitzer, a philosopher,
defined ethics as the name we give to our concern for good behavior. He applied
the idea of “duty beyond the group” to all of humanity and believed that the
ultimate goal of ethics is the fullest measure of justice to all. Real estate is an
aggressive profession in which participants should compete vigorously. However,
good ethical practices should be upheld as they inspire trust in clients who refer
others to a specific real estate firm and hence resulting in business success
(Harlan and Pivar, 1995).
The perception of real estate agents as unethical is rather commonplace all over
the world with most members of the public viewing estate agents as crooks.
46
Countries have therefore always found it useful to have some legislative control
over various professions to protect the interests of the public and ensure high
standards of professional performance (Chelotti, 2010). She also notes that all
estate agents have a moral duty of care to their clients hence they can rightly
expect that professional men and women will possess a reasonable measure of
competence and skill in their particular calling, and will use these qualities to the
benefit of the client.
In Kenya, the Institution of Surveyors of Kenya has drawn a code of ethics to
provide for commonly agreed standards of practice for estate agents. According to
Konyimbih, (1996), the main objective of regulating the practice of estate agency
is to help provide the public as consumers of estate agency services, with a
reliable means of identifying individuals who have the national standards of
professional qualifications and competence. Sapleton, (1986) believes that ethics
should be taught as part of university surveying degree courses, which will be of
benefit to the students, their future clients and the profession at large. It could lead
to higher professional standards and enhanced attitudes to the need for greater
honesty, dedication, care and trust in all professional relationships with clients,
other surveyors and the general public and the avoidance of making decisions
which are morally wrong.
2.9 Challenges facing Real Estate Agents
Estate agency is not simply a business; it is a profession that implies fairness,
competency and high integrity with the needs of those whose needs the estate
47
agent serves being put first. As such, estate agents face various challenges which
they need to overcome if they are to be successful in their occupation. It is thus
not all glamorous a career as portrayed by property magazines and
advertisements.
First, estate agents face the challenge of unrealistic expectations of price and time
to complete transactions from both employers and clients. According to the Real
Estate Encyclopedia (2013), this is the greatest challenge faced by estate agents
all over the world. Further, estate agents especially in developing countries
encounter problems due to government over-regulation through numerous
legislations which slows down the process of real estate transactions (Adedayo
and Olawande, 2012). The influx of charlatans in the practice of estate agency is
also another great challenge that professional estate agents meet in their day-to-
day practice since these claim knowledge that they do not have and create
unnecessary competition for the professionals and at times lowering their fees
way below the set scale. These non-professionals go about the business of estate
agency unethically and unprofessionally and hence resulting in the public having
a negative image of the whole profession.
Other challenges facing estate agents as proposed by the Swanepoel Trends
Report (2008) include lack of effective marketing support and inability by the
estate agents to obtain quality leads. These arise directly from poor and
insufficient communication between the agents and their clients. Follow-ups are
not done regularly, and the parties choose to communicate via impersonal means
such as e-mails and telephone conversations which may be inadequate to
48
complete real estate transactions due to the nature of the real estate asset. Clients
need to understand neighborhood information, compare communities and view
such properties which may not always be possible with virtual communication.
Agents also need to keep in contact with past clients so as to ensure that they
position themselves strategically to obtain any new listings.
2.10 Summary
The literature review above brings to light the work of other scholars in
understanding real estate, the workings of the real estate market and the practice
of estate agency in terms of the law of agency, the law governing agency in
Kenya, control of the practice in Kenya and the role of estate agents in the market
in addition to the challenges the practice faces. This chapter also seeks to
benchmark efficiency and transparency in the real estate market and show that
there is a relationship between the professional practice of estate agency and
efficiency and transparency in the real estate market.
Based on this information, it has been seen that there exists a huge conflict
between professionalism and commercialism in the practice of estate agency
which has resulted in many people of all characters and disciplines being attracted
to the business by the prospects of quick money. These are the non-professionals
who do not understand the intricacies of the real estate market and perpetuate the
lack of professionalism in the practice of estate agency. Kenya in particular has
suffered this plight due to the Estate Agents Act cap 533, which provides in its
section 13 (1e) that any applicant with a certificate of good conduct, even with no
49
other qualifications can be registered as a practicing estate agent. This does not
promote efficiency and transparency because it allows many people from all
sectors of the economy who have no working knowledge of the real estate market
to join the profession and practice basically as brokers thus losing the whole
essence of the practice of estate agency.
It has also been proven from the literature review that the nature of real estate as a
commodity does not promote efficiency and transparency in the real estate
market. A major contributor to lack of efficiency and transparency is the high
value of real estate. Many people do not trade frequently in the real estate market
since the products are very expensive and those who do ensure that transactions
are shrouded in mystery hence it is very difficult for one to obtain property
information. Further, these transactions are not recorded which heightens the
problems of inefficiency and lack of transparency.
The durability of real estate in addition to its high unit costs means that it is not
sold quickly because these sales involve large amounts of money and appropriate
financing may not always be available. The lack of product standardization in real
estate markets and the length of time required to produce new supply are also
factors that make these markets inefficient which in turn makes it difficult to
analyze and predict their behavior correctly. Also, because of the imperfections in
the real estate market, prices for real estate do not rise or fall as smoothly or as
rapidly as in other goods markets.
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Estate agency has been shown to be broader than just selling and involves an
understanding of real estate as a commodity and an investment, the characteristics
and workings of the real estate market, laws governing real estate, clients‟ needs
and expectations for property and an understanding of ethical procedures expected
of an estate agent. Due to these aspects, the practice of estate agency is necessary
to ensure the improved functioning of the real estate market by creating efficiency
and transparency since the transactions in which an estate agent is involved are
recorded and provide for decision-making platforms by future investors.
Availability of proper market information is the benchmark for efficiency and
transparency in the real estate market. Without such information, potential
investors are locked out since they have no way of finding out any information
regarding transactions that have taken place in the market. To improve this
efficiency and transparency, the public must be informed of the role that a
professional estate agent plays and the need for such an agent in carrying out
property transactions. In addition, the public must get to understand the difference
between the professionals and the quacks in the market which will improve the
estate agent‟s public image and inspire confidence in more clients thus growing
the profession.
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CHAPTER THREE: CASE STUDY AND RESEARCH
METHODOLOGY
3.0 INTRODUCTION
The chapter deals with the area of study and the research methodology employed
by the researcher. It starts by giving a background of the city of Nairobi and its
history to provide a foundation for discussions on the topic under investigation. In
addition, the chapter focuses on the city‟s physical and climatic characteristics,
zoning, land use and infrastructure. Further, the chapter discusses the research
methodology applied to the study and concludes by providing details on data
collection procedures, measurement and analyses to be used to accomplish the
research objective.
3.1 Background and History of Nairobi
Kenya‟s spatial system has largely been influenced by our colonial masters with
the first towns in East Africa being those that were set up in the Coastal region
namely Mombasa, Lamu and Malindi. Colonization was accompanied by
European settlement in highlands and towns such as Nairobi developed in
response to the commercial activities of the settlers. Smaller centers such as
Nakuru and Kisumu were also set up along the railway line with the colonial
government setting up other administrative centers outside the alienated areas.
The primary criteria influencing the location of such centers were administrative
convenience and health considerations. Nairobi ended up being the capital city of
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the country and generally, its growth towns has taken place within the boundaries
set by the colonial government.
Nairobi is the capital and largest city of Kenya and together with its surrounding
area form the Nairobi County under the new constitutional dispensation. The city
of Nairobi takes its name from the Maasai phrase „enkare nairobi‟ which means
“a place of cold waters.” Its origins date back to 1899 with the building of a
railway depot for the Ugandan railway. The site of Nairobi was chosen by the
Kenya-Uganda Railway Authorities because it offered a strategic stop between
Mombasa and Kisumu, water supply from Nairobi and Mbagathi rivers, ample
and deserted land for railway tracks offering freedom for appropriation. This site
was also free from tropical diseases especially malaria (Shakhs and Obudho,
1974). This led to the growth of Nairobi as a commercial and business hub for the
British East Africa Protectorate (Mitullah, 2003).
By 1900, Nairobi had become a large and flourishing place with the settlement
consisting mainly of the railway buildings and separate areas for Europeans and
Indians, the latter mainly comprising the laborers engaged in building the railway.
Nairobi, as an urban area was officially defined in 1900 under the Nairobi
Municipal Community Regulations and it became the capital of Kenya in 1907
(Mitullah 2003).
3.2 Location and Physiographic Features
Nairobi was previously known as „the city in the sun‟ because of its appealing
environment. It is located at the South-Eastern end of Kenya‟s agricultural
53
heartland, at approximately 1° 9‟S, 1° 28‟S and 36° 4‟E, 37° 10‟E. It occupies an
area of about 696 square kilometers and the altitude varies between 1,600 and
1,850 meters above sea level (Mitullah, 2003). The Western part of Nairobi is on
high ground (approximately 1700-1800 meters above sea level) with rugged
topography, the eastern side is generally low and flat (approximately 1600 meters
above sea level) (Saggerson, 1991). Key physical features include Nairobi, Ngong
and Mathare Rivers and the Karura forest in Northern Nairobi. The Ngong Hills
stand toward the West, Mount Kenya towards the North and Mount Kilimanjaro
towards the South- East. Nairobi is also adjacent to the Rift valley.
3.3 Climate
Nairobi has a temperate tropical climate with two rainy seasons. Highest rainfall
is received between March and April and the short rainy season is between
November and December. The mean annual rainfall ranges between 850-1050
mm while the mean daily temperature ranges between 120 and 26
0 C. It is usually
dry and cold between July and August but hot and dry in January and February
(CBS, 2003). The mean monthly relative humidity varies between 36 and 55
percent. The mean daily sunshine hours varies between 3.4 and 9.5 hours. The
cloudiest part of the year is just after the first rainy season when the skies are
overcast with drizzle until September (CBS, 2003).
