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
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
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
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.
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