We will examine the Exclusive Sale Authority in detail, and explain the significance of some of its more onerous and dangerous terms and conditions:
Exclusive Sale Authority - Page 1
The first page of the Exclusive Sale Authority sets out the basic particulars of the contractual between the estate agency and the vendor.
Agent
Full details of the estate agency and the listing estate agent are included here.
Vendor
The name of the vendor is recorded in full. It is important to ensure that, where a property is owned by more than one person, the full names of ALL owners are recorded. The names should appear as they do on the Certificate of Title for the property. If the vendor is different from the person(s) named on the Certificate of Title it will be necessary to obtain legal advice as to the status of the person(s) being named as vendor. It is common for estate agents to overlook this basic, but very important detail.
Property
The property must be fully identified. A simple postal address is not sufficient, as this may not be entirely accurate. When real estate is sold it is identified in the sale contract by reference to the details recorded on the Certificate of Title. Some properties consist of more than one title, and there must be certainty as to exactly which property is being sold, or how much of a multi Lot property is being sold. Similarly, it may be necessary to distinguish between the land "as fenced" and the land as depicted in the plan of subdivision.
with Chattels being
All chattels being sold with the property and included in the purchase price must be clearly stated. Many vendors have been disappointed to find that items they intended to keep were sold with the property because of an oversight by the estate agent. If a mistake is made the estate agent may not accept responsibility unless the chattels have been properly listed. NOTE: The term "fixture" or "fixtures" should never appear in this section, as the term "fixture" has a meaning that is at odds with the term "chattel".
Exclusive Authority Period
The Exclusive Authority Period must always be precise, indicated by way of a specific date or a set number of days. Expressions such as 'TBA", "As Agreed" or "Day by Day" must not be permitted as these can create problems if a dispute should arise as when the Exclusive Sale Authority expires. If the expire date is open to dispute it could result in an obligation to pay more than one commission if the vendor ends the relationship with the first estate agent and sings an Exclusive Sale Authority with another.
Property is being sold
This section confirms that on the day of settlement the property will be vacant. If a tenant will be staying in the property beyond the settlement date the box marked "subject to tenancy" must be ticked. Failure to complete this section of the Exclusive Sale Authority correctly could result in a delay in settlement and possible cancellation of the sale. If the sale is cancelled in such circumstances the estate agent would still have a right under the Exclusive Sale Authority to claim commission.
and upon payment of
The box marked "full purchase price" should always be ticked. A vendor should NEVER allow the terms payment box to be ticked without first obtaining specific legal advice in relation to terms contracts.
Vendor's Authorised Price
This is a very tricky section. If the figure stated in this section is not as high as possible it may trigger the automatic commission liability created by General Condition 1.4 (discussed below). However, a vendor who attempts to enter a high figure may face resistance from the estate agent if the figure exceeds the "Agent's Estimate of Selling Price" (see next heading).
If the estate agent is confident about being able to convince the vendor to accept a lower offer when the time comes, there may be no resistance. This is because the acceptance of an offer that is lower that the "Vendor's Authorised Price" will also trigger a commission liability by operation of General Condition 1.13(ii).
Another another tricky aspect of this section is its use in conjunction with the "Agent's Estimate of Selling Price". The estate agent may allow the vendor to state a high "Vendor's Authorised Price" in order to allow the vendor to believe that the price is achievable, only to use the "Agent's Estimate of Selling Price" as a conditioning tool at a later time, in order to convince the vendor to accept a lower price.
The trick usually works where the vendor relies on the "appraisal" provided by the estate agent, without discovering the true value of the property. Any vendor who is contemplating the sale of real estate should ensure that they have an independent valuation prepared by a professional valuer as their starting point before any decision is made to put a property on the market.
Agent's Estimate of Selling Price
The figure stated in the first box is what the estate agent's appraisal as to what offer he or she can actually get for the property. If a price range is written into the second or third box, the lower figure is what the estate agent will be relying upon.
The selling of real estate on the basis of commission is essentially a game of chance. The estate agent is effectively telling the vendor, "I will attempt to find someone who will buy your property, and if I can get someone to sign a contract for more than the lowest amount appearing in the boxes, you will have to pay me a cash prize."
The vendor usually enters the game on the basis of the "Vendor's Authorised Price" (see above), while the estate agent enters the game on the basis of the "Agent's Estimate of Selling Price".
