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 | General Real Estate and Home Sellers | 1 Comment »
What happens when the home you are selling goes unconditional and yet doesn’t settle or the vendor pulls out of the deal at the last minute even though the contract is unconditional and a deposit paid.
This nzherald article got me thinking about the public perception of the job of real estate agents.
Where does the agents job that he/she is contracted to perform end and when should they get paid?
Does it end at the time of an unconditional sale?
Or is the agent legally obliged to be involved until the house settles?
The piece of paper governing the agent’s relationship with the seller is known as a listing / agency agreement or authority to market. For those readers who haven’t seen one of these documents, I have scanned an example here. All agencies will have a similar document that will need to be signed by the homeowners at the time of appointment of the agency. No similar piece of paper is signed by the purchaser and the agent unless you as a purchaser contract an agent to find you a house and are willing to pay a finders fee. This happens outside of New Zealand but is still relatively uncommon here. Therefore, the agent has no legal obligation to aid the purchaser, though it can be argued that there is a moral obligation.
The listing agreement sets out among other things, the commission payable and when. As you can see from the example, the agreed commission payable is triggered when the contract for sale and purchase of the homeowners property “becomes unconditional and binding on both parties”.
Reading down further in the Terms and Conditions (section 1a), the signing homeowners authorize the agent “to deduct any fees, commissions and other expenses from the deposit”. This deduction of fees from the deposit is standard industry practice.
Officially on paper, the real estate agency is contracted to market a property for sale. Once a binding and unconditional contract is reached, the contract with the agent ends! Anything further to do with the property and the contract needs to be done through the solicitors acting for each party. If a house doesn’t settle because one of the parties pulls out, then the other party has to sue based on the breach of contract. Though it has nothing to do with the agent at all, he/she would be called in as a witness to the contract and its breach. I have never been involved in such a situation and am glad that it is rare as it would be expensive, stressful and time consuming for all parties concerned.
However, in actuality, the agent continues to work as a go between communicating verbally between the purchaser and vendor up until and even after settlement and possession have taken place. This is seen by agents as goodwill and relationship building even though they aren’t getting paid for this job. Contrary to public opinion, this is not part of an agents legally contracted job! It is worth remembering that agents are engaged to market the property for sale and to secure a binding contract, they are not hired by purchasers to be available for pre-settlement inspections or to physically help the vendors pack up and move out even though the expectation is sometimes there that this is part of their job.
I myself have been involved on numerous settlement days to make sure things go smoothly when one party is moving in on the same day that the previous owners are moving out.
I remember one settlement that was delayed as the moving truck for the previous owners had broken down. My phone was ringing hot late into the evening of settlement with the almost deranged purchasers screaming at me to get the previous owners moved out immediately! There was nothing at all I could do in this situation, but the purchasers (who I have no legal relationship with by the way) expected, nay demanded that I be actively involved in getting the vendors out of the house! The sad thing to me is that even though I made myself available to try and keep both parties from throttling each other, including visiting the house on three occasions on the afternoon of settlement with the last time being at 11pm (!) , the buyers finished the day with ill feeling towards me because the vendors weren’t out of the house when expected.
Is there a standard size expected for the deposit?
Most agencies and solicitors see a 10% deposit as a fair amount. But in recent times with many young people scratching together all the spare cash they can to get their foot on the property ladder, a 5% deposit has become more common. Even then, coming up with $20k on a $400k house purchase can be a bit of a stretch. Real Estate Agency fees usually sit in the 3-4% range so a 5% deposit will usually be enough to cover the real estate commission at the very least and this is why agents want to collect at least this percentage in deposit. There are some solicitors operating in the conveyancing field that tell their clients not to pay any deposit which throws a bit of a spanner in the works on the odd occasion. I always come back to these solicitors and ask them what they would say if they were on the other side of the transaction, working for the home seller. At this point the answer is usually, “Please collect a 10% deposit!”.
Does a Deposit have to be paid?
Yes and no. It is my understanding that you can buy a house in NZ without offering to pay a deposit BUT. Very few sellers (or their solicitors) will sign an offer for sale and purchase without some sort of deposit. If you are buying a house and make this a sticking point, the owners will get suspicious and wonder if you have the ability to buy the house in the first place.
More reading on deposits here.
Lessons I have learned regarding deposits…
As an agent, I am obliged to collect a deposit. I try to make sure the deposit is high enough to cover the commission payable at least. If a buyer won’t pay the deposit amount that was agreed on in the sale and purchase agreement, I need to inform the vendor and/or the vendor’s solicitor as soon as I am aware there is an issue.
