When Do You Have To Pay Commission?

April 12, 2013

It’s a familiar scene: you get your property ready for sale, you find a real estate agent and then they sell the house for you. Once settlement has gone through and all the paperwork is done, you only then have to pay the agent their commission – right?

Well, no, not necessarily. Did you know that the agreement you have with your agent entitles them to their commission even when:

–          You don’t proceed with the sale

–          You get an offer that matches, or is above your ‘Vendor’s Price’ – even if you don’t accept the offer

–          You proceed to settlement but the purchaser pulls out at the last moment

–          A purchaser’s cheque at settlement is dishonoured.

How does this happen? Well, have a careful look at the ‘Exclusive Authority Agreement’ you signed with your Agent. Common provisions require the vendor to pay commission when the property is sold. However, what is meant by “sold”? According to many standard agreements, “sold” can include receipt of a “binding offer”, which is an offer made at the Vendor’s Price. What does “Vendor’s Price” mean? It means the price you have nominated on the agreement with the Agent – which may or may not be your “bottom” price.

For example, your Vendor’s Price may be $450,000, but you really want to hold out for $455,000-$460,000. If the Agent gets an offer for $450,000 or above, you must pay the agent the commission even if you don’t accept the offer. You may have to pay them even if you never saw the offer on paper, and the agent only told you about it verbally but you didn’t want to accept it. Even if you change your mind about the agreement with the Agent and want to withdraw the property from sale, you will still be liable to pay the commission!

So, how can you protect yourself from paying commission?

  1. Don’t sign an Exclusive Authority Agreement with an Agent unless you are really sure the Vendor’s Price is an accurate amount for the property, or perhaps above your “bottom line”. You can seek a professional valuation to help you decide.
  2. Don’t sign the Exclusive Authority Agreement unless you are sure you want to sell, as the exclusive authority you have with the agent means you can’t change your mind and pull the property from sale while you are bound by that agreement.
  3. Be aware of potential defences to an Agent’s claim for commission:
    1. Did they tell you before you signed the agreement that commission was negotiable?
    2. Did they give you a fair estimate of the sale price range?
    3. Did they make misleading statements about the price or the commission?

If you would like to obtain professional advice before signing up with an agent, please contact our office on (03) 9870 9870.

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