Estate agent’s contracts

Estate agents are invaluable when buying or selling your property and the first thing you will be doing during that process is signing terms and conditions with them. Agents have never had the best reputation, but recently unfair contracts and high fees have been in the news

With so many digital services updating their terms so frequently, the chances are you will not have fully read any terms and conditions before, or even cared what they say, but even if you trust Apple or Google implicitly, and it is not commonly recommended you do, it is vital you read carefully and understand your estate agent’s terms and conditions.

There are a number of industry standard clauses in estate agent”s contracts which could mean a considerable amount of unnecessary expense for you, probably at a time when you are over-extended.

Sometimes the clauses in estate agent’s contracts can be incredibly unfair in certain situations and, on occasion, they have lead to people being required to pay large amounts of commission even when an estate agent has not actually introduced the successful buyer/seller.

It is common for estate agents to readily agree to reasonable changes and changes to their terms and conditions are rarely rejected with these relatively small amendments.


 

What terms should I be looking out for?

The most important term to look out for in estate agent’s contracts is the amount of commission they are asking from you and when they are asking you to pay it. You will find their clauses relating to payment of commission will require payment “no matter who introduces the property to you”.

The practical effect of a clause like that is, if your neighbour asks if they can buy your property, you would still have to pay your estate agent full commission. The same would go for your brother, son or daughter.

There is an easy way to prevent this:

Effective introduction

The legal term “effective introduction” has been argued over by buyers and sellers with estate agents at courts who decided, before you pay them, an estate agent must have actually introduced someone to you, it needs to be an “effective introduction”.

For the purposes of redrafting the terms and conditions, you do not need to know the ins and outs of what an effective introduction means, but the wording should be changed, not to read “no matter who introduces the property to you” but something more on the lines of the following:

“The Estate agent will only charge commission should they effectively introduce the Buyer/Seller to you”

Are there any other terms to look out for?

There will be other terms to be careful of in estate agent’s contracts, which we would not necessarily suggest you change (mostly because the above is the most important thing, but also because too many changes may lead to the agent not agreeing to the most important one). It is still a good idea to know what you are getting yourself into, it may influence how you proceed with your transaction.

Payment date of fees

It is usual for payment to be due on exchange. This is not necessarily an issue, but in practice it does mean you will owe them the full commission on the date of exchange rather than the date you complete.

In reality you may not have the funds to pay the estate agent at exchange, so the and agents do usually wait until despite writing to you on the date of exchange with an invoice.

It is also usual to have an interest term should you not pay on the date of exchange.

The issues come when completion is pushed back until there is a very wide gap between exchange and completion, but even then, most estate agents wait for payment. However, some may grow impatient with long completions, complications or abortive sales and at such times it is not unheard of for agents to think of their fees before their clients.

Out of pocket expenses.

It is usual for a clause requiring you to pay out of pocket expenses if you withdraw or if the property is taken off the market or if it does not sell for any other reasons. You should make sure the amount they are able to charge is “reasonable” and that can be easily inserted.

Ready, willing and able.

There is usually a clause in most estate agent’s contracts relating to a ‘ready, willing and able purchaser’ and requiring you to pay commission should you withdraw from a sale even though they have organised for someone ready, willing and able to purchase your property.

Sole selling rights / sole agency

If your estate agent’s contracts give the agent “sole selling rights” then think carefully before signing.  The estate agent in the contract is the only one allowed to sell your home during the period stipulated. You will have to pay their fees, even if you find your own buyer if you sign estate agents terms and conditions with sole selling rights. If you sign an estate agents contract with a sole agency clause you would pay commission if another agent found a better property for you.


 

Percentages and commissions

Estate agent’s contracts will set the percentage of commission but you are entirely within your rights to negotiate this amount. With property selling at premium prices not just in the capital and the south east and with few properties available for marketing, estate agents are under pressure to secure properties to sell. Instead, consider a figure you are comfortable with and negotiate toward it. Make sure to remember the agent will often not include VAT in the price they are quoting and you may need to add that to your final bill.

A difference of 1% may not seem very much but it can add up to thousands of pounds when the property sells.

You may want to adjust the amount of commission you pay in estate agent’s contracts according to how good a job they do, to give them an incentive to do the best they can. One way of doing this would be to offer 1% if they reach asking price, 1.25% if the final price is above asking price, although currently properties in London and the south east often sell for well above the asking price due to high demand. Alternatively, you can also use this technique to try and push them to find a quicker sale.

Tie-in periods

Lots of estate agent’s contracts, especially some of the big high street brands, include a tie in period. But if you end up not getting on with them or become unhappy with their service you will want to terminate the contract.  Make sure your contract gives you the flexibility to terminate without incurring a penalty, and go elsewhere if you’re unhappy with your agent. Pay attention to the sole agency lock-in period which varies dramatically across agents (4 weeks or 12 weeks are the most popular terms); more than this is unnecessary.

There are instances of tie-in periods of 20 weeks with a 4 week notice period, so be sure to check this and do not be afraid to negotiate if you are not happy. The agents are after your business and do not want you to go elsewhere.


 

We hope these tips are particularly useful and, of course, you must read the entire set of terms and conditions to make sure you are happy with them. Having a property solicitor might be a good investment, particularly when you consider the potential benefits involved.

Resources

http://hoa.org.uk/advice/guides-for-homeowners/i-am-selling/estate-agents-contracts-what-to-watch-for/

http://www.which.co.uk/money/mortgages-and-property/guides/how-to-sell-your-house/estate-agent-fees/

https://www.citizensadvice.org.uk/housing/moving-and-improving-your-home/selling-a-home/