The estate agent knows that he/she will win, no matter what price is paid by a purchaser, because General Condition 1.13 of the Exclusive Sale Authority (discussed in detail below) effectively declares the acceptance of a low price by the vendor as a "win" for the estate agent.
As stated above, any vendor who is contemplating the sale of real estate should ensure that they have an independent valuation prepared by a professional valuer as their starting point before any decision is made to put a property on the market.
Commission
It is very rare that the estate agent will write a figure in this box. This is because a vendor will expect the commission to be based on the "Vendor's Authorised Price", while the estate agent will be operating on the basis of the lower figure specified as the "Agent's Estimate of Selling Price".
or calculated as follows
It is important to ensure that the commission is specific and clear. Vendors should be extremely cautious about allowing the estate agent to write anything in this box that is not immediately clear and final. No airy-fairy references to "incentives" or "bonuses" or "variations" to the commission should be permitted, as these may be difficult to interpret and lead to even greater costs if a court has to be asked to interpret them in the event of a dispute.
The Vendor acknowledges...
This acknowledgement is regarded as something of a sick joke in the industry.
Estate agents operate a cartel, in which all estate agents charge on a commission basis, and club together to ensure that commission rates remain the same in local areas. The problem became so obvious that pressure was put on the government to stop collusion in the setting of commission rates, but all they could come up with was a silly declaration that estate agents' commissions are "negotiable".
The fact of the matter is that estate agents NEVER negotiate on their fees in any real sense. This fact is the very reason for the inclusion of this declaration - ask yourself, would such a declaration be necessary if a vendor really could negotiate the estate agent's fees?
Note the reference to "Marketing Expenses" in the declaration. We will see that General Condition 11.1 of the Exclusive Sale Authority allows the estate agent to charge the vendor not only the out-of-pocket cost of advertising but also a fee levied by the estate agent, in addition to the commission, for his efforts in placing the advertisements. Thus, the Exclusive Sale Authority allows the estate agent to charge: Advertising costs + Agent's Advertising Fee + Commission.
Dollar amount of estimated commission
The vendor is entitled to know the final amount payable on the sale of the property, and the estate agent will usually base this figure on the "Vendor's Authorised Price". There are two reasons for this. First, the estate agent must err on the side of caution, just in case the "Vendor's Authorised Price" is achieved. Second, the vendor may become suspicious if anything but the highest estimable figure is used to estimate the final commission.
Marketing Expenses - Advertising
This figure should be the out-of-pocket cost of advertising, based on a schedule of advertising costs presented to the vendor.
Marketing Expenses - Other Expenses
This is where the estate agent gets to add on a charge for his/her time an effort in placing the advertising.
BEWARE: No charge for Advertising? A vendor must exercise extreme caution when an estate agent states that there will be no charge for advertising because it is highly likely to lead to commission rage if the property fails to sell quickly. The use of the "No Sale, No Charge" ploy should act as a warning to any consumer, as it invariably masks a host of anti-consumer strategies, such as under-quoting, over-quoting, vendor conditioning, and other common deceptions.
Will the Agent be sharing Commission...
Estate agents never tick the "Yes" box, even if they are sharing commission with others. Estate agents are often involved in "referral" arrangements, but disclosing these may raise questions about the estate agent's integrity or the integrity of those with whom the estate agent has close relationships. (For blatant example of paid referrals involving an estate agent and a solicitor see the series of postings on the Australian Real Estate Blog.)
There are a few estate agents who claim to offer "brokering" services or "vendor advocacy" services whereby vendors are assisted to find the best estate agent to assist with their sale. The broker agent then takes a share of the nominated estate agent's commission. In such circumstances the vendor may come under intense pressure from two estate agents to sell at any price, so that the time and effort of the estate agents is not wasted.
A vendor should be particularly wary of any estate agent who needs to share commission, and thoroughly investigate the commission sharing arrangements.
Exclusive Sale Authority - General Conditions
The General Conditions set out the terms and conditions which form the basis of the contract between the estate agent and the vendor. We will examine each of the conditions, noting in red type those conditions requiring particular attention.
Condition 1
This condition confirms that a vendor must carefully read the definitions provided in the Exclusive Sale Authority, as their common meanings may be varied.
Condition 1.1
When the word "Act" is used it is a reference to the Estate Agents Act, which was passed in 1980 and has since been amended many times.
Condition 1.2
The word "Agent" is used to describe someone who may not really be an estate agent. This allows a person who has no experience whatsoever to refer to themselves as an "Agent". (Click on the hyperlink estate agent for more information.)