As a purchaser, there is little that you can do to protect yourself that I am aware of unless you want to try and pay no deposit at all. I have encountered this only a handful of times and it is usually from buyers who have gone through a get rich quick course or have a solicitor who has told them they don’t need to pay a deposit. In reality, your offer will be looked at with suspicion by a vendor if you put up no deposit and could result in you losing the chance to buy the house if you stick to your guns. Minimize the amount of deposit payable as much as possible. If the agent insists on 10% of the purchase price, tell them you’ll only pay 5%. This is usually enough to cover the commission so he/she will be pacified at this point in most cases. You could talk to your solicitor about notifying the vendors solicitor that you don’t want the deposit released until settlement takes place. I haven’t heard of this from a purchaser personally, but I guess you could always try.
As a vendor, you need to make sure that the deposit is high enough to more than cover the agents commission in case there are issues, but contrary to public opinion, you can’t just help yourself to the deposit if the buyers pull out of an unconditional deal. You have to go through the courts and sue for damages based on the remedies outlined in the sale and purchase agreement you have signed with the other party. Aim for as high a deposit as possible from the purchasers but understand that some well intentioned buyers don’t have the facility to pay a huge wad of cash before settlement.
If you as a vendor are uncomfortable with the deposit being released to pay commissions and other fees (including solicitors fees in some cases too), you need to talk with your solicitor and tell them not to allow the agent to deduct their fees until settlement. Conversely, you can ask that your solicitor holds the deposit in their trust account. Of course, the agent will be uncomfortable with this!
The opportunity for vendors to reneg on paying agency commissions is greater when the vendor’s solicitor holds the funds. And if you don’t think this happens, I can tell you that I personally am still owed $3500 in commission from the sale of a property well over a year ago where this scenario took place. The vendor wanted a huge deposit because the settlement was at least 6 months after the unconditional sale date, and he wanted the deposit held by his solicitor. On settlement, my agency sent an invoice to the vendor’s solicitor for the commission payable. Unfortunately for us, the solicitor released all of the monies on settlement to the vendor and told him to pay our invoice. This never happened… So for me it is deal made and no commission!
August 27 2009 | General Real Estate and Home Buyers and Home Sellers | 2 Comments »
What happens when the home you are selling goes unconditional and yet doesn’t settle or the vendor pulls out of the deal at the last minute even though the contract is unconditional and a deposit paid.
This nzherald article got me thinking about the public perception of the job of real estate agents.
Where does the agents job that he/she is contracted to perform end and when should they get paid?
Does it end at the time of an unconditional sale?
Or is the agent legally obliged to be involved until the house settles?
The piece of paper governing the agent’s relationship with the seller is known as a listing / agency agreement or authority to market. For those readers who haven’t seen one of these documents, I have scanned an example here. All agencies will have a similar document that will need to be signed by the homeowners at the time of appointment of the agency.
No similar piece of paper is signed by the purchaser and the agent.
The exception to this would be a scenario where you as a purchaser contract an agent to find you a house and are willing to pay a finders fee. This happens outside of New Zealand but is still very rare here.
Therefore, the agent has no contractual obligation to aid the purchaser, though it can be argued that there is a moral obligation.
The listing agreement sets out among other things, the commission payable and when. As you can see from the example, the agreed commission payable is triggered when the contract for sale and purchase of the homeowners property “becomes unconditional and binding on both parties”.
Reading down further in the Terms and Conditions (section 1a), the signing homeowners authorize the agent “to deduct any fees, commissions and other expenses from the deposit”. This deduction of fees from the deposit is standard industry practice.
Contractually, the real estate agency is engaged to market a property for sale. Once a binding and unconditional contract for the sale and purchase of the property is secured, the contract with the agent ends! Anything further to do with the property and the contract needs to be communicated through the solicitors acting for each party. If a house doesn’t settle because one of the parties pulls out after the agreement becomes unconditional, then the other party has to sue based on the breach of the sale and purchase agreement. Though it has nothing to do with the agent at all, he/she may be called in as a witness to the contract and its breach. I have never been involved in such a situation and am glad that it is rare as it would be expensive, stressful and time consuming for all parties concerned.
However, in actuality, the agent continues to work as a go between communicating verbally between the purchaser and vendor up until and even after settlement and possession have taken place. This is seen by agents as goodwill and relationship building even though they aren’t getting paid for this job. Contrary to public opinion, this is not part of an agents legally contracted job!
It is worth remembering that agents are engaged to market the property for sale and to secure a binding contract. They are not hired by purchasers to be available for pre-settlement inspections, to kick the owners out when moving out takes longer than expected on settlement day, or to physically help the vendors clean and pack up even though the expectation is sometimes there that this is part of their job.
I myself have been involved on numerous settlement days to make sure things go smoothly when one party is moving in on the same day that the previous owners are moving out. As Johnny on the spot, I have often taken the brunt of any venting that takes place when the stress of moving gets too much for one of the parties involved.
