Agency Agreements – The Inside Scoop
When you make the decision to sell your home or investment property, the first piece of documentation you encounter will most likely be an agency or listing agreement. Much is made of the Sales and Purchase agreement, but the listing agreement is the foundation document used for setting out and formalizing the marketing and selling relationship between an agent / licensee and you as the homeowner.
The Real Estate Agents Act 2008 brought about some changes and sought to provide more protection and information for homeowners at the time of listing their home with an agent. As part of the law, the agent or licensee has to provide you with a copy of the New Zealand Residential Property Agency Agreements Guide and get your written confirmation that you have received the guide. Though the thought was there, in reality, the guide is very simplistic and of reasonably limited use to homeowners with a bit of nouse. In my experience most homeowners appear to receive it and have a 30 second scan before promptly filing it at the bottom of the sheaf of papers and documentation given to them at the time of listing, never to see the light of day again.
It does, however, outline the basics in terms of the law and make the suggestion to the homeowner to contact their solicitor before signing any agency agreement if they have any questions. As it mentions within, it is only a guide and was not designed to be exhaustive.
So what does the guide not tell you that may be good to know when signing an agency agreement?
Are there things in an agency agreement to look out for, think about, or confirm with the agent before signing?
1)Not all agency agreements are the same
Agency agreements are designed and printed in house by an agency in consultation with the powers that be and the company solicitor. There is no generic agency agreement similar to the Sale and Purchase Agreement. It would be great if the Real Estate Agents Authority designed an agency agreement that had to be used by all agents and licensees as it could make things much easier for homesellers. Don’t assume that because one agency does things a certain way, that all the others follow suit.
2) Are you signing a general agency or an exclusive agency?
Can other competing agents bring buyers through or are you signing a contract with one agency (which may have many licensees) for a set period of time?
3) How long is the agency period for and can I negotiate on this?
As a general rule, exclusive agencies run for a set period of time or until the property sells unconditionally which ever is first. General agency appointments are most often open ended but can be canceled in writing by the homeseller. Usually in the fine print, exclusive agency agreements revert automatically to a general agency when the end of the agency period is reached
Can you negotiate on the length of the agency? YES!
What is a reasonable length of agency????
Ask the agent what the average time to sell in the area is (if they don’t know, do you really trust that they have the experience to market your home for you?) or visit the reinz website and check the last couple of months for yourself (checking over 3-4 months is good because the figures can bounce around sometimes with a high margin of error for smaller locales with less sales). An agency of around this length of time would be reasonable. I always think that it is good to have a set date and a time for the end of the agency rather than just an agency appointment for say 60 days from the signing of the agency agreement.
I am always a little suspicious when I hear of agents insisting that home owners sign up for overly long periods of time. The REAA 2008 has sought to circumvent this by putting the 90 day limit on the agency. There is a ploy used by some agents at the less trustworthy end of the scale called “buying the listing”. This involves suggesting to a homeseller that they will get a price that is well above the fair value for the property in order to get the listing, then signing the agency up for a long period of time in which the homeowner can be “conditioned” to market realities to being them back into a fair selling range. The REAA 2008 addresses this point by making it law that an agent should provide an estimated market value in writing based on recent sales of similar properties in the area. You can also get your own registered valuation if you are unsure of value (remember though that this is also a professional estimate of value not a hard and fast value point for your property).
Cutting down the length of the agency agreement gives you options if things are not moving according to plan
The REAA 2008 limits the length of agency that you are bound to by allowing you to cancel in writing any agency that runs past 90 days. If your home does not sell during the agency period, the agent/licensee will have to come back to you to get you to sign an agency extension. At this time you are also free to choose another agent if you want to.
When you sign an agency agreement, there is a cooling off period of one working day which allows you to cancel the agency agreement you signed if you have second thoughts.
4)How do I cancel and agency if I need to and how long does it take?
It is wise to cancel the agency agreements in writing either by fax, email, or letter. Don’t rely on a phone call as you have less proof. By all means, make the phone call but follow up with an email or something in writing confirming what you talked about with the agent.
BEWARE! In the fine print there may be a length of time whereby the agency agreement is still in force after you have canceled it in writing. Read through the general agency fine print especially to check for this. I have sighted some agency agreements that allow for an agency to continue for 60 days AFTER written notification that it has been canceled! Either cross this bit out or cut it down to a more reasonable amount say 3 – 7 days.
5)Schedule of fees
The agency agreement will mention the fees charged by the agent on the successful unconditional sale of your home. Most companies charge their fees on a percentage basis and are exclusive of GST.
It is important to clarify at this point what the fees cover. Do you get a base level of print advertising? Open homes? Website coverage? Are there any costs outside of the agency fee that the agent is asking you to bear eg. advertising upgrades etc?
In order to truly compare agency offerings, it is good to know what each agency is prepared to contribute in return for the commission. It is now law that the agent should provide you with an estimate of commission payable in dollar terms based on the estimated selling price, making this comparison easier.
6)Marketing Method and/or Agreed advertised price
The agency agreement will leave space for filling in the price you have agreed to market the property for and the method of marketing including any deadline for tenders or auctions if this is the method you choose.
7)Terms and Conditions
There will be a page of fine print that includes such things as written permission for the agent to put up a sign, advertise your property, show buyers through, and collect the sale information for publication after the fact. There are also portions of these terms that indemnifies the agent against any claim made to do with chattels or fixtures that are still on hire purchase or have money owing on them etc. You will also sign that if you have done any work to the property that required a permit or Council consent, that this consent was applied for and received. And that you believe that the title is free from defect.
This is a good chance to make the agent aware of anything about the property that may affect it’s likely the sale!
Remember that the agency agreement is a binding document. If you are unsure about anything in the document, talk with your solicitor. Don’t allow the agent to pressurize you into signing if you aren’t comfortable. Ask them to leave the documentation with you to read in your own time.
There is more information available on the REAA website. Knowledge is Power!
If you’ve found this article informative or have any other comments, I’d love to hear from you.
August 24 2010 03:51 pm | General Real Estate and Home Sellers
Andrew on 27 Aug 2010 at 10:07 am #
Hi David,
Excellent article on Real Estate Agency Agreements. Informative, insightful and most importantly… accurate!
I agree that many people don’t understand that they can negotiate a term of agency. This won’t worry the agents that know they deliver value to their clients.
Best,
Andrew