54
3.4 Soils
The soils of the Nairobi Area are products of weathering of mainly volcanic
rocks. Weathering has produced red soils that reach more than 50 feet (15m) in
thickness (Saggerson, 1991).
3.5 Functions
Traditionally, before the new constitutional dispensation, Nairobi City has been
the administrative capital of the country, hosting the headquarters of the Central
government. Several international organizations are located here and many
foreign companies have their African and regional headquarters situated here.
Organizations such as the United Nations Environment Programmed (UNEP) and
United Nations Center for Human Settlements UN-Habitat have their world
headquarters located here. Other United Nations agencies such as the United
Nations Children‟s Fund (UNICEF), the United Nations Scientific and Cultural
Organization (UNESCO) and the United Nations Development Program (UNDP)
have their regional offices in the city, reinforcing Nairobi‟s importance as a
diplomatic, commercial and cultural center in Africa. Its proximity to many
tourist attractions both in Kenya and East Africa also puts it at the heart of the
regional tourist industry. The city is also the economic hub of the country, hosting
the Nairobi Stock Exchange (NSE) one of the largest in Africa and the second
oldest exchange in Africa.
55
3.6 Tourism
The city of Nairobi is a major center of tourism in the East African region. Its
relative proximity to many tourist attractions both in Kenya and East Africa
makes it an asset of great importance in the tourism sector. As the capital city and
a commercial center, it attracts many businessmen and leisure tourists. This is
partly because the main airport (Jomo Kenyatta International Airport) is the main
port of entry by air into Kenya and many tourist safaris originate and end in the
city. The tourism sector is dominated by nature-based tourism underpinned by the
rich animal bio-diversity in the country‟s national parks. Moreover, with its good
conference facilities, Nairobi hosts many international conferences that have
become an acceptable facet of Kenya‟s tourism.
3.7 Land Use and Planning Guidelines
The City Council of Nairobi in its zoning ordinance has endeavored to use
planning controls to ensure that development is allowed where it is needed, and
making sure that the character and amenity of the area are not affected negatively.
This zoning guide has delineated Nairobi into twenty zones, each covering
particular geographical areas and providing for allowable plot ratios and ground
coverage in addition to the type of development allowed and the general
minimum plot sizes.
According to the 2009 census, the city of Nairobi accommodates a population of
3, 138, 369 people. Due to the rapid population growth rate (approximately 6.9%
p.a.) experienced in Nairobi, there has been increased congestion within the city
56
center exerting enormous pressure on the existing infrastructure and services.
More and more businesses are now relocating from the City Centre to alternative
locations near the city such as Upperhill, Westlands, Kilimani and Mombasa
Road which are being re-zoned to accommodate more uses.
Due to rapid urbanization and growth of the urban population in Nairobi, there
has been a development plan dubbed the Kenya Urban Development Plan of 2011
aimed at managing urban development to make sure it takes place in a more
organized and sustainable manner. As the city grows outwards and people settle
further and further away from the City center, there have been plans to create a
Nairobi Metropolitan Region and extend the city boundaries. When this plan takes
shape it will swallow: The municipal Councils of Thika, Kiambu, Ruiru, Limuru,
Mavoko, the Machakos, the County Councils of Kiambu, Thika, Ol Kejuado and
Masaku, the Town Councils of Tala-Kangundo, Kikuyu, Karuri, Kajiado and the
City Council of Nairobi.
3.8 Infrastructure
The city of Nairobi has a relatively well-developed infrastructure network with a
modern airport and commercial centers. Due to the rapid increase in population,
there has been a further need to improve infrastructure to reduce traffic congestion
hence the development of the Mombasa-Nairobi Highway, the Thika super
highway, the Eastern, Northern and Southern by-passes in addition to the recently
opened Syokimau commuter railway station. As such, the city is now growing
outwards with more people living outside the city and commuting to their places
of work within the city.
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3.9 Graphical Representation of Nairobi Area
Map 3.1: Showing the spatial context of Nairobi in relation to other provinces in
Kenya
Source: Google maps
58
Map 3.2: Showing the spatial context of Nairobi in relation to the proposed Nairobi
Metropolitan Region
Source: Google Maps
3.10 Research Methodology
3.10.1 Introduction
This section of the study identifies the methodology used and discusses the
research design, sampling techniques and data collection instruments and
procedures. The issues under consideration in the study include:
Major duties of estate agents in the Kenyan real estate market.
Challenges encountered by estate agents in carrying out their duties.
59
The effects of professional ethics and registration by the Estate Agents
Registration Board on the performance of estate agents.
View of the public on the use of estate agents to dispose property.
A critical examination of these is used to test the study hypothesis.
The research is basically a qualitative one dealing with the role of professional
estate agency in creating a more efficient and transparent market for real property.
Qualitative research includes designs, techniques and measures that do not
produce discrete numerical data (Mugenda and Mugenda, 1999).
3.10.2 Research design
This has been defined by Philliber, et al (1980) as a "blueprint" for research,
dealing with at least four problems namely; which questions to study, what data to
collect, which data are relevant, and how to analyze the results.
According to Festinger et al (2005), research by using a survey study is designed
as a form of qualitative analysis and involves careful and complete observation of
large numbers of people about their behaviors, attitudes and opinions. Generally,
surveys simply describe what people say, think and do. Other survey studies
attempt to find relationships between characteristics of the respondents and their
reported behaviors and opinions. This research design is closely related to the
case study design which according to Kothari (1990), is designed as a form of
qualitative analysis and involves careful and complete observation of the social
unit which can either be a person, family, an institution, a cultural group or the
entire community. The research seeks to obtain information that describes the
60
existing phenomenon by asking individuals about their perceptions, values and
attitudes.
For this investigation, estate agents, landlords and members of the Estate Agents
Registration Board all within Nairobi were surveyed and requested to provide
information that furnished the researcher with a full understanding of the effects
of professional estate agency in creating efficiency and transparency in the real
estate market in Kenya. The research sought to obtain information that describes
the existing phenomenon by asking individuals about their perceptions, values
and attitudes. The researcher chose an in-depth rather than breadth placing more
emphasis on the full analysis of a limited number of events and/or conditions and
their interrelations.
The case study area chosen is the entire Nairobi Area because the area has a good
mix of residential and commercial properties in addition to being one of the most
dynamic areas for social activities within the country Kenya. Further, this area has
seen rapid development of both commercial and residential property with most of
the property being sold/ let with the use of estate agents. A drive through the
major roads in Nairobi shows numerous new buildings all having billboards or
signs showing to let/ sell by a certain estate agent hence the practice of estate
agency in the city was taken as having developed and the estate agents were
assumed to be well-informed to provide data for the study.
61
3.10.3 Sampling techniques and sample size
Mugenda and Mugenda, (2003) define sampling as the process of selecting a
number of individuals for a study in such a way that the individuals selected
represent a large group from which they were selected. Sampling is most
preferable where the area of study is a bit widespread and the researcher cannot
cover all the target population and carry out a profound assessment.
The study population includes all estate agents registered and licensed to practice
as estate agents within Nairobi by the Estate Agents Registration Board, landlords
working with these Estate Agents and officials from the Estate Agents
Registration Board. The population of registered estate agents was determined
from the list of registered estate agents as at March 2012 according to the board of
registration of estate agents. There are 255 registered estate agents operating in
Nairobi and these were selected as the population size for the research. The Estate
Agents Registration Board has 9 members and a chairman hence the 9 members
formed the population from whom a sample was obtained and questionnaires
issued. The researcher also scheduled an interview with the chairman of this
Board to obtain a clear understanding of the functioning of the Board. The sample
size for landlords was obtained from the total sample size of the estate agents so
as to make it easier for the researcher to access them.
Simple random sampling was used to select the estate agents and landlords to
participate in the study while systematic random sampling with a sampling
interval of 2 was used to select members of the Estate Agents Registration Board
to give a sample. The selection of these samples represents a case of purposive
62
sampling. This method was used because the researcher chose to use specific
cases that have the required information with respect to the objectives of the
study; they possess the required characteristics. As such, the researcher used
purposive sampling as part of a multi-stage sampling procedure.
Determination of the representative sample for estate agents and landlords was
done using the formula below:
n= Z2pqN
e2 (N-1) + Z
2pq
(Mugenda and Mugenda, 1999)
Where:
N = Population size
n = Sample size
p = Sample population estimated to have characteristics being measured. Assume
a 95% confidence level of the target population.
q = 1-p
e = Acceptable error (e=0.05, since the estimated should be 5% of the true value).
Z = the standard normal deviate at the required confidence level = 1.96
64
nf = n
1 + n/N
(Mugenda and Mugenda, 1999).
Where nf = the desired sample size (when the population is less than 10,000)
n= the desired sample size (when the population is more than 10,000)
N= the estimate of the population size.
