Coffeys - Tourism Property Brokers ltd. | LREA

30 years in business. 1984 - 2014

Agency Agreements

Signing Up To Sell Your Business

It is not surprising that when a vendor is asked to sign a listing authority for the sale of their accommodation property or business, the main focus seems to be the rate of commission. This is understandable, but it is also very important to understand the implications of some of the other wording in the agreement.

An aspect that often becomes quite contentious further down the track, is that of when a sole agency expires. A listing agreement giving say a three month sole agency should mean just that, but it is not always the case. We have seen a number of agency agreements that require proactive cancellation of the sole agency, usually at a month’s notice, even after the sole agency period has run its course. So, the vendor may believe after three months or longer has passed that they are free to offer a general agency to others if they wish. They then discover on reading the agency or are advised by the sole agent that they need to give one month’s notice from the time that they wish to cancel. So, what seems like a three month sole agency can go on for ever and a month. If this is not the arrangement you intend to enter into, it would pay to check the wording of the agency agreement. It is not a bad idea to give a sole agency to an agent or broker if they are specialists in your industry and have recent and relevant sales experience and knowledge of your market. The sale of accommodation businesses is a specialised field so this is quite important.

When sole agencies are expiring and vendors wish to list more generally, we often hear that they see no harm in spreading the listing far and wide, perhaps including local agents who don’t specialise. If another agency is offering an alternative type of marketing to what is currently being employed, then it may be worth considering. If on the other hand, they are simply going to duplicate the efforts of existing agents by website advertising and the like, they are most likely just going to be putting more agents in front of the same potential buyers. The question is, are these new agents likely to handle an enquiry as well as a specialist? Once an enquiry has been answered and an introduction made, the other agents are effectively disqualified from dealing with that buyer on that property or business. In other words, once the buyer has gone through a certain agent’s door they can’t go back out again as far as your property is concerned. You could run the risk that a good genuine enquiry could go to someone who is perhaps not the most competent person to handle it. Sure, some residential firms may have lower commission rates than specialist brokers, but the difference in the rates could be insignificant compared to having your interests represented in the best possible way for the best outcome.

The new Real Estate Agents Act 2008 made agency agreements by necessity a considerably longer document than they once were. The changes were designed primarily to protect the public, however they also gave added protection to the agents in some ways. An important requirement is that the listing agreement for the sale of any property or business must include a market appraisal based on real and accurate comparative sales data. When this was introduced, we thought that it might (unintentionally) give specialised firms an advantage, because the detailed data required for an accurate appraisal is not easily obtained other than from direct involvement in the market place. We have seen a few agency agreements which don’t include appraisals and can only wonder how widespread this apparent breach may be. If your agent is not providing you with an appraisal of your property or business at the time of listing, ask them why. A modification to the legislation did allow for the agent to state that there was no relevant evidence available on which to base an appraisal. We expect that the intention of this variation is to acknowledge that in some cases for rare and unusual situations, there is no sales evidence available in support of an appraisal, not to allow the agent to simply state that they don’t have any evidence.

As of April 2013 the REAA imposed a further obligation for agents to recommend to their clients that they seek legal advice before signing any document relating to real estate business. This includes not only sale and purchase agreements but also agency listing agreements. Whether you do so is of course up to you. In summary, it is a good idea to read agency agreements the same as you would any other legal contract you are being asked to sign and ask questions if anything does not make sense, or it is not how you believe it should be. If in any doubt at all, seek professional legal advice.

Kelvyn Coffey
Principal
© 2013

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