Vendors: appointing an agent
A vendor can sell their own property without engaging an estate agent, although they need to employ an agent to conduct a formal auction, if they want to hold one. There is a great deal of work in arranging advertising, finding a buyer and handling the paper work; most vendors employ an estate agent to do this for them. Individuals who act as estate agents must be licensed. The licensing body is the Business Licensing Authority (BLA) (see “Contacts”).
In Victoria, the BLA, together with the Estate Agents Council, regulates estate agents’ activities and trust accounts, administers the estate agents’ guarantee fund (which repays clients when estate agents or their staff steal money held in trust) and investigates complaints. The Real Estate Institute of Victoria (REIV) is the representative body of estate agents practising in Victoria; most practising agents are members of REIV.
An estate agent should be formally appointed in writing as the agent for a vendor’s property as this protects both the vendor and the agent. The agent is not entitled to take their commission without a written appointment; however, an agent can market a property without being appointed.
There are three types of appointment:
• general sale authority: this makes the fees payable only if the agent is the effective cause of the sale;
• exclusive sale authority: this makes the fees payable if the property is sold by the agent, or by any other person including the vendor, to a person who was introduced to the property during the authority period, or up to 120 days after the end of the period, and who buys as a result of the introduction; and
• exclusive auction authority: this makes fees payable on the same basis as the exclusive sale authority.
The authority must contain specific information about the agent’s fee, a statement identifying discounts and rebates, etc., and a statement about where complaints about the agent can be made.
The right of the agent to sell under a general and an exclusive sale authority lasts for 60 days and under an exclusive auction authority for 30 days, unless another period is specified in the agreement.
A vendor may also negotiate the fees, advertising costs and the terms with the agent.
Vendors can engage multiple agents for the one sale, to act for them simultaneously, either through the Multiple Listing Bureau, or as conjunctional agents (so that the agents share the fees), or by giving each agent a general sale authority (which entitles only the selling agent to receive commission). Most residential properties are sold through exclusive sale authorities as this option gives the agent the greatest incentive to earn the fees.
Vendors need to decide whether to sell by private treaty or by auction. Sale by auction is popular, but a vendor should only choose an auction if they:
• are prepared to pay the extra expenses;
• understand the content of the agent’s authority;
• are satisfied that it is the best marketing strategy for their property.
Unless the estate agent’s authority states otherwise, the cost of advertising a property for sale is paid for by the vendor, not the agent.
The cost of advertising for a private treaty sale is usually much less than the cost of advertising for an auction sale.
It is recommended that vendors ask for a detailed list of advertising expenses from each agent when they are selecting an agent to sell their property.
Advertising is generally sold at a discount by newspapers, signboard suppliers and printers to bulk buyers (such as agents). Vendors are entitled to this discount. The estate agent’s authority may state that the agent can keep the discounts. A vendor can delete this clause and ask that the discounts be paid to them.
Fees are stated in the estate agent’s authority. There is no limit on the amount an agent can charge. It is up to the vendor to negotiate a price.
An estate agent’s authority must show:
• details of the commission and outgoings; and
• if the fee is calculated on a percentage basis, a statement of the fee expressed as a percentage and dollar amount that would be payable on the reserve price or other relevant amount.
The fee can be based on a service or series of services, such as holding open for inspections, negotiating the contract and collecting the deposit, or it can be a commission on the price.
Vendors should ask for a detailed price list from the agent before signing the estate agent’s authority.
Shop around for an agent. You should consider the costs, and the agent’s competence and experience before making your choice. It is also recommended that you conduct thorough negotiations before appointing an agent. Negotiations should cover the type of appointment, commission and advertising costs. As a vendor, do not:
• allow the agent to prepare a vendor’s statement – these statements are technical legal documents and an error in the drafting can allow the buyer to avoid the sale entirely;
• agree to sell the property to the agent, or to anyone employed by the agent, or to a company associated with the agent without first seeking advice about section 55 of the Estate Agents Act 1980 (Vic). These contracts may involve the buyer in a conflict of interest. You should remember to raise your price by the amount of commission or to get the agent to forego commission to ensure that the agent is not getting an artificial discount not available to any other buyers;
• sign a contract of sale by which the property is sold for a price less than the value of the loans secured on the property (including overdrafts that are indirectly secured) unless you consult your lender and your solicitor or financial adviser first;
• sign a contract of sale that contains terms (including a price) that you are unhappy with. Ask the agent to renegotiate the agreement with the buyer.
Ultimately, selling the property is your decision as the vendor. You must determine whether an offer is acceptable. An agent must pass on all offers to you. If the offer is above the sale price specified in the agent’s appointment and you refuse it, you may be liable to pay the agent’s fee.
Vendors can get a quote from a solicitor or a conveyancer by contacting their office.
If you are selling via a private treaty (not an auction), ask your solicitor for their preference –whether they rely on the contract prepared by the agent, or whether they prepare a contract of sale for the agent to use and why.
The vendor’s statement should be prepared by a solicitor or a licensed conveyancer to ensure that it is accurate and to obtain the benefit of professional indemnity insurance.
Remember that the expenses of stamp duty, the mortgage, discharge of the mortgage, registration fees, insurance and other charges add around 5.6–6 per cent to the purchase price of a property.