N=9
nf = 8
1 + 8/9
=5
3.10.4 Data
To achieve the objectives of the study, both primary and secondary data sources
were used. Primary data was collected using questionnaires administered to estate
agents, landlords of these estate agents and officers in the Estate Agents
Registration Board. In addition to questionnaires, interview guides were applied
to gather the desired information. These tools were used to enable the researcher
better understand the role that real estate agents play in the real estate market from
various points of view and thus help to test the hypothesis of the study. Estate
agents were also requested to provide information on the challenges they face in
63
Based on an accessible population of 255 registered estate agents practicing
within the city of Nairobi, the sample size was calculated as follows based on the
formula:
N= 255
n= (1.96)2 (0.95) (0.05) (255)
0.052 (255-1) + (1.96)
2 (0.95) (0.05)
=57
For the landlords, the sample was obtained based on the number of estate agents
to whom questionnaires were issued since it is through these estate agents that
landlords/developers were accessed and chosen. The target population used by the
researcher was 57. The sample size was in turn:
N= 57
n = (1.96)2 (0.95) (0.05) (57)
(0.05)2 (57-1) + (1.96)
2 (0.95) (0.05)
= 32
For the Estate Agents Registration Board, the sampling frame was obtained from
the total number of board members who formed the population. The accessible
population is 9 board members and using the formula below due to the small
number for population, the sample was calculated as:
65
the practice while the board members provided information on how the board has
dealt with the growing number of unregistered estate agents. This was particularly
useful to the researcher since the information was used to come up with useful
conclusions and recommendations as to how the practice of estate agency could
be made more professional.
Secondary data was gathered through review of existing literature relevant to the
topic. These included textbooks, journals, web material, Acts of Parliament
particularly the Estate Agents Act cap 533, reports and newspapers. The review of
literature enabled the researcher collect all available data on the real estate
market, its efficiency and the role that professional practice of estate agency
plays in ensuring that this efficiency and transparency are maintained and upheld
thus improving the functionality of the real estate market. Further, secondary
sources of data were used to benchmark the key variables; efficiency and
transparency.
3.10.5 Data collection instruments and techniques
Data collection for qualitative studies mainly takes the approach of using
questionnaires and interviews (Festinger et al, 2005). The study adopts both open-
ended and closed ended-questions for the questionnaires with a bias towards
closed-ended questions that ask respondents to provide a response along a
continuum of possible responses and those that give yes or no options. This is
because participants find it easier to answer closed-ended questions in addition to
the fact that the use of closed ended questions provides an easier means for the
researcher to analyze the data effectively. The researcher interviewed the
66
Chairman of the Estate Agents Registration Board as a key informant in order to
validate the data collected and to provide a better insight into the practice of estate
agency within Nairobi and the country in general.
The data collected during this exercise was on the influence of professionalism in
the practice of estate agency on efficiency and transparency in the real estate
market. Respondents were required to provide different kinds of information to
that effect with the estate agents themselves highlighting the challenges they face
in their duties and providing suggestions on how these challenges can be
overcome. Efficiency and transparency in the real estate market are benchmarked
from the literature review and the respondents required to provide their opinions
on the prevailing state of affairs in terms of; the flow of price and value
information between buyers and sellers, stability of real estate values,
understanding of the professional practice of estate agency by the public and the
extent of recording real estate transactions within the market.
Other research tools used included pens, notebooks and an observant eye.
67
Ranking of the research questions on likert scales will be interpreted as follows:
Table 3.1: Showing ranking of research questions
Very Strong 5 points
Strong 4 points
Moderate 3 points
Weak 2 points
Very Weak 1 points
Table 3.2: Showing ranking by a likert scale
Strongly Agree 4 points
Agree 3 points
Disagree 2 points
Strongly Disagree 1 point
The ranking system above is a form of response ranking along a bipolar
continuum for qualitative studies as proposed by Festinger et al (2005), to aid in
data collection and analysis.
3.10.6 Data Analysis and Presentation
The researcher employed the use of Ms-Excel spreadsheets to analyze the data
and to generate graphs and charts. Frequencies and percentages have also been
used to observe the distribution and characteristics of the data collected; with
68
frequencies providing an insight into the opinions of the various respondents on
different matters. Weighted frequencies based on the ranking of responses along a
continuum are used to compare various factors in terms of their influence on and
importance to the respondents and hence inform the findings of the study.
The analysed data is presented in the form of frequency tables, polygons, graphs,
charts and photographs (where necessary). Textual descriptions of findings are
also used to further explain the results obtained by the researcher.
Table 3.3 Showing response rate
Respondents Number posted Response Percentage Response
Estate Agents 57 30 53%
Landlords 32 18 56%
EARB 5 5 100%
Totals 95 53 56%
Mugenda and Mugenda, (1999) state that while administering questionnaires, a
response rate of 50% is adequate for analysis and reporting, 60% is a good
response while 70 is very good. Unless the response rate is very low, (below 50%)
it is usually safe to assume that the sample is representative enough.
Basing on the response rates above, the researcher considered the samples large
enough to give valid, reliable results.
69
CHAPTER FOUR: DATA ANALYSIS AND
PRESENTATION
4.0 Introduction
This chapter presents the findings from the field work undertaken and analyzes
the data collected using previously discussed methodology. Graphs, tables and
charts have been used to illustrate facts derived from the fieldwork in a clear, easy
manner. The analysis forms the basis for recommendations and conclusions later
discussed.
4.1 Estate Agents
From the foregoing, data was collected from 30 registered estate agents out of a
total sample size of 57 selected by the researcher. This translates to 53% data
collection. The information collected from this population is organized into
various sections and discussed as follows:
4.1.1 Experience and niche’ of the respondents
In this section the researcher intended to investigate the level of experience of the
respondents in the practice of estate agency and to find out what kind of estate
agency the respondents were mainly involved in. 60% of the estate agents have
practiced as estate agents for between three and ten years, 20% have been
practicing for over ten years and the other 20% have practiced as estate agents for
less than three years.
70
Chart 4.1: Showing the levels of experience amongst practicing estate agents
Source: Field Data, March 2013
It is evident from the research that the bulk of the respondents; that is, 80% have
over three years‟ experience in the practice of estate agency. To the research, this
disclosure means that the respondents were dependable and competent in the
practice of estate agency under study. Consequently, the required level of
accuracy for this study was guaranteed.
The researcher also aimed at determining the most common type of agency
practiced in Nairobi. From this point of investigation, the research revealed that
51% of the respondents practice as residential estate agents, 41% practice as
commercial estate agents while a meager 8% is involved in other kinds of estate
agency. This goes to prove what was determined in the literature review that
residential agency is the field in which majority of practicing estate agents
venture.
0
5
10
15
20
0-3yrs 3-10yrs 0ver 10yrs
No
.of
est
ate
age
nts
Years of practice
Experience of estate agents
71
Chart 4.2: Showing the niche' of estate agents in the real estate market
Source: Field Data, March 2013
4.1.2 Duties of and challenges faced by estate agents
The researcher sought to understand the practice of estate agency in Nairobi
through getting to understand the level of involvement of estate agents in the
entire process of dealing with a property and determining the major challenges
that estate agents are exposed to as they practice. From the literature review, the
researcher showed that the professional practice of estate requires an agent not
only to bring together vendors/lessors and buyers/lessees, but to get involved in
many other aspects of the property and also to advice clients accordingly.
The study revealed that 87% of estate agents are involved in marketing of
property, 67% engage themselves in negotiating terms of sale, mortgage, charge
and letting, 63% carry out property management as part of their duties, 63% deal
with leasing properties on behalf of institutions, 47% perform property appraisals
Residential agency
51%
Commercial agency
41%
Other 8%
Niche' of estate agents
72
for their clients while 73% provide advisory services. The respondents did not
indicate that they perform any other duties for their clients.
From the data collected, marketing of property is the service most rendered by
estate agents in Nairobi with property appraisals being the least carried out service
by estate agents. In general, however, the study revealed that estate agents in
Nairobi do more than just bring together buyers and sellers and are involved in
various activities as shown below.
Chart 4.3: Showing the duties of estate agents in the real estate market
Source: Field Data, March 2013
87%
67% 63% 63% 47%
73%
0
Duties of Estate Agents
73
Major challenges that estate agents faced in their practice were revealed by the
study to be as follows in terms of ranking from the highest to the lowest:
Competition by non-professionals in the market- 67%
Slow and bureaucratic nature of the property conveyance system- 67%
Client and employer over-expectations- 57%
Insufficient communication between estate agent and client- 40%
Negative public image- 30%
The other challenges that estate agents face as found out during the study include
agents encountering difficult clients such as lawyers, landlords and tenants
resulting in unnecessary conflicts and confrontations.
Chart 4.4: Showing the challenges encountered by estate agents in the field
Source: Field Data, March 2013
40%
57%
30%
67% 67%
Insufficientcommunication
between agent andclient
Client and employerover-expectations
Negative publicimage
Competition bynon-professionals in
the market
Slow andbureaucratic nature
of the propertyconveyance system
Challenges faced by estate agents
74
Competition by non-professionals in the market and the slow, bureaucratic nature
of the property conveyance system topped the list as being the greatest challenges
faced by practicing estate agents. The respondents explained that there has been a
proliferation of „quacks‟ into the profession due to the low standards of entry into
the profession. These quacks charge much lower fees than the professionals hence
creating a lot of competition for professionals in the market. The slow process of
property conveyance in Kenya makes it very difficult for the estate agents to
complete transactions in time for their clients as they continually have to keep
going to the Ministry of Lands offices to ensure that the transfer of property rights
is completed.
Further, the respondents said that their clients and employers had very high
expectations on their performance in terms of speed which makes their work
difficult when they need to market property for sale/letting. In addition, they
included that clients might state prices above market value making it difficult for
the agent to complete a transaction in time. In the case of property appraisal, the
respondents included that some clients wanted them to return unrealistic values
when compared to prevailing market prices which also makes it difficult for them
to perform their duties effectively.
Insufficient communication between estate agents and their clients came up as
another reason that estate agents find it difficult to carry out their functions/duties.
Both parties fail to make follow-ups after appointments thus bringing the process
to a stand-still in many cases. The public having a negative image of the estate
agents was revealed as another problem faced by estate agents since the public
75
does not trust them hence making it very difficult for estate agents to fully
practice without bias from the public.
