The Everyday Pitfalls of Life as an Agent: The Legal Do’s and Don’ts for Agents
O*NO! You’ve been operating as a real estate agent for a while, you’re great at your craft but you’ve stopped giving your best attention to the paperwork side of the business. We all know paperwork can be boring - but making sure you protect your commission and reduce risk is not. We’re going to make it easy for you and give you a rundown of the most common pitfalls.
Market Appraisals
Most real estate agents are only too happy to get a phone call from a prospective client (or what you hope will be a prospective client) to get a market appraisal on their property. It gives you a chance to spruik your wares, give them a rundown of your expertise and knowledge of the property/area/etc as well as an opportunity to provide an estimate of selling costs. While it’s most common for market appraisals to be provided free of charge, some agents charge for market appraisals, particularly when the request is unlikely to end up with you selling the property.
So what’s the problem? An appraisal is an opinion on the price a property will sell for, it can vary widely depending on which agent markets the property. An opinion as to what a property will sell for is valuable when it’s from a professional whose livelihood involves selling property – but it’s an opinion and not a legal document.
This is very different to a valuation. A valuation is performed by a registered, qualified valuer, it can be relied on in a court of law and for stamp duty purposes, with the fair market value being supported by relevant data and/or evidence.
Failing to provide an adequate disclaimer can land you in hot water if a client pays for an opinion on value, enters a contract based on the (mis)understanding they have purchased a legal valuation, and suffers loss as a result.
While market appraisals serve a purpose and can give invaluable information and guidance on a property’s selling price, if you charge for the service, it is important to make sure you disclose the cost of providing your opinion by providing a clear disclaimer that it is an opinion as to value only, it should be treated as a guide, and is not a legal valuation that can be relied on.
Contract for Sale
In NSW, Victoria and the ACT, agents can only be involved in the filling in of blanks on the front page of a standard Contract for Sale. This includes the purchaser’s name and address, details of their lawyer and inserting/deleting inclusions and exclusions on the front page of the Contract. Each State and Territory has their own legislation surrounding what a licensed real estate agent can do with a Contract and breaching the legislation will breach the agent’s code of conduct that is essential to maintaining your real estate licence. In Queensland, you’re in a world far different where you prepare the contract yourselves. For the rest of us, while the special conditions relating to a sale are often negotiated with the assistance of an agent, you cannot make amendments or draft special conditions in a Contract yourself, you need to rely on the lawyers to do so.
Exchanging Contracts
It is common for real estate agents to exchange Contracts for one or both parties. You prepare the standard authorities that allow you to exchange Contracts and bind the parties with the purchaser having the benefit of the default cooling off period. All pretty standard and legal right? The pitfall comes if contracts are exchanged with a deposit of less than 10%, the default deposit in standard Contracts. And we all now know that agents can’t amend a Contract other than the basic blanks outlined above. We can almost hear you say it – “But if the purchaser pulls out during the cooling-off period they only forfeit 0.25% of the purchase price which is what they paid – they don’t need to pay 10%!” Unfortunately, unless there is a special condition in the contract that says only a 0.25% deposit (in NSW or ACT) or 0.2% deposit (in Victoria) can be paid at exchange you’re out of luck. And as the seller’s agent, if the purchaser decides to proceed with the purchase but does not, or cannot, pay the balance of the 10% deposit by the end of the cooling-off period, the seller – your client – can’t enforce payment of the balance of the deposit.
Agency Agreements
Agency agreement: this little baby is the binding contract that outlines the terms and conditions of your relationship with your client, when and how much you’ll be paid and what your client’s rights are in terms of using other agents to advertise their property. As you would also know, this special little contract is subject to laws and regulations that look after what disclosures need to be made – and timeframes for this happen - for an agency agreement to be compliant. What does that mean for you? No compliant agency agreement, no commission. Scary huh? So let’s cover off the basics – for the sake of simplicity, we’ll pick on NSW and outline (some) of the requirements:-
Needs to be signed by both client and agent and copy is given to client within 48 hours;
Needs to have all names of parties including licensee, client’s address, licensee number, and business name of licensee;
Includes source and estimates of rebates, discounts, etc;
Includes estimate of selling price and basis for estimate; and
Needs to outline cooling-off period.
Basic, right? You’d be surprised how many spot checks we’ve undertaken that have turned up a significant percentage of non-compliant agency agreements.
Key Takeaways
It’s easy to get carried away with ‘doing the work’ and letting the details slide. But dotting the I’s and crossing the T’s can save you an unnecessary headache:-
Provide complimentary market appraisals and/or make sure you disclose what the client is paying for – an opinion as to value and not a legal valuation.
Only complete and/or amend the allowed blanks in Contracts for Sale in NSW, ACT and Victoria.
If exchanging Contracts with a cooling off period, make sure the deposit stated in the Contract is paid, not just what the purchaser will forfeit if they pull out during the cooling-off.
Make sure when signing clients to an agency agreement that they are compliant and timeframes are met.
Next Steps
For further information or if you want to get legal experts to help you in your real estate business, email O*NO Legal at [email protected]. If you want to get consistent legal insight, tips, tricks, and access to a suite of FREE legal templates at your fingertips, including disclaimers for appraisals, to ensure your paperwork gives you the best protection, join our REAL membership for as little as $97/month + GST by clicking here.
Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.