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What you need to know about estate agents contracts

  1. 18 November 2019
  2. By Daisy Stephens

Selling a home can be a stressful time for all of us and it’s not helped by an estate agent contract that may not be as clear as it should be.


We're pleased to welcome this guest post from Property Road on understanding your estate agent's contract.

To complicate matters, each estate agent contract will be different but they will have overlaps between each other and we all need to appreciate that their contract is a legally-binding document that we need to understand before signing.

To help, here's our guide about the three main types of estate agency contracts that you will encounter:
 
  • Sole seller agreement
The sole seller contract reserves the right for an agent to sell your home exclusively during the contract’s term. The agent is still entitled to be paid even when you find a buyer for your property.
 
  • Sole agency agreement
The sole agency contract is the most common agreement type. It's quite similar to the sole seller agreement and the sole agency contract will see the firm reserve the right to sell your house using a single agent. However, should you find a buyer then you're under no obligation to pay the agent their commission.
 
  • Multi-agency agreement
With a multi-agency agreement, you are free to hire several agents to sell your property. This contract type usually has a higher rate of commission since the agents are competing with each other and the winning agency will get the fee. These types of contract may be an option for those wanting to sell quickly and you'll get access to several agents and their potential buyer lists – which means access to more prospective homebuyers. You will need to ensure that the contract states clearly what the terms are.

What you need to do with an estate agent contract

Firstly, you'll need to read the estate agent’s contract very carefully to ensure that you are comfortable with it and understand what is involved before signing. If there's anything in that contract that you are unsure about, then you need to ask the estate agent to clarify.

However, we should highlight that there are some common terms being used in most of these contracts and you should really pay attention to them before you commit to a particular estate agent. These include:
 
  • ‘Ready, willing and able purchaser’
This unusual terminology means that if the agency finds a buyer, you will have to pay them even if you decide you will not sell your property to their recommend buyer. This clause must be avoided.
 
  • VAT
Another issue with estate agency contracts is that they may quote their commission without including the VAT. You must add 20% onto the stated commission fee and then work out how much it's going to be when you sell your home and there are no unexpected surprises when you get handed the final bill. As an example, an estate agent who is quoting a commission rate of 1.2% plus VAT means that their total fee will amount to 1.44%.
 
  • Tie-in period
Most estate agents will include a tie-in period for their agreement which will, typically, be around six weeks. The notice period will be between one week and four weeks. It's important that you review these details carefully because some estate agency contracts may keep you legally tied to them for up to six months.
 
  • Cancellation fee
You should check the estate agent’s agreement to see whether there is a cancellation fee, which is for when you switch to another agent or if you decide to withdraw your home from the market.
 
  • Marketing fees and extras
One of the issues with estate agents is that some will win business by charging what appear to be low fees but then they need to add extra costs into the agreement. This means you'll need to appreciate terms such as marketing fees and extras, as well as being charged for Energy Performance Certificates (EPC) which really should be seen as a standard cost as part of their commission.

Don't be shy to challenge estate agents

It's important that if there is something in the estate agent’s contract that you don't like or understand, then you need to challenge them about this. The contract can be complex and if you don't challenge them then it may end up costing you money and time and you should never pay more than is necessary for their services.

For instance, we mentioned that some estate agents will advertise their commission as a percentage plus VAT, but this is an amount you do not have to accept.

Essentially, you need to work out how much their final bill will be as a proportion of your house sale and don't be shy about negotiating a lower percentage rate - if the estate agent really wants your business, then they're likely to negotiate.

Depending on how much your home sells for, even a slight reduction in the commission rate could save you hundreds if not thousands of pounds.

What’s not to like about tackling them for a discount?

Estate agents with a fixed rate commission

This also brings us onto those estate agents who state that they have a fixed rate commission in their agreement and while this means you'll know how much their fee will be, it's not always the best idea.

That's because the estate agent will not be motivated to achieve the best price for your home because they get paid the same amount whatever is agreed.

Essentially, an estate agent is incentivised by agreeing a higher fixed rate of commission which pushes them to achieve a better selling price (and don't forget to check that the VAT is payable on top of this).
 

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