Retaining an agent

Real estate agents and their sales representatives must be registered. When retaining an agent it is important to check they are registered in accordance with the Land Agents Act 1994. Registered agents and sales representatives are issued with registration cards which they can produce if requested.

Sales agency agreement

An agent cannot act for a vendor unless a sales agency agreement has been signed. Before entering into a sales agency agreement, the agent must provide the vendor with a written guide which sets out their rights and obligations under the agreement (Land and Business (Sales and Conveyancing) Act 1994 s 20).

The sales agency agreement must include the vendor’s genuine estimate of the selling price which can be a single figure or a price range with no more than a 10 percent variation. This means that the difference between the lowest and highest figure in the range cannot exceed 10 percent. However, there is no requirement for the agent to tell the vendor how they reached the estimate. The agreement also needs to state the selling price which the vendor is seeking, or which would be acceptable to the vendor, expressed as a single figure. The agent is not allowed to act on behalf of a vendor who does not specify a minimum sales price.

The agreement will also set out the manner of sale to be used, the vendor’s rights to terminate the agreement, and whether the agent will be able to accept offers on the vendor’s behalf. In addition, the sales agency agreement will specify the duration of the agreement. The longest period which the agreement can run for is 90 days, after which time a new agreement will need to be entered into. It is possible to have an agreement which runs for any amount of time less than 90 days.

Importantly, if there is any marketing or advertising which will be provided that will be separately charged for, the amounts to be charged and the times for payments to be made need to be set out in the agreement. This should remove the risk of the vendor being billed for additional costs which they were unaware of. The agent also needs to disclose within the agreement if these services will be carried out by a third party, and if the agent will receive any rebate, discount or other benefit from that third party. This aims to prevent real estate agents from profiting from their referrals to other service providers, and encourage them to pass any discounts they receive onto the vendor.

Advertising

There are measures in place to try to prevent agents from advertising properties at very low prices, merely to create interest in them. When an agent is hired by a vendor, they enter into an agreement which sets out the agent’s estimated selling price, as well as the price which would be acceptable to the vendor. The property cannot be advertised at a price which is any lower than the greater of these two amounts. 

This applies not only to advertising, but also to any statements made by the agent about the likely selling price of the property. This means that when a property is advertised with a likely selling price, this is a price which is accurate, and which ought to be accepted by the vendor.  However, there is no requirement that vendors accept any offers, so there is no guarantee that they will accept offers simply because they are over the advertised price. As a vendor it is important to keep in mind that the agent may be entitled to additional commissions when some offers are rejected. It  is necessary to carefully read and understand the provisions in the sales agency agreement in relation to this.