I remember one settlement that was delayed as the moving truck for the previous owners had broken down. My phone was ringing hot late into the evening of settlement with the almost deranged purchasers screaming at me to get the previous owners moved out immediately! There was nothing at all I could do in this situation, but the purchasers (who I have no legal relationship with by the way) expected, nay demanded that I be actively involved in getting the vendors out of the house! The sad thing to me is that even though I made myself available to try and keep both parties from throttling each other, including visiting the house on three occasions on the afternoon of settlement with the last time being at 11pm (!) , the buyers finished the day with ill feeling towards me because the vendors weren’t out of the house when expected.
I remember another time when an agent in my office had to spend three hours on a saturday afternoon rummaging underneath a house he had marketed and sold. The previous owners had left the property as they had found it, including a trailer load of wood offcuts and corrugated iron in the basement. The new owner demanded that this refuse be removed from his house. And who did he demand this from? Not the previous owner, but the agent! In order to placate the purchaser and to attempt to build good will to secure repeat business from this person, the agent complied. You may smile at this story, as did the rest of my office when we found out how he had spent his weekend, but it highlights the perception that some members of the public have regarding the role of the agent involved in their house sale/purchase.
Is there a standard size expected for the deposit?
Most agencies and solicitors see a 10% deposit as a fair amount. But in recent times with many young people scratching together all the spare cash they can to get their foot on the property ladder, a 5% deposit has become more common. Even then, coming up with $20k on a $400k house purchase can be a bit of a stretch.
Real Estate Agency fees usually sit in the 3-4% range so a 5% deposit will usually be enough to cover the real estate commission at the very least and this is why agents want to collect at least this percentage in deposit.
There are some solicitors operating in the conveyancing field that tell their clients not to pay any deposit which throws a bit of a spanner in the works on the odd occasion. I always come back to these solicitors and ask them what they would say if they were on the other side of the transaction, working for the home seller. At this point the answer is usually, “Please collect a 10% deposit!”.
It depends on your point of view.
Lessons I have learned regarding deposits…
As an agent, I am obliged to collect a deposit. I try to make sure the deposit is high enough to cover the commission payable at least. If a buyer won’t pay the deposit amount that was agreed on in the sale and purchase agreement, I need to inform the vendor and/or the vendor’s solicitor as soon as I am aware there is an issue.
As a purchaser, there is little that you can do to protect yourself that I am aware of unless you want to try and pay no deposit at all. I have encountered this only a handful of times and it is usually from buyers who have gone through a get rich quick course or have a solicitor who has told them they don’t need to pay a deposit. In reality, your offer will be looked at with suspicion by a vendor if you put up no deposit and could result in you losing the chance to buy the house if you stick to your guns. Minimize the amount of deposit payable as much as possible. If the agent insists on 10% of the purchase price, tell them you’ll only pay 5%. This is usually enough to cover the commission so he/she will be pacified at this point in most cases. If you want to make sure that your deposit is secure. You could talk to your solicitor about notifying the vendors solicitor that you don’t want the deposit released until settlement takes place. I haven’t heard of this from a purchaser personally, but I guess you could always try.
As a vendor, you need to make sure that the deposit is high enough to more than cover the agents commission in case there are issues, but contrary to public opinion, you can’t just help yourself to the deposit if the buyers pull out of an unconditional deal. You have to go through the courts and sue for damages based on the remedies outlined in the sale and purchase agreement you have signed with the other party. Aim for as high a deposit as possible from the purchasers but understand that some well intentioned buyers don’t have the facility to pay a huge wad of cash before settlement.
If you as a vendor are uncomfortable with the deposit being released to pay commissions and other fees (including solicitors fees in some cases too), you need to talk with your solicitor and tell them not to allow the agent to deduct their fees until settlement. Conversely, you can ask that your solicitor holds the deposit in their trust account. Of course, the agent will be uncomfortable with this!
The opportunity for vendors to reneg on paying agency commissions is greater when the vendor’s solicitor holds the funds. And if you don’t think this happens, I can tell you that I personally am still owed $3500 in commission from the sale of a property well over two years ago. The vendor wanted a huge deposit because the settlement was at least 6 months after the unconditional sale date, and he wanted the deposit held by his solicitor. On settlement, my agency sent an invoice to the vendor’s solicitor for the commission payable. Unfortunately for us, the solicitor released all of the monies on settlement to the vendor and told him to pay our invoice. The owner had purchased another home and so informed us that he had no funds to pay us the commission owed. He is still drip feeding small amounts into our company account monthly but my chance of getting the full amount owed to me is minimal at this point… So for me, it is deal made and no commission!
August 27 2009 | General Real Estate and Home Buyers and Home Sellers | 2 Comments »
