Funny thing about the sellers’ market for a most residential real estate in the east coast capitals: vendors are signing real estate agency agreements that read as if the agents are doing a massive personal favour listing the property.
And this when auction clearance rates and a shortage of stock mean most properties in the hotter markets are close to selling themselves.
Just like commission rates, agency agreements are entirely negotiable. It’s a simple matter to put a line through objectionable clauses before signing.
For example, agency agreements routinely state that the agent’s full commission will be paid on completion of the sale (obviously), if the vendor pulls out of the sale after binding contracts have been exchanged with the buyer (OK), if the vendor and buyer mutually agree not to proceed after making the contract (hmmm, OK), and if a deposit has been forfeited to the vendor when “the sale is not completed owing to the default of the purchaser” (what?).
The standard REINSW form at least stipulates that the commission can’t be greater than the deposit. Some agency agreements don’t go that far.
To keep the numbers simple, if a vendor agrees to 2 percent commission including GST on a $2 million house, the agent would receive $40,000 on the sale. Should the purchaser renege and forfeit a 10 per cent deposit, the commission rate in effect becomes 20 percent. If it was only a 5 percent deposit – $100,000 – the commission would still be $40,000 – 40 percent. Nice.
Agents may claim they are entitled to the full commission because they had done their job by getting the contract signed. I’d argue their job is to sell the property, not nearly sell it. It’s entirely reasonable to cross out that line of any agency agreement and limit the commission to the agreed percentage of the deposit, not the sale price.
On the agent’s indemnity and liability, the standard REINSW agreement states: “The Principal will hold and keep indemnified the Agent against all actions, suits, proceedings, claims, demands, costs and expenses whatsoever which may be taken or made against the Agent in the course of, or arising out of, the proper performance or exercise of any of the powers, duties or authorities of the Agent under this contract.”
In an increasingly litigious world, that could potentially become a considerable expense but is not unreasonable as long as the word “proper” is there before “performance”. Some agency agreements omit that word. So, on the face of it, if the agent does something improper and sued, all the legal bills go to the vendor. Make sure “proper” or words to that effect are in the agreement.
And then there is the grey area of demands for double commission.
For example, Agent A has the property, shows a bunch of people through, but can’t find a buyer. Maybe the asking price was too high at the time. Maybe the purple paint turned people off. Maybe the agent wasn’t flash at actually selling. Whatever. The property is withdrawn from the market and the agency agreement terminated.
A year later, the vendor tries again with Agent B. Maybe the market has risen to the asking price, or the price is lowered, or the purple has been painted over, or the Hell’s Angel’s next door has moved to a new clubhouse. Maybe Agent B has a talent for turning lookers into buyers. Whatever, Agent B sells the property and collects the commission.
But the buyer had originally walked through the house when Agent A opened it for inspection. In the small world that is a local real estate, Agent A will know and, under the standard agency agreement, is entitled to claim full commission.
Maybe there’s no Agent B. Maybe the neighbour won Oz Lotto, fancies adding a tennis court and swimming pool and makes you an offer over the back fence – but also looked at your house when Agent A had it. Commission, please.
The REINSW agreement states: “The Agent shall be entitled to a fee at the agreed amount if at any time following the expiration of the Exclusive Agency Period the Principal enters into a Contract for the Sale of the Property with a purchaser effectively introduced to the Principal or the Property during the Exclusive Agency Period by the Agent, by any other agent or by the Principal.”
Civilised competing agents would sort the double commission out, but not everyone in this world is civil and double commission can be demanded. It happens.
Agency agreements are drawn up by lawyers acting for agents with the sole purpose of maximising the agents’ benefits and with no interest in the benefits to, or welfare of, the vendor.
Especially in a sellers’ market, a vendor would be a little silly to go along with it. It’s not just property prices that are crazy.
Don’t get lost in the crazy seller’s market! You can always contact your local Property Advisory for tips on styling your home for sale!