Condition 1.3
Where the word "Appointed" is used it also means that the vendor and the estate agent have entered into an "agreement".
Condition 1.4
The general legal principle is that a purchaser’s signed offer does not become binding on a vendor until the vendor has signed it, at which time the offer becomes a binding contract. This means that in ordinary circumstances the estate agent would be entitled to claim a commission until the purchaser's offer has been accepted and signed by the vendor.
However, the Exclusive Sale Authority allows the agent to claim a commission even when
there is no contract and the potential sale does not proceed by allowing commission to be claimed on the basis of a "binding offer".
According to the definition contained in Condition 1.4 an offer is "binding" if, after the vendor accepted it, it would result in a contract that could be enforced against the purchaser.
A purchaser will have made a “binding offer” and the vendor may be required to pay a commission to the estate agent where:
- the purchaser has signed a Contract or Contract Note to purchase the property; and
- the price offered by the purchaser exceeds the "Vendor's Authorised Price".
Conclusion
The effect of General Condition 1.4 can be controlled by increasing the "Vendor's Authorised Price" (see above)..
It is most important that a vendor should engage a professional valuer in order to determine the current market value of the property before signing an Exclusive Sale Authority.
Condition 1.5
This condition is self-explanatory.
Condition 1.6
The "Continuing Authority Period" should not be confused with the "Exclusive Authority Period" (see next heading). It is stated on the front page of the Exclusive Sale Authority, and commences when the "Exclusive Authority Period" has expired.
The effect of the "Continuing Authority Period" is that the period during which the estate agent is able to claim a commission is extended. Most estate agents will attempt to have the "Continuing Authority Period" run indefinitely, by adding adding words such as "until terminated in writing" or "day by day" or "until sold". It should be noted that Item 2 on page 3 of the Exclusive Sale Authority states, "If the property is not sold during the Exclusive Authority Period and a Continuing Authority Period is stated in the Particulars of Appointment then the Vendor appoints the Agent to sell the proper on a Non-Exclusive Agency basis for the period stated in the Continuing Authority Period." (This will be discussed further below.)
The vendor will be liable to pay a commission in the event that a sale, any sale by any person (including a private sale by the vendor), takes place during the "Continuing Authority Period", unless the vendor appoints another estate agent and has already incurred a liability to pay commission to the other estate agent.
Conclusion
The Continuing Authority Period should ALWAYS be zero. If the estate agent can convince the vendor that there is some advantage in re-appointing the estate agent, the vendor should consult with his/her professional valuer and negotiate the appointment afresh.
Condition 1.7
The "Exclusive Authority Period" is the period stated on the front of the Exclusive Sale Authority. If the property is sold during the "Exclusive Authority Period" the estate agent may claim commission. In addition, if the property is sold (see the definition of "sold" at General Condition 1.18 below) within 4 months after the "Exclusive Authority Period" has expired, the estate agent may claim commission.
Conclusion
A vendor should not assume that the liability to pay commission will end when the "Exclusive Authority Period" expires, and the following 4 months must be taken into account when making any decisions about the manner in which the sale is to be conducted.
Condition 1.8
This condition is self-explanatory.
Condition 1.9
This condition is self-explanatory.
Condition 1.10
The estate agent is entitled to claim commission where the purchaser has been "introduced to the property". The average vendor would expect that for an estate agent to be responsible for having "introduced" a person to the property the estate agent would have to have had some involvement in the introduction. Not so.
The definition of "introduced to the property" is so broad that it allows the agent to claim a commission in nearly every imaginable situation
where a purchaser buys the property. Just note the following words from General Condition 1.10:
“...that the person was made aware that the Property was available to purchase
irrespective from whatever source. Without limiting the foregoing a person shall be
deemed to have been Introduced to the Property by the Agent if the person became
aware that the Property was available for purchase as a result of viewing, hearing or
reading any advertisements of whatever nature or medium or any boards, placards
or other literature referring to the availability of the property that were connected to the Agent in any way.”
Effectively, the estate agent can claim to have introduced the purchaser to the property where:
- The purchaser is a relative of the vendor, and discovered that the property was for sale after the vendor had signed the Exclusive Sale Authority; and
- The purchaser was told by a friend that the vendor's property is on the market, and makes direct contact with the vendor; and
- The vendor pins a note to the notice board at work, and a work colleague deals only with the vendor to buy the property; and
- The purchase discovers that the property is on the market, regardless of how this comes about.
