Sellers!! Check out your real estate agency agreement

Property | Print Article

[Spring 2010]

It’s a familiar refrain – lawyers asking that their clients let them see the agreement for the sale or purchase of their house or other land and buildings before the agreement is signed so they can advise on the transaction and the ‘fine print’. Now though, sellers might be wise to get their lawyers involved even earlier in the sale process.

Lawyers should now be advising their seller clients to seek advice on the terms of the Agency Agreement which is the document prepared by the real estate agent and presented to sellers for signing when the property is being listed for sale. In response to the introduction of the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009 many agents have changed the terms of these Agency Agreements and there may now be provisions which some sellers might consider contrary to their best interests. Changes to these provisions may be able to be negotiated before the Agency Agreement is signed.

Some of the changes that have been made are understandable, because the new Rules can put the agent in an invidious position. A buyer might later claim that the real estate agent had breached these Rules, resulting in a loss to the buyer, and make a claim for compensation or damages.

For example, the Rules provide that a licensee must disclose any known defects in a property to a buyer. While that is not unreasonable, the Rule also says that the licensee must disclose matters ‘where it appears likely, based on the licensee’s knowledge and experience of the real estate market, that the land (which includes the improvements) may be subject to hidden or underlying defects’. Another Rule provides that licensees should not mislead customers but also says that they should not withhold information that should ‘by law or fairness be provided to a customer or client’.

In view of these and other changes, some agents have altered their Agency Agreements to provide for the seller to give a full indemnity to the agent for all damages, claims or court proceedings arising from the transaction. Some call for additional ‘disclosures’ to be made by the seller. One includes an agreement giving the agent a mortgage over the property for commission (although this has probably not been included in response to the introduction of the new Rules).

One particular situation where the Agency Agreement should be carefully considered before being signed is where administrators or executors of a deceased estate have a house or other land and buildings to be sold. The administrators or executors may often have no personal knowledge of the history of the property and should be taking advice before signing an Agency Agreement which may imply such knowledge on their part. The administrators or executors should also be taking advice before giving an indemnity to ensure they are not left personally liable under the indemnity after distribution of the estate assets.

The sale of land and buildings often involves large sums and it is more important than ever for sellers to consult their lawyers right at the beginning of the sale process.