4.1.3 Factors influencing the success and competence of an estate
agent
For one to succeed in the practice of estate agency there are various factors that
determine the extent to which a person will be considered successful; these
include academic qualifications, years of experience, personal character traits,
registration by the Estate Agents Registration Board and professional ethics. The
opinions of estate agents regarding these factors are discussed as follows:
Academic Qualifications
As shown in chart 4.5, 69% of the population indicates that academic
qualifications have a very strong influence on an agent‟s success and competence,
18% believe that these have only a strong influence, 11% indicate moderate
influence while 2% indicate weak influence. No member of the population
regards academic qualifications as having very weak influence on an agent‟s
success and competence. This is due to the fact that a thorough understanding and
working knowledge of real estate as a commodity and an asset is essential for one
to practice professionally as an estate agent.
76
Chart 4.5: Showing the influence of academic qualifications on the success and
competence of an estate agent
Source: Field Data, March 2013
Years of experience
In terms of experience, 69% of the population believes that the more years an
estate agent has been in the practice, the more likely s/he is to be successful and
competent thus this factor has a very strong influence. 29% of this population
believes that years of experience only have a strong influence while 2% believe
that experience only moderately influences an agent‟s success and competence.
No member of the population believes that years of experience have a weak or
very weak influence on the success and competence of an estate agent as shown in
chart 4.6. Experience improves an estate agents understanding of both clients and
the practice in general thus contributing to success and competence.
69%
18%
11%
2% 0%
Academic Qualifications
Very Strong
Strong
Moderate
Weak
Very Weak
77
Chart 4.6: Showing the influence of years of experience on an estate agent's success
and competence
Source: Field Data, March 2013
Personal character traits
67% of this population believes that personal character traits of an estate agent
very strongly determine his/her success and competence in the market. Estate
agency being a service profession involves dealing with clients hence to be
successful; an estate agent needs soft people skills. 27% of the population
believes that personal character traits strongly influence an agent‟s success and
competence while 6% believe that they have simply a moderate influence. No
member of the population accords personal character traits weak or very weak
influence on an agent‟s success as in chart 4.7.
69%
29%
2%
0%
0%
Years of experience
Very Strong
Strong
Moderate
Weak
Very Weak
78
Chart 4.7: Indicating the influence of personal character traits on the success and
competence of an estate agent
Source: Field Data, March 2013
Registration by EARB
From the data collected and presented in Chart 4.8, registration by EARB is
considered by 25% of the population to have a very strong influence on an agent‟s
success and competence. 32% believe it has a strong influence while 34% believe
that it simply has a moderate influence on the success of an estate agent. 6% of
the population regards registration as having a weak influence on their success
while another 3% thinks that registration by EARB has a very weak influence on
an agent‟s success. Majority of the population does not consider registration a
high ranking factor in terms of the contribution it makes towards the success and
competence of an estate agent; it is simply an extra addition to other core factors.
67%
27%
6%
0% 0%
Personal character traits
Very Strong
Strong
Moderate
Weak
Very Weak
79
Chart 4.8: Indicating the influence of registration by EARB on an estate agent’s
success and competence
Source: Field Data, March 2013
Professional ethics
69% of the population is of the opinion that professional ethics have a very strong
influence on an estate agents success and competence. 27% believe that
professional ethics strongly influence the success of an agent, 2% think it has a
moderate influence, 2% of the population believe that professional ethics only
have a weak influence on an agent‟s success while no member of the population
believes that professional ethics have a very weak influence on an estate agent‟s
success. Professional ethics are considered to improve ones‟ ranking according to
clients and hence contribute greatly to an agent‟s success and competence.
25%
32%
34%
6% 3%
Registration by EARB
Very Strong
Strong
Moderate
Weak
Very Weak
80
Chart 4.9: Indicating the influence of professional ethics on an estate agent’s success
and competence
Source: Field Data, March 2013
Based on the data collected and shown in chart 4.10, academic qualifications,
years of experience, character traits and professional ethics have the same high
influence the factors in terms of on an estate agent‟s success and competence
while registration by EARB has the least influence.
69%
27%
2% 2% 0%
Professional ethics
Very Strong
Strong
Moderate
Weak
Very Weak
81
Chart 1.10: Indicating the overall influence of factors on an estate agent’s success
and competence
Source: Field Data, March 2013
4.1.4 Code of Ethics and the Estate Agents Registration Board
In this section, the researcher sought to determine whether the respondents
practice on the basis of a code of ethics and also the views of the respondents on
whether this code of ethics is necessary to ensure professionalism. Further, the
section sought to find out from the respondents whether the Estate Agents
Registration Board does enough to ensure professionalism in the real estate
market.
From the study, 76% of the respondents strongly agreed that a code of ethics is
necessary to promote and ensure professionalism in the practice of estate agency.
22% agreed with this notion and only 2% disagreed that a code of ethics is
necessary to ensure professionalism. No member of the population strongly
23%
23% 23%
8%
23%
Factors influencing success of an estate agent
Academic Qualifications
Years of experience
Personal character traits
Registration by EARB
Professional ethics
82
disagreed that a code of ethics ensures professionalism in the practice of estate
agency as shown in chart 4.11.
Chart 4.11: Indicating the necessity of a code of ethics in ensuring professionalism in
estate agency
Source: Field Data, March 2013
The researcher aimed to determine from practicing estate agents whether they
believed that the professional association set out to control the conduct of estate
agents has put enough effort into ensuring that professional ethics are adhered to
within the practice of estate agency in Kenya. From the research, 70% of the
respondents claimed that the EARB does not do enough to ensure that
professionalism is promoted among practicing estate agents. Some of the reasons
cited for this include the Board not providing ground supervision and ensuring
that every person who practices as an estate agent first goes through a rigorous
process to determine their suitability to get into the real estate market as an estate
agent. Further, the respondents indicated that the market is still full of non-
76%
22%
2% 0%
Is a code of ethics necessary to ensure professionalism?
Strongly Agree
Agree
Disagree
Strongly Disagree
83
professionals who do not apply ethics in their practice of estate agency.
According to the respondents, the Board has been unable to control the
proliferation of quacks into the market. Some respondents feel that the registration
process has been open for all people; not necessarily those with the required
professional training to deal with real estate. Section 13 (1e) of the Estate Agents
Act cap 533 of the laws that allows a person of good conduct to be registered as
an estate agent has been a major reason why unqualified people get into the estate
agency practice thus opening the profession to just anyone and making clients
lose confidence in estate agents.
The fact that the EARB lacks enforcement machinery was another reason cited by
respondents that they did not believe that the board does enough to ensure that
professionalism is adhered to. As such, the quacks within the market are also
outside the mandate of the EARB. In addition, the agents feel that the
requirements for registration are too low hence the inability of the Board to
control the practice of estate agency. Still, some respondents feel that the Board
has not created enough awareness of its existence amongst the practitioners which
makes them unaware of the need to seek registration from the Board.
However, 30% of the respondents indicated that the Board has been doing enough
within the real estate market to control the practice of estate agency and to ensure
that professional standards are adhered to.
84
Chart 4.12: Showing the opinions of estate agents on the regulation of the estate
agency practice
Source: Field Data, March 2013
4.1.5 Efficiency and transparency in the real estate market in
Nairobi
Efficiency and transparency in a real estate market have been benchmarked from
the literature review by the availability of information to all players in the market
which can enable investors make informed decisions when faced with a situation
in which they want to make an investment in the real estate market. Further,
understanding of the practice of estate agency by the public has been cited as a
point of reference to determine transparency within the market. Other factors
determining whether or not a real estate market is efficient and transparent are
stability of real estate values and recording of real estate transactions.
30%
70%
Opinion of estate agents on the efforts of the EARB in ensuring
professionalism within the practice
Does enough
Does not do enough
85
The researcher sought to determine the efficiency in the Nairobi real estate market
based on the factors as follows: flow of price and value information between
buyers and sellers, stability of real estate values, understanding of the professional
practice of estate agency by the public and the effectiveness of recording real
estate transactions to create a database of information.
From the respondents, the researcher determined efficiency and transparency to
be viewed as:
Flow of price and value information between buyers and sellers
53% of the respondents which represents slightly more than half the population
indicated that in terms of the flow of price and value information between buyers
and sellers, the real estate market in Nairobi is not efficient. This is mainly
because information is limited to the parties involved in the real estate transaction
who may not want to make other people/players in the market privy to such
information. Further, the respondents indicated that the major problem with free
flow of information is the secrecy that surrounds real estate transactions within
the market; there is no central databank/real estate index from which players
within the market can access real estate information. 47% of the respondents
however believe that in terms of free flow of information between buyers and
sellers, the real estate market in Nairobi is efficient meaning that buyers and
sellers have all the information they may require to make an investment decision.
86
Chart 4.13: Showing efficiency of the flow of information between buyers and sellers
Source: Field Data, March 2013
Stability of real estate values
In terms of the stability of real estate values, 67% of the respondents indicated
that the real estate market in Nairobi is not efficient. The respondents gave
reasons such as real estate values changing rapidly and these changes sometimes
not being supported by economic fundamentals. In addition, the respondents said
that arbitrary values of real estate in Nairobi are not based on any sound
methodologies with the increased infrastructure upgrades causing rapid changes
in real estate values mainly upwards. The lack of reliable market data makes
transactions in the real estate market in Nairobi erratic/based on misinformation
hence the lack of stability of real estate values. The respondents also indicated
that there are random and haphazard changes in the value of real estate in Nairobi
Efficient 47%
Not efficient
53%
Efficiency and transparency in terms of free flow of information between
buyers and sellers
87
due to lack of market regulation; the willing buyer willing seller concept also
contributes to the lack of stability of values.
33% of the population however indicated that the values of real estate in Nairobi
are stable hence the market is efficient in this respect.