If a purchaser heard that the property was on the market during the 4 months after the Exclusive Authority Period had ended, and then purchased the property some months after that, the estate agent can still rely on the definition of "introduced" to claim a commission. It is not uncommon for a vendor, believing that all obligations to the estate agent have ended, to be taken by surprise when a commission invoice arrives months after the vendor has sold the property by "private sale". When an estate agent claims to have "introduced" a purchaser to the property a claim for commission can be very difficult to defend.
Conclusion
A vendor should ensure that the estate agent accounts for every person he or she claims to have "introduced" to the property. This is particularly important during the 4 months following the "Exclusive Authority Period" and after the "Continuing Authority Period" has ended.
Condition 1.11
The term "Marketing Expenses" sounds like it is referring to the fees charged by internet portals, newspapers and the like. The trick in this condition is in the words, "...and charges of the Agent..." in that these words allow the estate agent to charge the vendor for the estate agent's time spent on preparing and placing advertisements.
It also allows the estate agent to charge for services that cost the estate agent nothing. For example, most real estate agencies pay a monthly membership fee to www.Domain.com.au and are permitted to upload an unlimited number of properties. However, the estate agent will usually charge a client in excess of $100 for internet use. This cost is in addition to the commission, through the operation of Condition 1.11.
Conclusion
It is essential that all advertising charges are fully itemised on a "disbursement" basis (i.e. on the basis of what the estate agent actually pays to the advertiser on behalf of the vendor).
Extreme caution should be exercised where the estate agent offers to sell the property on a "no sale, no cost" basis as commission rage inevitably becomes a factor in such arrangements.
Condition 1.12
If the vendor of the property is a company, the person who signs the Exclusive Sale Authority is likely to be sued for commission if and when it becomes due. Care must be exercised in the event of a dispute between the company and the estate agent, as the estate agent will rely on this condition to pursue the representative of the company who signed the Exclusive Sale Authority.
Condition 1.13
Price has two meanings. It means the amount agreed to by the estate agent and the vendor as the "Vendor's Authorised Price", but it also means the amount for which the property eventually sells. Thus, the "Vendor's Authorised Price" may be $600 K, but if the vendor accepts an offer of $540 K the "price" will be $540 K and the vendor cannot rely on the original "Vendor's Authorised Price" to complain that the "price" was not realised.
Condition 1.14
This condition simply confirms that the "Marketing Expenses (see Condition 1.11) are added to, and not included in, the commission.
Condition 1.15
This condition confirms that the word "property" has the same meaning as the definition appearing in the Estate Agents Act 1980, namely:
"real estate includes
(i) any estate or interest in land or buildings;
(ii) any share or shares in any company limited by shares entitling the holder thereof to the exclusive right to occupy a specified building or part of a building; and
(iii) any goods chattels or other property or assets included in any transaction relating to real estate; rebate includes any discount, commission or other benefit;"
Condition 1.16
This condition is self-explanatory.
Condition 1.17
This condition is self-explanatory.
Condition 1.18
This condition must be read in conjunction with Condition 1.4 (above), which defines "Binding Offer".
Note that the estate agent can regard the property as "sold" if a purchaser makes a "Binding Offer", whether or not the vendor accepts that offer.
Again, the word “sale” does not have its ordinary meaning in this agreement. The vendor may choose
to reject a purchaser’s offer, or to later end the contract because of the purchaser’s breach.
According to the definition provided under this Condition, the property will still have “sold”, even though the vendor still owns it.
This condition is quite unfair, and is designed to make a commission payable even where a
sale does not proceed.
Conclusion
The vendor should delete this condition from the Exclusive Sale Authority.
Condition 2
If the purchaser of the property breaches the contract – for example, if they fail to settle on time, or
do not do something which they have promised to do – and the vendor decides to bring the contract to an end, the vendor may
be entitled to keep the deposit paid by the purchaser.
By signing the Exclusive Auction Authority, the vendor agrees that the agent can charge the full
commission in these circumstances, even though the property has no sold.
If the purchaser has not paid the deposit, the vendor must take “all reasonable steps to recover
the unpaid deposit from the Purchaser and/or any other person who may be liable for payment of the
deposit”. This means that the vendor may be required to sue the purchaser for payment of the deposit.
It should be noted that legal action can be extremely expensive and protracted, and that a vendor is unlikely to recover all of their legal costs, even if the legal action is successful.
