What to look for in a real estate agency contract

In the past disputes over cancellation of real estate agency contracts and payment of commission have not been uncommon. Sellers too often don’t pay enough attention to the terms of the standard agency contract - and some have paid dearly as a result. 

Before you sign a contract, you should always read it carefully. If in doubt, contact the Real Estate Agents Authority for help. 

Disputes have arisen in some cases because sellers did not realise that a sole agency rolled over to a general agency at the end of the sole agency period, and they continued to be liable for commission. 

In other cases it has not been clear how long a seller had to wait after the contract ended before they could sell to a buyer who was introduced by the agent, without being liable for commission. Agency contracts commonly include a standard clause stating that the vendor must pay commission if the property is sold to anyone introduced by the agent - even if the property is sold after the contract has ended.  

On one hand, an agent who has put time and effort into finding a suitable buyer should not be deprived of commission if the vendor later chooses to sell to that buyer after the agency contract has ended. On the other hand, should a seller be liable to pay commission indefinitely after an agency contract has ended?

Seller liable to pay agent’s commission after agency contract ends

In a typical case a seller listed their property with an agent. The agent introduced a buyer to the property, who presented an offer. The vendor was not happy with the offer and turned it down. 

After the agency contract ended the seller took the property off the market. A year later the seller advertised the property for sale privately and sold to the original buyer, who had previously made the offer that had been turned down. 

The seller negotiated the price in the mistaken belief he did not have to pay commission to the agent because the agency contract had ended. The agent heard of the sale and successfully claimed commission. 

REAA and REINZ introduce clauses to reduce disputes 

In order to reduce the likelihood of disputes, the Real Estate Agents Authority and the Real Estate Institute of New Zealand have developed some standard clauses for agency contracts. The use of the clauses by an agency is voluntary, but sellers are encouraged to only sign agreements with agencies that use these clauses

Key features of the standard clauses are:
1.    The seller must choose either a sole or general agency, not both. The REAA considers automatic rollover clauses bad practice because sellers often misunderstand their liability for commission when they are used.  

2.    After 12 months from end of an agency for the sale of a rural property and six months from the end of an agency for a residential property the seller can sell privately and won’t be liable to pay commission to the agent who previously introduced that buyer.  

Check the agency contract before signing

With tens and even hundreds of thousands of dollars payable in commission on the sale of a property, it’s important to pay attention to the terms of the agency agreement before you sign it. 

If you are selling a property make sure you fully understand the agency contract and check whether the standard clauses listed above are included. For help, contact the Real Estate Agents Authority, the independent government agency that regulates the New Zealand real estate industry.

Learn more on the reaa.govt.nz website.
 

This article first appeared in NZFarmer. Visit nzfarmer.co.nz for the latest rural news and Kiwi farming headlines.