Chart 4.14: Showing efficiency of the stability of real estate values
Source: Field Data, March 2013
Understanding of the professional practice of estate agency by the public
In this respect, 77% of the population indicated that the public do not understand
the practice of estate agency hence limiting the efficiency and transparency within
the real estate market in Nairobi. Reasons given for this include the market being
dominated by middlemen, many quacks in the market masquerading as estate
agents who in turn mislead the public and the fact that there are very many people
practicing as estate agents who are not professionally trained and have no interest
Efficient 33%
Not efficient 67%
Efficiency and transparency in terms of stability of real estate values
88
in making the public understand their work or promoting professionalism and
hence efficiency and transparency.
Poor civic education on the practice of estate agency and corruption were given as
other reasons resulting in a poor understanding by the public of estate agency.
Further, certain respondents indicated that the knowledge of this practice is
mostly limited to the educated hence promoting inefficiency and lack of
transparency since quacks are able to con those who do not understand the
practice of estate agency. According to some respondents, the professional
associations i.e. The Estate Agents Registration Board and The Institution of
Surveyors of Kenya are not aggressive enough in educating the public on the
practice of estate agency and the need to practice professionally.
In the same respect, however, 23% of the respondents believe that the market is
efficient in terms of the public understanding the practice of estate agency. These
indicate that the public understands the role that estate agents play in the real
estate market thus this has no negative influence on efficiency and transparency
within the real estate market.
89
Chart 4.15: Showing efficiency of the understanding of estate agency by the general
public
Source: Field Data, March 2013
Recording of real estate transactions
80% of the respondents indicated that the real estate market in Nairobi is
inefficient and lacks transparency in the sense of the recording of real estate
transactions. The respondents said that records of real estate transactions are
hardly available due to poor land management systems and poor keeping of land
records at Lands Offices where most of these transactions are recorded and kept
manually. Further, respondents indicated that there was too much bureaucracy in
Lands Offices all over the country regarding recording of real estate transactions
which makes real estate transactions take too long to complete and these delays
are prohibitive for real estate investors.
Efficient 23%
Not efficient
77%
Efficiency and transparency in terms of the public understanding the
practice of estate agency
90
20% of the respondents are however of the opinion that the real estate market in
Kenya is efficient and transparent in terms of the recording of real estate
transactions.
Chart 4.16: Showing efficiency of the recording of real estate transactions
Source: Field Data, March 2013
In summary therefore, an analysis of the overall efficiency and transparency of
the real estate market in Nairobi as indicated by the respondents is represented in
chart 4.17.
Efficient 20%
Not efficient
80%
Efficiency and transparency in terms of recording of real estate
transactions
91
Chart 4.17: Showing the overall efficiency and transparency of the real estate
market in Nairobi
Source: Field Data, March 2013
70% of the respondents do not consider that the real estate market in Nairobi is
efficient and transparent while 30% of the respondents believe that the market is
efficient and transparent.
Following these findings, the researcher aimed to find out the influence of various
factors on the lack of efficiency and transparency in the real estate market in
Kenya and Nairobi in particular. Based on the literature review carried out by the
researcher, certain factors contribute to a lack of efficiency and transparency in
real estate markets in general. These include poor recording of transactions, estate
agents do not have codes of ethics governing their operations, instability of
property values and a public that does not understand the role of professional
estate agents. The real estate market in Kenya and particularly in Nairobi has seen
30%
70%
Efficiency and transparency of the real estate market in Nairobi
Efficient and transparent Not efficient and transparent
92
an increased influx of non-professionals, the professionals themselves do not
charge fees according to scale and the value of property is very high.
An analysis of the influence of these factors is as follows:
Influx of non-professionals
This has the highest influence on lack of efficiency and transparency as indicated
by the respondents in chart 4.18. 83% of the respondents indicated that the influx
of non-professionals in the real estate market has a very strong influence while
17% of the respondents indicated that this factor has a strong influence on lack of
efficiency and transparency. No member of the population either thought that this
has a moderate, weak or very weak influence on lack of efficiency and
transparency. These non-professionals do not understand the workings of an
efficient real estate market thus do not take any effort towards achieving this and
most of the time they are only interested in making quick money. They do not
consider the needs of clients or understand the need for maintaining customer
satisfaction through professional services.
93
Chart 4.18: Showing the influence of influx of non-professionals on efficiency and
transparency
Source: Field Data, March 2013
Professionals do not charge for services according to the scale of fees
50% of the respondents indicated that this factor has a very strong influence on
the lack of efficiency and transparency in the market, 20% indicated that it has a
strong influence while 30% indicated a moderate influence. No member of the
population accorded this factor a weak or very weak influence on efficiency and
transparency in the real estate market. The failure of professionals to adhere to the
approved scale of fees makes the market inefficient since clients have options to
move from agent to agent and bargain for performance of services which beats the
purpose of professional practice and uniformity.
83%
17%
0% 0% 0%
Influx of non-professionals
Very Strong
Strong
Moderate
Weak
Very weak
94
Chart 4.19: Showing the influence of professionals not charging according to the
scale of fees on efficiency and transparency
Source: Field Data, March 2013
Poor recording of transactions
This factor had the most even distribution of responses with 53% of the
respondents according it a very strong influence, 21% indicating a strong
influence, 16% indicating moderate influence and 10% indicating weak influence.
No member of the population indicated that poor recording of transactions has a
very weak influence on the lack of efficiency and transparency in the real estate
market in Nairobi. This factor makes data on land unavailable thus resulting in
time and cost over-runs for both agents and clients hence contributing very
strongly to lack of efficiency and transparency.
50%
20%
30%
0% 0%
Professionals do not charge fees according to scale
Very Strong
Strong
Moderate
Weak
Very weak
95
Chart 4.20: Showing the influence of poor recording of transactions on efficiency
and transparency
Source: Field Data, March 2013
High property values
67% of the population indicated a very strong influence on the lack of efficiency
and transparency, 20% of the respondents indicated a moderate influence while
13% indicated a very weak influence. No respondent indicated either a strong or
weak influence.
53%
21%
16%
10%
0%
Poor recording of transactions
Very Strong
Strong
Moderate
Weak
Very weak
96
Chart 4.21: Showing the influence of high property values on efficiency and
transparency.
Source: Field Data, March 2013
Lack of a code of ethics to govern operations
38% of the respondents indicated that this factor has a very strong influence on
the lack of efficiency and transparency in the real estate market, 23% of the
population indicated a moderate influence, 31% indicated a weak influence while
8% indicated a very weak influence. No respondent accorded this factor a strong
influence on the lack of efficiency and transparency in the real estate market in
Nairobi. A code of ethics is necessary to guide the actions of estate agents and
without it they may falter in this but as indicated by the respondents, is not a very
influential factor on the lack of efficiency and transparency in the real estate
market.
67%
0%
20%
0% 13%
High property values
Very Strong
Strong
Moderate
Weak
Very weak
97
Chart 4.22: Showing the influence of the lack of a code of ethics on efficiency and
transparency
Source: Field Data, March 2013
Public does not understand the role of professional estate agents
On this factor, 68% of the respondents indicated a very strong influence, 15%
indicated a strong influence while 14% indicated a moderate influence. No
respondent provided for a weak or very weak influence. The fact that the public is
not well-educated on the services and role of professional estate agents makes it
easy for them to trade with non-professionals thus perpetuating the existing
inefficiency and lack of transparency.
38%
0% 23%
31%
8%
Lack of a code of ethics to govern transactions
Very Strong
Strong
Moderate
Weak
Very weak
98
Chart 4.23: Showing the influence of the lack of understanding by the public on
efficiency and transparency
Source: Field Data, March 2013
Based on the data above, the factors in terms of strength of influence on the lack
of efficiency and transparency in the real estate market rank as follows and shown
in Chart 4.24: Influx of non-professionals (23%), High property values (19%),
Public does not understand the role of professional estate agents (19%), poor
recording of transactions (15%), Professionals do not charge fees according to
scale (14%), lack of a code of ethics to govern transactions (10%).
68%
18%
14%
0% 0%
Public does not understand the role of professional estate agents
Very Strong
Strong
Moderate
Weak
Very weak
99
Chart 4.24: Showing the factors influencing lack of efficiency and transparency
Source: Field Data, March 2013
The researcher also sought the opinion of practicing estate agents on whether or
not the professional practice of estate agency could result in the improvement of
efficiency and transparency in the real estate market. Reponses obtained are
indicated below.
19%
15% 14%
23%
19%
10%
Factors influencing the lack of efficiency and transparency in the real estate market
100
90% of the respondents indicated that the professional practice of estate agency
could improve efficiency and transparency in the real estate market in Nairobi and
Kenya in general. The respondents believe that if only professionals who are
trained and certified in real estate studies are allowed to practice as estate agents
then the public will have more confidence in them hence promoting transparency
in the market. Further, the use of professionals only will ensure that more
information is available to clients for decision-making hence more accurate real
estate investment decisions will be made. 10% of the respondents however do not
think that practicing estate agency professionally will have any impact on the
improvement of efficiency and transparency in the real estate market.
Chart 4.25: Showing the impact of professional estate agency on efficiency and
transparency
Source: Field Data, March 2013
90%
10%
YES
NO
Can the professional practice of estate agency improve efficiency and
transparency in the real estate market?
101
4.2 Estate Agents Registration Board
The researcher chose to include members of the Estate Agents Registration Board
as part of the research due to the fact that the Board is the professional association
mandated by the Estate Agents Act cap 533 of the laws of Kenya to register estate
agents and to ensure that the competence and conduct of practicing estate agents
are of a standard sufficiently high to ensure the protection of the public. As such,
the Board is required to regulate and control the practice of estate agency by
controlling the conduct of persons who practice as estate agents. The researcher
obtained 100% data collection from this population.
