Selling your property can lead to big commission being payable to your agent – especially in a strong market, as it is currently. The ‘contract’ entered into between agents and their seller clients is a legislative form, as real estate agents and auctioneers are governed by the Property Occupations Act 2014 (Qld) (Act).
The Act functions as consumer protection legislation, aimed at ensuring the appointment of an agent is a fair and transparent process.
The Act prescribes the “Property Occupations Form 6” form for the appointment of an agent (Form 6), which incorporates a series of terms and conditions that governs the relationship between the seller (or, the principal) and the agent.
Despite commissions often being significant amounts of money, people regularly sign their Form 6 with little negotiation and no legal advice – often under the mistaken belief that the ‘standard’ Form 6 cannot be changed or negotiated.
Top three commercial points
The top three commercial points to consider are:
- how much commission will you pay the agent? Typically this is a percentage of the gross purchase price and is negotiable between the parties. Again, the ‘standard’ amount charged often moves with the market. Typical commissions range between 2% and 3%;
- what is the nature of the appointment? If you appoint an agent as the ‘sole’ or ‘exclusive’ agent for the property, in the case of selling your residential home, then the agent may be entitled to a maximum of 90 days for the initial term. Please bear in mind that if you are disappointed in the performance of the agent in that 90 days, it will be extremely difficult to end the relationship or shorten this period without mutual agreement; and
- when does the commission become payable? Most people would assume that commission is only payable when the actual Contract of Sale settles, and they receive their money from the buyer, but under the standard terms and conditions of the Form 6 you could be liable to pay commission in circumstances where:
- you (as seller) default under the Contract of Sale, and consequently the Contract of Sale is terminated;
- the Contract of Sale is not completed and the whole or part of the deposit is liable to be forfeited. This is of concern, because the current trend is that buyers often pay a minimal deposit, for example $500. In the sale of a $500,000 property, a 2.5% commission would be $12,500. If there is only a $500 deposit, then the seller could be obligated to pay $12,000 to the agent despite the termination of the Contract of Sale being no fault of the seller;
- the Contract of Sale is terminated by mutual agreement of the Client and the Buyer; and
- the agent is appointed as an exclusive agent, the agent is entitled to commission irrespective of who locates the buyer. Therefore if a friend or relative of the seller purchases the property without any assistance by the agent, then the seller will still have to pay a full commission.
It is also important to ensure that when appointing more than one agent, you are not required to pay multiple commissions. Please consider the following real life example:
Real life case study
Valerie is an elderly widow who is selling her home to move closer to family. Valerie appoints Jacqui to sell her home under an exclusive agency for three months. Right at the end of that 90 days, just inside the term, Jacqui introduces Rex to the property. Rex doesn’t like Jacqui, but he does like the property. However, Rex doesn’t proceed with an offer at that point.
Desperate to sell, Valerie then changes Jacqui’s appointment after the initial 90 day exclusive term to an open listing, and further appoints Jessica as well, also with an open listing. Two weeks later Rex decides to inspect the property again, and approaches Jessica this time, but doesn’t mention his prior inspection with Jacqui. Rex makes an offer to Valerie (through Jessica) to purchase the property, and Valerie is minded to accept.
Valerie is potentially liable to both Jacqui and Jessica for a commission each. Luckily, in this case, Valerie was very sharp in recognising the similarities of the description of Rex relayed by the respective agents, and Valerie’s solicitor drafted a deed where Jacqui and Jessica agreed to share the single commission before Valerie accepted the offer.
You should obtain legal advice on any significant contract before entering into it. All contracts are negotiable, and just because the Form 6 is a prescribed form does not mean its contractual terms cannot be negotiated in your favour.
If you have any questions, please do not hesitate to contact the Commercial + Property Team.