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Real Estate Agents’ Exclusive Authorities

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Real Estate Agents’ Exclusive Authorities

Engaging a Real Estate Agent in the sale of your property usually involves signing a standard form Exclusive Auction Authority or a Sole Agency Agreement. Agents often use the standard form produced by the Real Estate Institute of Victoria (REIV). The Authority is deceptively complex. And, given it exists primarily to protect Agents’ rights, especially rights to payment, it may also significantly affect a prospective vendor’s rights. As such, any vendor needs to carefully consider its terms before signing.

The REIV Form is structured in three segments: Particulars of Appointment, Key Provisions and General Conditions.

Particulars of Appointment

The Particulars of Appointment identify the parties to the agreement, the subject land, any chattels (goods) transferred with the property, and other important terms such as the duration of the Authority, the reserve price, along with the Agent’s commission and marketing expenses. The final form of the contract of sale should match these provisions. For example, the ‘chattels’ section determines what goods are sold along with the land.

Things fixed to the land (fixtures) automatically pass to the purchaser upon sale unless excluded. This includes fixtures installed by the owner. By contrast, ‘fittings’ do not pass with the land. Fittings are items of personal property that are not fixed to the land. A vendor would normally remove them, but often they are of greater value to the purchaser. All fittings that are to remain need to be specified not only in the contract of sale, but also at the very beginning in the Agent’s Authority.

Another issue which may arise in the Particulars is the entity identified as the Agent. Large Real Estate Agencies often have multiple subsidiary companies set up to contract with vendors, and your local Real Estate Agent can often be a part of a larger holding company structure. Some companies have a very low issued share capital (eg, $2 companies) with no valuable assets. In these circumstances, vendors should be aware of the risk that the company will not be able to pay damages, for example, if a buyer were aggrieved by a perceived misrepresentation. These risks can be mitigated if the Agent has sufficient insurance coverage, but a vendor must ask to check this.

Key Provisions

The key provisions appoint the Agent to ‘advertise, market and endeavour to sell’ the property. They confirm the Agent’s right to receive a commission if the property is sold during the Authority period. The Agent generally has this right even if a different person, including the vendor, sells the property.

The Agent also generally has a right to a commission even if the property is sold outside the Authority period. In particular, if the Agent sells the property to a person ‘introduced to the property’ by the Agent either before the Authority was signed or within 120 days of the Authority period ending.

Key provisions also include complaint and dispute resolution provisions, and  consumer law requirements (eg, Agent’s entitlement to rebates and any commission sharing).

The REIV Authority also includes a Privacy Act 1988 (Cth) notice. The Agent is only bound by these if it is an ‘APP entity’[1], which generally requires it to have an annual turnover of more than $3M[2]. This notification tells you who your personal information can be disclosed to, the purposes for which the Agent can use and disclose it, and the consequences if you do not provide your personal information.

If you require confidentiality, you must have regard to these provisions.

General Conditions and Agent’s Right to Payment

The General Conditions (GCs) contain definitions and provisions dealing with deposits and, in particular, extensive provisions protecting the Agent’s right to payment and other powers, such as the power to direct the vendor’s legal practitioner to prepare sale documents.

Read with the Particulars of Appointment, they confirm the Agent’s right to be paid (i) marketing expenses, whether or not the property is sold; and (ii) the commission, whether or not the purchase price is received[3].  Under GC 1.4.1, there may be a liability pay commission even if no  contract of sale is executed.

For our note on a recent case on a dispute arising from an Exclusive Sale Authority, click here.

Copyright © Kellehers Australia 2017 This post is intended only to provide a summary and general overview on matters of interest. It does not constitute legal advice. You should always seek legal and other professional advice which takes account of your individual circumstances.

[1] ‘APP entity’ is defined in the Act as ‘an agency or organisation’ (s6), and ‘organisation’ is defined as an individual, body corporate, partnership, unincorporated association or trust that is not ‘a small business operator, a registered political party, an agency, a State or Territory authority or a prescribed instrumentality of a State or Territory’ (s6C).

[2] If its turnover is less, it will be a small business operator: see Privacy Act s6D.

[3] Upon entry into a contract of sale for the land, the Agent has a right to be paid its commission even if settlement does not occur, because GC 1.14 defines ‘sale’ as ‘the result of obtaining a binding offer’, which includes entry into a contract under GC 1.4.2[3], and the commission is payable on ‘sale’ as so defined. ‘Binding offer’ also includes, under GC 1.4.1, an offer at your reserve price and on the terms set out in the Particulars of Appointment, ‘which would result in an enforceable contract of sale if signed by the Vendor and exchanged with the purchaser’.

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