From the research, the researcher sought to determine how long the various
members had served in the Board, to find out the opinion of various members
regarding the section of the Estate Agents Act to register anyone with good
conduct and its effect on the profession of estate agency and to understand
whether the Board has been aggressive in regulating the practice of estate agency.
Further, respondents were required to give opinions on how the registrar can
better use the powers s/he has to ensure that only qualified people are registered
as estate agents. In addition, respondents were required to rank various factors in
terms of their effect on the lack of efficiency and transparency in the Kenyan real
estate market.
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4.2.1 Years served in the Board
Table 4.1: Showing the number of years served by members of the EARB
0-3 years 3-6 years Over 6 years
No. of respondents 2 2 1
Source: Field Data, March 2013
Based on the data above, the five members chosen as the representative sample all
have the requisite experience to provide correct information to be used in drawing
valid conclusions for the purpose of the research. The interview carried out with
the chairman of the EARB indicated that he had served for 6 years before being
made chairman of the Board thus he also has enough experience to give the
required information for the research.
4.2.2 Legislation- The effects of section 13 (1e) of the Estate
Agents Act on the practice of estate agency in Kenya
Section 13 of the Estate Agents Act gives the conditions and qualifications for
registration of any person wishing to join the practice of estate agency in Kenya.
In addition to professional qualifications, the Act provides in section 13 (1e) that
any person without professional qualifications but is of good conduct can apply
and be registered by the Board. This section has been a source of contention and
the researcher sought to find out what the members of the Board thought on its
influence on the practice of estate agency.
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Chart 4.26: Showing the opinion of members of the EARB on sec 13 (1e)
Source: Field Data, March 2013
80% of the respondents believe that section 13 (1e) of the Estate Agents Act on
good conduct negatively affects the profession of estate agency by opening the
practice to all and sundry; even non-professionals feel they have a right to be
registered. This promotes lack of professionalism and lack of respect for real
estate agency. 20% of the population however does not feel that this clause
influences the profession of estate agency negatively in any way.
The researcher also required that the members give their opinion on whether this
section should be amended.
100% of the respondents indicated that section 13(1e) of the Act needs to be
amended to prevent non-qualified persons from operating in the field of estate
agency.
80%
20%
Opinion of EARB members on the effect of section 13 (1e) on the practice of estate agency
Negatively affects thepractice of estateagency
Does not affectnegatively thepractice of estateagency
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4.2.3 Regulation of the practice of estate agency
The Estate Agents Registration Board has the basic responsibility of regulating
the conduct of estate agents and their registration and in so doing, regulates the
practice of estate agency. The researcher aimed to determine whether the Board
has put enough effort into such regulation.
80% of the population indicated that the Board has not been aggressive enough in
its quest to control the practice of estate agency. The respondents indicated that
the Board has not publicized itself to the public hence many people start
practicing without even understanding the requirements for such. Also according
to the respondents, the Board has not fully utilized the provisions in the Act to
reign in on quacks even when they know where these quacks practice/operate. In
addition, the Board has never sought the co-operation of the police in prosecuting
offenders. Further, the respondents indicated that the reason why the Board has
been lax in regulating the practice of estate agency is because it does not have
legal rights to prosecute and thus limited to take any meaningful action on quacks.
20% of the population thinks that the Board is doing well in terms of regulating
the practice of estate agency since it is in the process currently of ensuring more
people are registered, allowing those practicing illegally to come forward and be
registered and also through increasing awareness to the public on the need for
them to deal only with professional estate agents.
105
Chart 4.27: Showing the opinion of members of the EARB on the aggressiveness of
the board in regulating estate agency
Source: Field Data, March 2013
The registrar has the responsibility of dealing with applications to the Board for
registration and s/he is charged with keeping and maintaining a register in which
the name of every person accepted by the Board for registration shall be entered.
In this research, the researcher sought to determine the opinion of board members
on how the registrar could better use his/her powers to invoke minimum standards
of entry and ensure that only qualified people are registered.
According to the respondents, the registrar can use the clause „If it so satisfies the
Board‟ to come up with a list of requirements (minimum standards) to guide the
Board at application level. Section 13(2) of the Estate Agents Act allows the
Board to direct the registrar to postpone the registration of an applicant until it is
so satisfied. The respondents feel that if a person is not qualified, this
postponement can be perpetual. Further, the respondents indicate that the registrar
20%
80%
Has the Board been aggressive enough in regulating the
practice of estate agency?
YES
NO
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must not simply just register people merely for the reason that they are of good
conduct; s/he should carry out more investigation into the person‟s ethical
behavior and require them to be attached with a registered and busy estate agency
office before re-applying.
4.3 Landlords
Data was collected from 18 out of the thirty two landlords to whom
questionnaires were administered. This represents a 56% response from the
landlords. This population was used by the researcher in order to understand the
perception of the greatest number of clients for estate agents as regards the
services of estate agents.
Out of the eighteen respondents, 11 (61%) of them had acquired/developed their
property in a period over one year ago. 3 (17%) of the respondents had
acquired/developed their property in a period of six months to one year ago while
4 (22%) had acquired/developed their property in the period of zero to six months
ago.
The researcher also sought to find out the extent of the use of estate agents by the
selected landlords to sell/let their properties and the time taken to completely
dispose of the space. 44% indicated that they did not use any estate agent to
sell/let their properties while 56% of the respondents on the other hand indicated
that they had used the services of an estate agent to dispose of the space.
107
Chart 4.28: Showing the use of estate agents by landlords to sell/let property
Source: Field Data, March 2013
The estate agents used as provided by the landlords include Villa Care
Management, Knight Frank Limited, Seb Estates, Lloyd Masika Limited and
Crystal Valuers Limited. Reasons given by the landlords for not using estate
agents services include lack of trust, high charges imposed by the agents and
some respondents indicated that they did not know of any good estate agents at
the time that they wanted to dispose the space off.
The study also showed that 7 (39%) of the respondents took over one year to
completely sell/let the properties. 3 (17%) of the population indicated that they
had taken 6 months-1year to completely sell/let the properties while 8 (44%)
indicated that they had disposed their space in a period of 0-6 months.
56%
44%
Extent of the use of estate agency services to sell/let
property
Used an estate agent
Did not use an estateagent
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Table 4.2: Showing a summary of the time taken to dispose property
Time taken to dispose of
property
Used the services of an
estate agent
Did not use the services of
an estate agent
0-6 months 7 1
6 months- 1 year 2 1
Over 1 year 1 6
Source: Field Data, March 2013
From table 4.2, 7 (70%) of those who used the services of an estate agent had
their property completely sold/let in a period of 0-6 months. 2 (20%) of the
respondents disposed their property in a period of 6-12 months and 1 (10%) had
their property completely disposed in over one year.
For those who did not use the services of an estate agent, 1 (12.5%) of the
respondents had their property disposed in a period of 0-6 months, 1 (12.5%)
completely disposed their property in a period of 6-12 months while 6 (75%) of
them had their property disposed in over one year.
As such, those who used the services of an estate agent had their properties
completely sold/let faster than those who chose not to use these services.
The researcher aimed to gather the views of the respondents on whether or not
estate agents perform a useful service to landlords/developers seeking to dispose
their property. 94% of the respondents indicated that they believe that estate
agents are very useful to any landlord looking to sell/let his/her property. Only 6%
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of the respondents indicated that estate agents do not serve a useful purpose to a
landlord who would want to dispose their property.
Chart 4.29: Showing the usefulness of estate agents to landlords
Source: Field Data, March 2013
Reasons cited for estate agents performing a useful service to landlords seeking
to dispose their property include convenience, ease and speed of transaction;
estate agents are better equipped at dealing with property, coverage/access to
buyers and landlords getting a better bargain. An analysis of the landlords‟
responses is shown in chart 4.30.
94%
6%
Do estate agents perform a useful service to landlords seeking to
sell/let their property?
YES
NO
110
Chart 4.30: Showing the reasons why landlords use estate agents to dispose property
Source: Field Data, March 2013
According to chart 4.30, the reasons in order of importance rank as follows:
Better equipped at dealing with property- 77%, Coverage/access to buyers- 67%,
Speed of transaction- 50%, Convenience- 44%, Landlord gets a better bargain-
22%. Lack of trust was the reason indicated by the respondents who did not think
that estate agents perform a useful service to landlords/developers.
61% of the respondents indicated in the study that they believed estate agency is
more of a business than a profession. The study showed through these
respondents that since estate agency is practiced by many people without
44% 50%
77% 67%
22%
0
Reasons that estate agents perform a useful service to landlords disposing property
111
professional qualifications whose main aim is to make more money in form of
commissions then it is more of a business than a profession. 39% of the
population however, are of the opinion that estate agency is more of a profession
than a business because estate agents do not only sell/let property; they also
provide advisory services on the property market and changing trends and need a
clear understanding of this market in order to be successful. Further, some
respondents indicated that the fee charged by the estate agents for services was
reasonable.
Chart 4.31: Showing the opinion of landlords on the practice of estate agency
Source: Field Data, March 2013
From the respondents, the researcher also sought to determine whether they
thought that the public needs to be educated on the services provided by
professional estate agents. All the respondents (100%) agree that it is very
necessary for awareness to be raised to the public on the services of professional
estate agents so as to make the profession more understandable.
YES
N0
61%
39%
Is estate agency more of a business than a profession?
