Vendors of real estate need to be careful that they fully understand the terms and conditions of the agency agreement offered by their real estate agent.
Whilst attention is often focused on the commission rate, exclusive agency period and the rights of the agent to recover expenses, vendors should always establish what the arrangements are if a sale does not proceed after a contract for sale has been entered into for the property.
In New South Wales the standard agency agreement published by the Real state Institute of New South Wales includes the following provision:
The Institute has recently amended this provision to also provide if the contract is not completed due to the default of a Principal that he/she will still be required to pay commission to the agent.
If a sale does not proceed because of a default by the Principal should the agent be entitled to commission? There could be a range of "defaults" by a Principal which may cause a contract to be not completed. Such a default may arise from circumstances which may not necessarily be under the control of the Principal. Should the agent nevertheless receive its commission?
If the failure to complete the contract arises from a default by a purchaser it is true that in most cases the vendor will receive the forfeited deposit which will usually be 10%. In those circumstances it may seem reasonable that the agent should be recompensed for its endeavours but should it be recompensed for the full amount of the commission or for some discounted amount? In addition the reason for the default by the purchaser may arise from some inadequate screening of the purchaser by the agent as to the capacity of the purchaser to complete the contract.
Vendors should be aware of the circumstances under an agency agreement where the agent will be entitled to be paid commission. We suspect that some vendors would be surprised to know that they are required to pay commission if a contract is terminated by reason of a default of the Principal or the purchaser or perhaps in some cases just by mutual agreement.
In our experience, vendors do not usually seek legal advice on the terms and conditions of an agency agreement. We are available to advise in relation to those agreements at the time that we receive instructions from you to prepare a contract for sale to enable an agent to list a property. If you have already signed the agency agreement it may be too late to negotiate any changes.
"The fee to which the Agent is entitled shall be due and payable on completion of the sale or upon demand if the sale is not completed owing to the default of the Principal after the parties have entered into a binding contract or if after the making of the contract the Principal and the purchaser mutually agree not to proceed with the contract."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