As a buyer, do not sign a contract of sale until:
• your lender informs you in writing that finance is approved or that you qualify for a loan;
• you have checked that the boundaries of the land correlate with the title measurements. Check the distance from the land to the street corner (or the “connecting point”) shown on the plan, to ensure that the land inspected is the same as the land in the title (note that your ability to object to a title based on measurements of the land may be restricted under a standard contract);
• you have checked whether you are required to install child-proof locks and barriers that comply with Australian standards for any unfenced swimming pool on the property; and
• you have checked with the local council to ensure that the land can be used in the way you intend.
The documents you are required to sign immediately on purchasing the property are the contract of sale and the vendor’s statement. Do not sign any other documents without independent legal advice.
At the time the buyer signs the contract of sale, it is common for the vendor or their agent to present a section 27 statement for the early release of the buyer’s deposit. If you receive a section 27 statement, seek legal advice before signing it.
The contract of sale may contain warranties about the quality of the building. The rule is still caveat emptor, meaning “let the buyer beware”. However, deliberately misleading statements made by the vendor or their estate agent may give the buyer a right to compensation.
Buyers can employ a licensed valuer, builder or architect to conduct a building inspection to ensure the property is sound before making an offer. Building inspection services are listed in the Yellow Pages under Building Inspection Services and Building Consultants. The professional fee for a building inspection of an average-size house is about $400–$600.
Chattels are movable items that are not fixed to the land (e.g. a garden shed, a garden statue, television antenna, light fittings, a swimming pool pump and filter, and floor rugs). Unless specified and included in the contract of sale, the vendor is entitled to remove chattels. If a buyer wants to purchase these movable items, they should be included in the chattels clause of the contract of sale.
Land Use Victoria is the custodian of the original documents related to each parcel of land in Victoria.
Land Use Victoria can issue a title to an owner of a property for a fee. The title document lists the owner and other interests (e.g. easements, covenants, mortgages and discharges of mortgages).
Caveats lodged after a title document was issued by Land Use Victoria are shown only on the internal records.
Buyers should compare the land in the title with the land inspected. Many contracts of sale contain a clause that defines the land sold as the land inspected. If there are discrepancies between title and the boundaries of the land, the clause may prevent the buyer from claiming compensation from the vendor.
The vendor must give the buyer a vendor’s statement (also called a “section 32 statement”) before the buyer makes an offer on the property.
The vendor’s statement is a key document in the sale of a property. The vendor’s statement contains pertinent information about the land. It does not contain information about the quality and condition of the buildings or fittings, the conformity of buildings with building regulations, any land wrongly included in the fences, or any land in the title that is outside the fences.
A buyer should make independent enquiries to verify the information contained in the vendor’s statement, and to discover any information not included in the statement.
An omission or error in the vendor’s statement may allow the buyer to avoid the contract of sale without any penalty at any time before settlement.
It is in the vendor’s best interest to ensure that the vendor’s statement is carefully prepared by their solicitor or conveyancer.
If there is a dispute raised by the buyer, the vendor may challenge the contract avoidance in court and may win if the court is satisfied that the vendor acted honestly and reasonably and ought fairly to be excused for the wrong information, and that the buyer is in substantially as good a position as if all the information had been provided.
Buyers seeking to avoid the contract of sale due to an error or omission in the vendor’s statement should seek legal advice about the strength of their claim and the associated costs and legal implications before starting legal proceedings against the vendor.
A well-drafted vendor’s statement contains information about:
• the title and plan of subdivision;
• warnings about planning controls;
• easements, covenants and similar restrictions;
• planning information;
• prohibitions in the planning scheme against building a dwelling house, if the land is outside the metropolitan area;
• whether there is road access to the property;
• rates, taxes and outgoings charged on the land, or a statement that the charges do not exceed a specified amount;
• statutory charges on the land;
• services connected to the property;
• insurance details if the contract does not provide for the property to remain at the vendor’s risk until the settlement date;
• building guarantees and permits obtained in the previous seven years;
• any notice, order or approved proposal affecting the land that the vendor could be reasonably assumed to have known about;
• owners corporation notices and liabilities;
• contaminated land;
• orders under the Land Acquisition and Compensation Act 1986 (Vic);
• Growth Areas Infrastructure Contribution;
• energy efficiency information.
If the land is sold pursuant to a vendor terms contract, the vendor is obliged to provide the necessary additional information, including details of interest and repayment terms between the buyer and the vendor. Details must be provided of any mortgages that will not be paid out at the settlement, and the vendor’s default on the loan(s) (if applicable).
A copy of a current title search must be attached to the vendor’s statement. A title search is defined as “current” if the date of the title search is within 90 days of the date of the contract of sale.
If the property being sold is an off-the-plan property, the vendor should disclose the latest version of the proposed plan of subdivision in the vendor’s statement.
It is common for the vendor’s statement to include other related searches and certificates from the relevant rating and tax authorities to provide detailed information. The certificates should be current as at the date of the contract of sale.
It is mandatory for the vendor or their agent to give the buyer the due diligence checklist issued by Consumer Affairs Victoria before the buyer signs the contract of sale and the vendor’s statement. This checklist is available at www.consumer.vic.gov.au/duediligencechecklist.