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4.4 Summary
From this chapter, it has been determined that the real estate market in Nairobi is
highly inefficient and that the practice of estate agency in this country is marred
by many challenges chief among them being the lack of control by the Estate
Agents Registration Board which has led to the proliferation of quacks into the
market. Also clear is that the public does not understand estate agency and believe
that anyone with marketing skills can be an estate agent. It has however come to
light that the use of estate agents does lessen the time spent by landlords to
dispose their property. The legislation governing the practice of estate agency
also requires some amendment so as to improve the efficiency of the market by
reducing the extent of quacks practicing. Section 13 (1e) of the Estate Agents Act
cap 533 of the laws of Kenya on the registration of anyone of good conduct as an
estate agent affects the profession negatively and should be amended.
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CHAPTER FIVE: CONCLUSIONS AND
RECOMMENDATIONS
5.0 Introduction
The study set out to find out the role of professional estate agency in creating
efficiency and transparency in the Kenyan real estate market. In so doing it
analyzed the levels of efficiency and transparency in the real estate market and
factors influencing such efficiency and transparency, in addition to the challenges
facing estate agents. This was done through questionnaire and interview
administration. This chapter consolidates the data acquired in chapters three (case
study and research methodology) and four (data analysis and presentation) into
research findings that inform the research study objectives stated below:
1) To determine the contribution of the services of professional estate agents
towards efficiency and transparency in the real estate market in Nairobi.
2) To identify challenges affecting the profession of estate agency.
3) To find out the level of awareness by actors in the real estate market about
the need for professional real estate agency in creating efficiency and
transparency in the market.
4) To give relevant recommendations aimed at overcoming the challenges
facing professional real estate agency in Kenya hence improving the
efficiency of and transparency in the property market.
Conclusions and recommendations for the whole study are formulated based on
these findings to address the problem of inefficiency and a lack of transparency in
114
the Kenyan real estate market. Finally, this chapter makes suggestions on areas of
further study on professional estate agency and its impact on efficiency and
transparency in the real estate market that were not covered by the researcher in
this study.
5.1 Findings and conclusions
Based on the foregoing field research findings, study objectives and hypothesis,
the following findings and conclusions can be drawn:
Although registration of estate agents by professional bodies is a
requirement for the upholding of professionalism in this practice, there
exist low levels of registration amongst practicing estate agents by the
Estate Agents Registration Board indicated by the low number of
registered estate agents in Nairobi (255) as at March 2012. This is
attributed to the professional body not being vigilant and strict enough to
prevent unqualified and unregistered persons from getting into the
profession which explains the lack of professionalism in the practice. In
addition, the Board has not carried out adequate public awareness to
inform both the public and estate agents of the importance of registration
and thus it comes off that estate agency as a profession has been ignored in
the country.
Section 13 (1e) of the Estate Agents Act Cap 533 of the Laws of Kenya
which allows the registration of anyone with good conduct as an estate
agent affects negatively the profession of estate agency and should be
115
amended. However, the process towards amending this section is being
discussed.
A written down code of ethics is very necessary to promote
professionalism in the practice of estate agency.
Estate agents are involved in more than just marketing of property and are
highly involved in providing advisory services to clients showing that this
is a profession that requires a lot of attention, recognition and regulation
from the professional bodies established to govern it under Acts of
Parliament. Practitioners should also be well-versed in matters relating to
property since people make high-cost decisions based on their advice.
Practicing estate agents are quite experienced in this field with most of
them having worked for more than three years and are mostly involved in
residential agency which indicates that though estate agents are
experienced, the practice of estate agency in this country has not grown to
the extent that allows estate agents to carve their niches‟ in other property
markets which make up the general real estate market that is the
commercial, industrial and agricultural property markets.
The use of professional estate agents by landlords to sell/let property is
advantageous because they are better equipped at dealing with property
and have a wide access to buyers/lessees.
Estate agents do not consider registration by EARB to be a determining
factor in an agent‟s success and competence hence the conclusion by the
researcher that practicing estate agents are lax towards getting registered.
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Competition by non-professionals in the market and the slow bureaucratic
nature of the property conveyance system have been seen as the greatest
challenges affecting the practice of estate agency. Again this implies low
levels of regulation by the professional bodies and shows that the lack of
efficiency and transparency in the market has been influenced greatly by
„quacks‟ passing off as estate agents. However, the new land laws namely
the Land Act and the Land Registration Act both of 2012 are expected to
curb the problem of a slow and bureaucratic property conveyance system.
The real estate market in Nairobi is neither efficient nor transparent.
The general public neither understands the practice of professional estate
agency nor the need to engage professionals when seeking to exchange
property rights.
The influx of non-professionals in the market, high property values and
the lack of understanding by the general public have the greatest influence
on lack of efficiency and transparency in the real estate market.
This study has effectively met the four objectives previously stated:
Objective (i): To determine the contribution of the services of professional
estate agents towards efficiency and transparency in the real estate market in
Nairobi.
The review of literature indicated that real estate markets are generally inefficient
and transparent and that estate agents perform useful roles in the real estate
market that extend past just bringing together vendors/lessors and
purchasers/lessees. The field survey indicated that indeed the real estate market in
117
Nairobi is highly inefficient and lacking in transparency and that the professional
practice of estate agency can lead to an improvement of this state through
increasing confidence in the general public who use the services of these estate
agents.
Objective (ii): To identify challenges affecting the profession of estate agency.
The practice of estate agency is affected by various challenges namely insufficient
communication between estate agents and their clients, over-expectations by
clients and employers, the public having a negative image of estate agents,
competition by non-professionals in the market and the slow and bureaucratic
nature of the property conveyance system. From field work, it was determined
that competition by non-professionals is the greatest challenge facing estate
agents practicing in Nairobi. Other challenges include difficult clients resulting in
unnecessary and unpleasant confrontations between the estate agents and such
clients.
Objective (iii): To find out the level of awareness by actors in the real estate
market about the need for professional real estate agency in creating efficiency
and transparency in the market.
From the literature review, the researcher determined that estate agents mainly
come into the picture once the process of property development is over to serve
purposes such as marketing, management, appraisal, negotiating terms of
mortgage, charge, sale and letting and to offer advisory services. Thus the agents‟
main clients are property owners and those seeking to purchase/let property.
Through the field survey, it was determined that the general public does not
118
understand the practice of estate agency and neither does the public understand
the need of working with professional estate agents to prevent fraud, increase
efficiency and transparency.
Objective (iv): To give relevant recommendations aimed at overcoming the
challenges facing professional real estate agency in Kenya hence improving the
efficiency of and transparency in the property market.
Having identified several significant issues to the study based on the objectives,
the researcher sought to give recommendations on how to face the challenges that
affect estate agency thus result in an improved functioning of the real estate
market in efficiency and transparency.
5.2 Hypothesis Testing
The null hypothesis for this study was stated as: professional estate agency has no
impact on efficiency and transparency in the real estate market in Kenya while the
alternative hypothesis was stated as: professional estate agency has a significant
impact on efficiency and transparency in the real estate market in Kenya.
The findings of the research indicate that the practice of estate agency does
influence the extent of efficiency and transparency in the real estate market and
not only does it influence these variables but has a significant impact on them.
The results obtained and presented in chart 4.24 indicate that the greatest
contributor to inefficiency and transparency in the real estate market is the influx
of non-professionals into the estate agency practice which in turn reveals that the
practice of estate agents only by qualified practitioners has a great impact on
improving efficiency and transparency in the real estate market.
119
Further, 90% of the respondents as indicated in chart 4.25 put forward that the
professional practice of estate agency can bring about improvements in the
efficiency and transparency of the real estate market. Finally, it has been
determined from table 4.2 that landlords who use the services of estate agents to
dispose their space have their property let/sold much faster than those who do not.
In light of the information obtained from the field work carried out and the
literature review, it has been revealed that the professional practice of estate
agency has a significant impact on efficiency and transparency in the real estate
market and hence the null hypothesis that states: professional estate agency has no
impact on efficiency and transparency in the real estate market in Kenya is
rejected and the alternative hypothesis stated as: professional estate agency has a
significant impact on efficiency and transparency in the real estate market in
Kenya is thus accepted.
5.3 Recommendations
In order to improve the efficiency and transparency of the real estate market
through the use of professional estate agency, the following strategies related to
the research findings have to be implemented by the concerned parties:
i. The capacity of the Estate Agents Registration Board should be enhanced
to enable it better regulate the profession. This should be done through
giving the Board prosecution powers to ensure that rogue agents are not
only identified, but also put through a legal court process where fines
and/or imprisonment may be imposed on all practicing as estate agents
without the requisite qualifications and registration.
120
ii. Rogue agents currently practicing should be tracked down and made to
either go for training in the diploma or degree of Real Estate, work under a
registered estate agent for a period of not less than one year or face having
their offices closed and prosecution.
iii. Apart from only publishing the names of the registered estate agents in the
Kenya Gazette, the registrar of the Estate Agents Registration Board
should also advertise this information in local dailies to enable the public
that deals with these estate agents know who to go to in case they need
estate agency services to avoid instances of fraud.
iv. The general public should be educated on the need to use professional
estate agents only in addition to them being educated on the services that
professional estate agents provide and the role they play in the real estate
market.
v. Higher benchmarks such as sitting for professional examinations after a
certain period of practicing should be set by the Estate Agents Registration
Board for new applicants joining the profession to ensure that only very
qualified people get into this profession.
vi. A centralized database should be created at the Ministry of Lands with
records of land transactions and full computerization undertaken to reduce
the time taken for property conveyance transactions to be completed.
vii. The Estate Agents Registration Board should standardize the various
aspects of the service processes such as estate agency in the industry.