The true purpose of this condition is to ensure that the agent is paid, rather than to recover money for the vendor.
If a deposit has already been paid by the purchaser, or if the vendor is able to recover the unpaid deposit, then the vendor agrees to pay the agent’s commission and marketing expenses from the deposit. In this situation the vendor will then only be entitled to the balance of the deposit.
Conclusion
The vendor should delete this condition from the Exclusive Sale Authority.
Condition 3
This condition allows the estate agent to add a further 4% to the standard penalty interest rate charged if the vendor fails to pay the estate agent's commission on time.
Condition 4
This is a very nasty and tricky condition. The average consumer would not be aware of this condition, and would not understand its significance, and the Exclusive Sale Authority exploits this lack of knowledge on the part of the vendor.
We are of the view that it should be the responsibility of the estate agent to ensure that he or she obtains the signatures necessary to properly bind a company under the Exclusive Sale Authority. However, Condition 4 makes the person who signs the Exclusive Sale Authority "personally liable for the due performance of the vendor's obligations as if the signatory was the Vendor." In other words, if a person takes responsibility for entering into an Exclusive Sale Authority with an estate agent on behalf of a company, that person may have to pay the commission if the company fails to do so.
Conclusion
The vendor is a company, the person signing the Exclusive Sale Authority should delete this condition.
Condition 5.1
Vendors and estate agents often become involved in disputes. Having read through some of the Exclusive Sale Authority, it's easy to see why.
A vendor who is in dispute with an estate agent will want to withhold payment of the commission until the dispute is resolved, and perhaps deduct some funds from the commission as compensation where the estate agent's negligence or improper conduct has caused the vendor loss.
Estate agents have been able to eliminate the vendor's right to withhold payment through the operation of Condition 5.1. The estate agent invariably receives the deposit from the purchaser on behalf of the vendor, and holds it in the estate agency's trust account pending release by the purchaser. Ordinarily, the estate agent would have to deliver the entire deposit to the vendor, then invoice the vendor after finalisation of the sale (i.e. after settlement).
However, Condition 5.1 allows the estate agent to deduct the commission from the deposit before passing it on to the vendor.
Conclusion
A vendor should not be required to pay any commission unless and until the sale has been concluded, and the vendor is satisfied with the service provided by the estate agent. If a dispute arises as between the vendor and the estate agent, the vendor should not have to pay anything until the dispute has been resolved.
The vendor should delete this condition from the Exclusive Sale Authority.
Condition 5.2
This condition is quite vague, as it simply requires the vendor to "pay the Professional Fees on demand...". No vendor should have to pay fees on demand unless the services being paid for have been rendered properly and effectively, and a proper invoice has first been served.
Conclusion
The vendor should delete this condition from the Exclusive Sale Authority.
Condition 5.3
This condition requires the vendor to pay "Marketing Expenses" in advance. This gives the estate agent a ready pool of cash to use as he/she pleases, and then to account to the vendor later, and is a source of many complaints in the industry regarding improper application of advertising funds.
It is common knowledge in the industry that estate agents rely on client advertising funds in order to advertise the estate agency, and taking "Marketing Expenses" in advance facilitates this.
Conclusion
A vendor is entitled to know precisely what type of advertising is being purchased, and why. The estate agent should be required to provide a full agenda of proposed advertising and the actual costs of each item of advertising. No advertising costs should be paid for in advance.
The vendor should delete this condition from the Exclusive Sale Authority.
Condition 5.4
This condition requires the vendor to pay GST on services procured on behalf of the vendor by the estate agent.
Condition 6
This condition is utterly ridiculous. First, no clear-thinking vendor would have an estate agent sign a contract on their behalf. Second, if a vendor were to request an estate agent to sign a contract on their behalf any sensible estate agent would ensure that the request was in writing anyway.
We have heard of this condition being used by an estate agent to "bully" a vendor into accepting a low offer. The vendor was told that unless he accepted the offer put to him, the estate agent would accept an even lower offer on his behalf by relying on this condition.
Conclusion
The vendor should delete this condition from the Exclusive Sale Authority.
Exclusive Sale Authority - Notices & Disclosures
Item 1. Agent's Entitlement to Commission
Exclusive Sale Authority - page 4
For example, the front page of the Exclusive Sale Authority states that the Authority is for a specific period of time, but this is contradicted by a condition in the "fine print" that allows the period to run indefinitely until the client cancels the Exclusive Sale
Authority in writing.
