Pay attention to the agency agreement
Selling a property involves a lot of legal documents, and it’s crucial to understand these before signing on the dotted line, says the Real Estate Authority’s Belinda Moffat.
QI recently spoke with a real estate agent about listing my property. They presented me with an agency agreement, which left me feeling overwhelmed.
I still want to sell the house, so could you help me better understand what an agency agreement is before I commit to signing it?
AChoosing to sell your home can be stressful, and even more worrisome if you aren’t particularly familiar with the property sales process. As you’re discovering, buying or selling a property does involve a lot of important legal documents, and it’s crucial that you understand these before you sign them.
For that reason, we do encourage all consumers to seek advice from their lawyer before signing an agency agreement or a sale and purchase agreement.
Meanwhile, I hope my comments here give you a general understanding of the purpose and importance of the agency agreement.
When listing your property with a licensed real estate professional (licensee), one of the first legal documents you will receive is an agency agreement. This is a legal contract that sets out – among other things – what the licensee will do to sell your property, and how much commission you will pay them if they are successful.
Before you commit to signing an agency agreement, there are several actions the licensee must take and elements of the agreement they must explain and do for you.
Before you sign an agency agreement
Firstly, the licensee must give you a written estimate of the sale price of your home (called an appraisal). This appraisal must be supported by information about recent sales of similar properties, and normally the licensee visits your property to assess its condition first-hand.
The licensee must explain the different methods of sale you may choose to use to sell your property, such as tender, auction, or at an advertised price, and how the method of sale you choose affects the amount of commission they will receive after your home is sold.
The licensee also needs to explain how this commission will be calculated, and the conditions under which it must be paid. Agency agreements last for a fixed time period – typically three months – so the licensee must also ensure you understand the end date and what happens at the end of the agency agreement if the property is not sold.
The licensee must provide you, in writing, with a plan for how the property will be marketed and any upfront costs for this. You are entitled to negotiate changes to any aspect of the marketing plan or agency agreement before you sign the agency agreement.
In my view, most importantly, the licensee must recommend you seek legal advice and give you the opportunity to obtain legal advice before you sign the agency agreement.
Your lawyer or conveyancer should be able to pick up and highlight any potential issues of concern with the agreement, or any aspects you may wish to consider negotiating. This is an important step, and could save you from any potential problems down the track.
When a licensee presents you with an agency agreement, they must also have given you a copy of the New Zealand Residential Property Agency Agreement Guide from the Real Estate Authority (REA). This guide offers essential information about how a real estate transaction works, including what to expect from an agency agreement.
What is in the agency agreement?
The layout and content of agency agreements can vary between agencies. However, all agency agreements must include:
Details about the property for sale;
Details about the parties to the agreement; Who has the authority to sell the property; Written confirmation that you’ve been given a copy of the New Zealand Residential Property Agency Agreement Guide;
Whether it’s a sole agency or general agency agreement (a general agreement is used when listing with more than one agency at the same time, which is more common with commercial property); and
How long it will last.
Real estate agencies may also choose to use Rea-approved standard clauses in their agency agreements. These are designed to help protect you from the risk of paying more than one commission if your property is successfully sold. We recommend that you ask an agency if they use the Rea-approved clauses in their agency agreements, and factor this into your assessment of which agency to list with.
To find out more about agency agreements and even get a copy of our agency agreement guide ahead of time, you can check out our consumer website settled.govt.nz.
While this may seem like a lot of information to take in, having a proper understanding of the agency agreement before you commit to signing it will help make you more confident for your sales journey ahead.
Remember, the role of the licensee is to help guide you through the buying and selling process, so don’t hesitate to ask them any questions you may have. I wish you the best of luck.
Belinda Moffat is the chief executive of the Real Estate Authority. She answers your house buying and selling questions. For more information about the process and what to expect when working with a real estate professional – visit settled.govt.nz. Have a question for Belinda? Email homed@stuff.co.nz.