121
viii. The Estate Agents Registration Board should be more vigilant to ensure
that professionals charge fees according to the prescribed scale of fees
which will reduce the disparities in fees charged by different estate agents
and hence eliminate unhealthy competition between estate agents in
addition to bringing uniformity within the profession.
ix. Only people with the requisite academic qualifications as enumerated in
the Estate Agents Act should be registered in order to ensure that these
understand the working of both the product that is real estate and its
market.
x. Estate agents should adhere to professional ethics laid out by the
Institution of Surveyors of Kenya and ethics taught as a unit in various
land related programs in universities and colleges. This will be beneficial
as it will result in a better attitude towards the need for honesty,
dedication, care and trust in all professionals‟ relationships with clients,
other estate agents and the general public.
xi. The Estate Agents Registration Board should come up with well
documented standards for real estate agency in Kenya based on
international standards and ensure that these standards are kept by
practicing members.
xii. There should be reforms in the Estate Agents Act cap 533 of the laws of
Kenya to ensure that the Board does not only regulate the conduct of
estate agents but the practice of estate agency itself by governing the
122
business that is done by estate agents pursuant to instruction given them
by clients.
xiii. A redress scheme should be brought into existence by the Estate Agents
Registration Board to deal with complaints from buyers and sellers of
property and act as a forum where real estate professionals, buyers and
sellers share problems facing estate agency and come up with solutions to
improve this practice and in turn bring about efficiency and transparency
in the market.
5.4 Limitations of the Study
The researcher faced various problems when carrying out this field study. Some
of these challenges included:
1. Some respondents were unwilling to fill the questionnaires since they were
suspicious about the study. Many perceived it as sharing very vital
information which they were not ready to furnish the researcher with.
2. Delays were experienced from the respondents who took very long to
complete filling the questionnaires and constant postponement of the
picking date proved to be very frustrating to the researcher. This could be
attributed to busy schedules and had both cost and time implications on
the researcher since the set timelines had to be changed and many follow-
up calls and visits had to be made which was quite expensive.
3. Landlords were hostile and very suspicious of the research.
4. At times some of the respondents did not fill in the questionnaires
adequately and ignored certain sections that required the giving of
123
opinions which made it difficult for the researcher to make adequate
conclusions.
5.5 Areas of Further Research
During the course of the study, certain areas were found wanting and required
further research. These include:
1) The effect of standardizing the practice of estate agency in Kenya on
improving efficiency and transparency of the real estate market. There is
need for further research in this area to address the challenges facing estate
agency in Kenya and ensure that this profession is defined so as to prevent
a continuous proliferation of quacks and thus evaluate the effectiveness of
this move in improving efficiency and transparency.
2) An evaluation into the introduction of multiple listing systems in the
Kenyan real estate market in relation to the improvement of the levels of
professionalism within the practice of estate agency. This will involve a
close look at the nature of multiple listing systems, their advantaged and
disadvantages in addition to determining the challenges that may face the
introduction of such systems in the local real estate market. Further, it will
be necessary to find out how such systems can aid the profession of estate
agency in being more air tight and impregnable by non-qualified persons.
124
Appendices
Questionnaire to estate agents
Dear Respondent,
Kindly take the opportunity to participate in this questionnaire survey. The
researcher intends to use the questionnaire as a research instrument to collect data
for study purposes. Your opinions, expertise and knowledge are highly necessary
to understand and describe the research „To determine the role of professional
estate agency in creating efficiency and transparency in the Kenyan real
estate market‟
This information will be used only for research purposes and will be treated with
utmost confidentiality. Your co-operation and response will be highly
appreciated.
1. Are you a registered estate agent?
[ ] YES [ ] NO
2. Are you a member of ISK?
[ ] YES [ ] NO
3. How long have you worked as an estate agent?
[ ] 0-3 yrs [ ] 3-10 yrs [ ] over 10yrs
125
4. What kind of estate agency are you mainly involved in?
[ ] Residential [ ] Commercial [ ] Other
5. Do you consider the real estate market in Nairobi to be efficient in terms of:
a. Flow of price and value information between buyers and sellers.
[ ] YES [ ] NO
b. Stability of real estate values.
[ ] YES [ ] NO
c. Understanding of the professional practice of estate agency by the public.
[ ] YES [ ] NO
d. Recording of real estate transactions.
[ ] YES [ ] NO
If NO to any of the above, please give reasons.
...............................................................................................................................
................................................................................................................................
6. What are your major duties as an estate agent? (Tick as appropriate)
a. Marketing of property [ ]
b. Negotiating terms of sale, mortgage, charge and letting [ ]
c. Property management [ ]
d. Leasing properties on behalf of institutions [ ]
126
e. Appraisal of property [ ]
f. Advisory services [ ]
g. Other (please specify) ...............................................................................
7. What major challenges do you encounter in carrying out your duties? (Tick as
appropriate)
a. Insufficient communication between estate agent and client. [ ]
b. Client and employer over-expectations. [ ]
c. Negative public image. [ ]
d. Competition by non-professionals in the market. [ ]
e. Slow and bureaucratic nature of the property conveyance system. [ ]
f. Other (please specify) .............................................................................
8. What influence do the following factors have on an agent‟s success and
competence?
1. Very strong 2. Strong 3. Moderate 4. Weak 5. Very Weak
Academic qualifications [ ]
Years of experience [ ]
Personal character traits [ ]
Registration by ISK [ ]
Professional ethics [ ]
127
9. Do you think a code of ethics is necessary to ensure professionalism?
a. [ ] Strongly agree
b. [ ] Agree
c. [ ] Strongly Disagree
d. [ ] Disagree
10. Does your company have a code of ethics?
[ ] YES [ ] NO
11. Do you think the Estate Agents Registration Board does enough to ensure
professional ethics are adhered to?
[ ] YES [ ] NO
If NO, please give reasons.
..............................................................................................................................
..............................................................................................................................
12. Do you think the practice of estate agency can result in the improvement of
efficiency in the Real Estate Market in Kenya?
[ ] YES [ ] NO
128
13. In your opinion, how can the challenges facing the real estate agency
profession be overcome?
....................................................................................................................................
....................................................................................................................................
....................................................................................................................................
THANKYOU!
129
Questionnaire to the Estate Agents Registration Board (EARB)
Dear Respondent,
Kindly take the opportunity to participate in this questionnaire survey. The
researcher intends to use the questionnaire as a research instrument to collect data
for study purposes. Your opinions, expertise and knowledge are highly necessary
to understand and describe the research „To determine the role of professional
estate agency in creating efficiency and transparency in the Kenyan real
estate market‟
This information will be used only for research purposes and will be treated with
utmost confidentiality. Your co-operation and response will be highly
appreciated.
1. How many terms have you served in the EARB?
...................................................................................................................
2. Do the provisions of the Estate Agents Act Cap 533 of the Laws of Kenya, on
the registration of anyone with good conduct as an estate agent affect
negatively the profession of estate agency?
[ ] YES [ ] NO
If YES, please give reasons.
......................................................................................................................
130
...........................................................................................................................
3. Do you think it is necessary to amend the Estate Agents Act, section 13(e)?
[ ] YES [ ] NO
4. Do you think the Board has been aggressive enough in regulating the practice
of Estate Agency in Kenya?
[ ] YES [ ] NO
If NO, please give reasons.
........................................................................................................................
........................................................................................................................
........................................................................................................................
5. How can the registrar better use the powers he has to invoke minimum
standards of entry to ensure only qualified people are registered as estate
agents?
..............................................................................................................................
..............................................................................................................................
..............................................................................................................................
131
6. What influence do the following factors have on the lack of efficiency and
transparency in the Kenyan real estate market?
1. Very Strong 2. Strong 3. Moderate 4. Weak 5. Very Weak
a. Influx of non-professionals [ ]
b. Professionals not charging fees according to scale [ ]
c. Poor recording of transactions [ ]
d. High value of property in the market [ ]
e. Companies do not have a code of ethics [ ]
f. Public doesn‟t understand the role of professional estate agents [ ]
7. In your opinion, what should be done to regulate the real estate agency
profession so as to achieve efficiency and transparency in the profession?
................................................................................................................................
…………………………………………………………………………………….
THANK YOU!
132
Questionnaire to Landlords
Dear Respondent,
Kindly take the opportunity to participate in this questionnaire survey. The
researcher intends to use the questionnaire as a research instrument to collect data
for study purposes. Your opinions, expertise and knowledge are highly necessary
to understand and describe the research „To determine the role of professional
estate agency in creating efficiency and transparency in the Kenyan real
estate market‟
This information will be used only for research purposes and will be treated with
utmost confidentiality. Your co-operation and response will be highly
appreciated.
1. When did you acquire/develop this property?
a. [ ] 0-6 months
b. [ ] 6months- 1yr
c. [ ] over 1 yr
2. Did you use an estate agent to sell/let the property?
[ ] YES [ ] NO
If YES, which estate agent(s)?
..................................................................................................................................
133
If NO, please give reasons.
……………………..................................................................................................
..................................................................................................................................
3. How long did it take you to completely dispose the space?
a. [ ] 0-6 months
b. [ ] 6-12 months
c. [ ] over 1 yr
4. Do you think estate agents perform a useful service to a developer/landlord
seeking to dispose his/her property?
[ ] YES [ ] NO
If YES, please tick the reasons as appropriate.
a. Convenience [ ]
b. Speed of transaction [ ]
c. They are better equipped at dealing with property [ ]
d. Coverage/access to buyers [ ]
e. It is the normal (only) way [ ]
f. I can get a better bargain [ ]
If NO, also tick reasons as appropriate.
a. They are too costly [ ]
b. I have used them before and was not satisfied with their services [ ]
c. Lack of trust [ ]
134
d. I do not know that such services exist [ ]
5. In your opinion, is estate agency more of a business than a profession?
(Please give reasons)
[ ] YES [ ] NO
................................................................................................................................
.................................................................................................................................
6. Do you think the public needs to be educated on the services provided by
professional estate agents?
[ ] YES [ ] NO
THANKYOU!
135
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