This information has been provided by
Australian law firm, Australian Conveyancing Services and is applicable in New South Wales
only.
When you list your property with an Agent, you will
be asked to sign an Agency agreement with the Agent. This is a written contract and not just a ‘listing’ notice – so you need to read it carefully to make sure that you are happy with its terms.
Many clients of mine have not realised this. They can’t even remember really signing anything in particular, probably because they were so focused on the fact that they were listing their property for sale. But I have seen disputes arise between Sellers and their agents, particularly regarding commission and other payments, so you should give this agreement the importance that it is
due.
Normally the Agent’s agreement will cover the following:
The amount of commission payable –
The amount of the commission is subject to negotiation
between you and the Agent, because in NSW (unlike say in
Qld), the commission is deregulated. You will need
to do this upfront, at the time when you list the
property. As a guide, somewhere between 2 to 3.5%
of the final purchase price is usual, and don't forget
to add GST!
The percentage settled on
will not only depend on your negotiation skills, but also
the nature of the property. For instance, if you are
listing a property that buyers will be fighting each other
to get, then the Agent will not have to work as hard to
make the sale (hence the commission may be at the lower
end of the range). But if you have a property that
will only appeal to a particular niche market, the Agent
may have to work long and hard to make a good sale.
You can also choose to make the rate of commission
performance based, i.e. a higher rate if a certain
benchmark price is achieved.
When the commission is payable – The commission is normally payable once you have sold the property and actually received the sale monies. The commission is usually taken out of the deposit after settlement, with any balance of the deposit being sent to you after settlement by the Agent. If the deposit is not enough to cover the commission, then the Agent will ask you for the balance from the sale proceeds.
It is a good idea to get enough deposit to
cover
the
commission.
You should also be aware that there are some situations where you must pay the commission even if your
agent is not the one who sells your property. You need to check your agreement to see when this could occur. For instance, there is often a clause in
exclusive agency agreements that if someone else sells the property during the
agency agreement (even if you sell it to a relative), commission is still payable in full. Also, I have often seen clauses in these agreements that make full commission payable in situations where you enter into a Contract, but it falls through because of the buyer’s default or ‘wrongdoing’, and you are able to forfeit the deposit. In this case the Agent has been able to rely on this clause and take the whole commission, which is often equal to the amount of the deposit. This leaves the Seller with nothing, and a house that is still not sold!
Advertising and Marketing Costs –
You should request the agent to give you a marketing plan that sets out
the type of advertising they will conduct and the time frame for that
marketing. The total cost of the marketing campaign should be included in
your agreement, along with the payment terms (eg to be taken out of sale
proceeds, or payable upfront, etc).
The type of Agency - This should
be clearly stated.
The various types of
Agency agreements include:
Open listing
- under this arrangement you sign a contract with an agent but you can also list with other agents or even sell the property yourself. Commission is then only payable to the person who actually brings about the sale (if it is you, then you don’t pay commission to anyone).
Multi listing
- under this arrangement the Agent is part of a network of agents, any of whom may sell the property (and the Agent will share the commission). This is a ‘half way house’ between open listing and sole/exclusive listing.
Sole listing
- a
sole agency is an exclusive one (that is you cannot
employ other Agents during the sole agency term).
However you can still sell the property privately,
without paying commission.
Exclusive
Agency - this type of contract between seller and agent is the most restrictive as it entitles the Agent to commission whether or not they sell it, or you or another agent sells it during the exclusive agency term. Most auction sales require this form of listing.
Sole
/ Exclusive Listing vs. Open Listing
Your Agent will tell you that they will work harder if they have the exclusive right to sell the property. This is because they will be more motivated to sell if they know that only they can be remunerated for the sale. There is definitely some truth in this, and many property owners now give a sole agency to one Agent for a period.
Consider making any sole agency period shorter than the normal 60 days. You can then end the agency in the shorter time frame, or if you are happy with the Agent, you can always extend the time period.
You should note however that you are then ‘locked in’ for this time period with that Agent, so if half way through you decide that you are not happy with their service, you may have to grin and bear it for the remainder of the sole agency period.
Listing your property with more than one agent means that you potentially reach many more buyers. However you do need to be careful about any confusion in marketing (for instance one Agent thinks you will accept $X, and that the Persian rugs will be included, while Agent Y thinks the price is $Y, and that the rugs are going).
Also, you need to consider, if there is any advertising, which agent will be in charge of this? Open listing can work, but often it has been my experience that Agents put these properties at the bottom of their list of priorities. If you don’t want to go for a sole agency, then perhaps multilisting or even a sale in conjunction may be the way to go. I have seen this to work quite well. It involves asking your main Agent if they will accept sales in conjunction with another agent, usually one other that you specify. This is particularly useful where you really like two different Agencies and can’t make up your mind which one to go with. The main Agent is still the one who does the advertising, and is the ‘controller’ of the process, so confusion is minimized. Keep in mind however, that the two Agents will have to split their commission.
The term of the agency period
The agreement should specify the term of the agreement (that is, how long do you want to be locked in with that Agent). It should also specify how it is terminated (by lapse of the time period, or do you have to give notice
in writing, etc). Be careful that you do not lock yourself into a lengthy time period as you may be stuck with a non performing agent – remember, you can always extend the term!
