We’ve all heard the saying, “Don’t forget to dot your I’s and cross your T’s”, but that expression has never been more important than on your agency agreements.
I know you probably think that you sign up clients on agency agreements all the time, but I beg you to keep reading because I’ve noticed quite a few errors in recent times.
Errors that have the potential to be very costly.
Most of them are super simple admin errors, such as using an incorrect Australian Company Number (ACN) on the agreement, not including the correct price range of the property, or not delivering a copy of the agreement to the other party within the required 24 or 48 hours (depending on what state you’re in).
An incorrect agency agreement renders it non-compliant, and it’s not enforceable, which can mean other agencies can take your listings or, worse, you can sell a property but not be paid your hard-earned commission.
It really is that serious.
And it’s exactly what happened in a case recently decided in the Supreme Court of the ACT.
Let’s see precisely what happened.
A Canberra real estate agency sold several residential units for a property developer in Greenway and claimed $668,759 in commission.
But the property developer refused to pay the agent anything, arguing that the agency agreement didn’t comply with the rules in Part 6 of the Agents Act 2003 (ACT).
Not only did the court find the agreement didn’t comply with Part 6 of the Act, but it also agreed the agent didn’t comply with Section 100 of the Agents Act, and therefore, there was no agency agreement in place.
That meant the agent could not claim their $668,759 commission.
So where did things go wrong?
When creating the agency agreement, the first thing the agent did wrong was not estimating any rebates, discounts, commissions and expenses the agent may be entitled to.
The agent also failed to provide the developer with a signed copy of the agreement within 48 hours of the developer signing it.
The agent also failed to comply with several rules set out in the Agents Regulations, including:
- Failure to put a description of each unit being sold, to clearly identify each property being sold.
- Failure to properly identify the parties to the agreement, due to an incorrect ACN for the developer.
- Failure to state the amount of the remuneration to which the agent will be entitled, worked out on the basis of a stated estimated sale of the purchase price for the property.
- Omission of the required statement for a sole agency agreement (as per schedule 4).
- Omission of the required statement immediately after the term regarding remuneration (as per schedule 4).
- Lack of a warning about other agency agreements immediately after the term regarding remuneration.
- Inclusion of a document titled “Sales Inspection Report,” which does not comply with the requirements of a valid sales inspection report due to it not containing the required description of the property.
There was one small upside for the agent in that the court ruled section 100 was limited to commissions and expenses, not all remuneration, which means the agent could claim some payment for the services they provided to the property developer.
Property management doesn’t escape the risk of non-compliant agreements either.
While I know of a couple of instances where a non-compliant management agreement has meant a landlord hasn’t paid their management fees, it’s far more likely to cause problems when you come to sell your rent roll.
A buyer will not pay a price for a non-compliant agreement or, if they do, it will be a discounted price.
Not only could another agency sign up those non-compliant managements, but you don’t have the right to charge them management fees each month.
So, how do you make sure you dot your I’s and cross your T’s?
- Take your time. It can be exciting signing up another agency agreement to sell a property or a management agreement to add to your property management department, but make sure you take your time and attend to every section of the agreement fully.
- Use tech to help you. There’s software to help you prepare the agreement and also to help you send it to the other parties.
- Conduct an audit. Have a consultant or lawyer objectively audit your agreements to ensure they are compliant. If they’re not, you can devise systems and processes to attend to the most common issues and mistakes.
- Create a checklist for your team to follow containing all the sections and information of the agreement that must be attended to.
- Two-step compliance. Have a second person check your agency agreements/management agreements.
No one likes doing admin tasks and paperwork; it’s much more fun to list a home for sale or to secure more doors under management.
But if you want to not just reap the rewards of your hard work but keep them, getting your agreements right is essential.
Book a free 10-minute chat to discuss how we can help you conduct an audit or prepare a checklist for your agency here.