Having recently clocked the big 2-0 in my legal career, I started doing a bit of a recreational, back-of-the-envelope tally of how many property transactions I’ve clocked up during that time – I got into the many thousands very quickly, felt old, and stopped.
I can’t actually think of a type of property that I haven’t overseen the legal transfer of. They’ve ranged from little ownership flats and bare land, to multi-million dollar commercial buildings and huge corporate farms. Conveyancing, theoretically, is very methodical and prescribed, and can appear quite straight forward to the uninitiated. Ah, if only. The reality is, in ensuring our clients are suitably protected – whatever the property at play – there are a plethora of nooks and crannies to tease out, together with potential pitfalls aplenty to cordon off.
Over the years, I’ve lost count of the number of stoushes I’ve seen break out around real estate agents’ commissions, where more than one agency has been involved in the marketing of a property. Until now, this has been a proverbial minefield, leaving both affected vendors and real estate agents very exposed, and, often, out of pocket.
Janice’s Lesson Number 1: Things are a-changing – the Real Estate Agents Authority (REAA), after working with the Real Estate Institute of New Zealand, has stepped in and set down fresh ground rules: new standard clauses in the Agency Agreement. Also, while they are being couched as “voluntary” at this stage, they won’t be recommending the public use an agency that doesn’t adopt them.
The issue these new terms are trying to address, and where things have historically got murky, is when more than one agency was involved in marketing a property – either an exclusive sole agency had expired and one or more other agencies had been signed up, or if there had been a multi-agency agreement from the get-go.
Double whammy
A potential buyer, in that event, might, for example – and quite unbeknownst to the vendor – have been introduced to the property through one agent, but then gone on to seal the deal through another agency. And, voila, the vendor is suddenly looking at being stung twice, with both agencies claiming commission from the seller for their part in realising the successful sale. Given commissions are a significant cost of selling, it’s been very much a case of double, very painful, ouch.
These new standard clauses are industry-driven, and demonstrate vendors aren’t the only ones who’ve been left feeling ripped off by the previous lack of clarity. Research conducted by the Authority this year shows more than two-thirds of agencies had faced disagreements over commission during the past five years, many of which went unresolved. Sixty-two per cent wanted support or guidance from the Authority to prevent the issue.
Janice’s Lesson Number 2: If you’re selling a property though, don’t automatically assume you’re no longer at risk of a double whammy on the commission front. When signing up to have an agent sell your home, you’ll be presented with an Agency Agreement, which outlines their obligations to you and you to them.
Clearing the contractual cloud
Remember, these new protective clauses are voluntary, although the REAA has sent a crystal clear message to the industry in its advice to consumers not to sign up with any agency that hasn’t now included the new standard clauses. Don’t see these new standard clauses in the agreement? Step away from the contract and think about what you want.
If you want to be really proactive, before you even first approach an agent, check out the REAA’s website (www.reaa.govt.nz); it’s posted to real estate agencies nationwide, including those in our neck of the woods, who’ve committed to including the new clauses. What these changes do is erase a good part of the grey, and sharpen expectations around commission with a good measure of much-needed black and white.
Janice’s Lesson Number 3: The general rule: no sale and purchase agreement signed up when the relationship between agency and vendor ends, zilch commission. Even if the erstwhile agent has introduced an eventual buyer to the property, it’ll be the new agent sealing the deal who’ll take the fee.
If, however, at the time a seller switches agencies, the outgoing agent has already brokered a signed sale and purchase agreement – even if it’s still only at the conditional stage – they’re entitled to claim commission.
Private sale pay days
The REAA has also addressed another scenario which, over the years, has thrown up some gnarly situations. Formerly, things could get mighty messy when an agency agreement ended, but the vendor went on to sell their property privately to a purchaser previously introduced by the agent – even years previously. Now, under a standard clause specifically addressing this, the agency will only be entitled to be paid commission if the property is sold to a party they brought into the picture if the sale occurs within six months of its contract with the vendor ending.
According to the REAA, during the next year, it’ll be keeping tabs on the uptake and success of these new standard clauses in curbing complaints, and report back to the Ministry of Justice. A decision will then be made on whether these voluntary standard clauses become compulsory through regulation.
If you're thinking of buying or selling a house and you need further advice, give Aspiring Law a call on: 03 443 0900.
