Legal but unfair Real Estate fees

Case study

Any responses to the following case are welcomed.

I signed a contract with a Real Estate agent and received excellent service. The sale went through, contracts were exchanged, and deposits were lodged. Unfortunately, the buyers pulled out but agreed to forfeit their deposit.

I was prepared to pay, from the deposited funds, $6000 to the RE Agent for good quality support but the agent pointed out that I had signed a contract that entitled them, in the case of this aborted sale, to $50,000.

So in terms of a legally signed contract I may be vulnerable but I have been considerably disadvantaged and in my view the RE agent is treating the sale, from their point of view, as a successful one. I am intending to take legal action and also highlight what I regard as an unfair practice in the media.

Is there anyone on this listserv who could comment, recommend or suggest strategies to resolve the problem?

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Hi @dpeter,

Hopefully some other Community members can share their experiences of buying or selling to help provide some other perspectives, and it goes without saying you might need some professional legal advice if you haven’t sought this out already.

Also, CHOICE Members can access our advisory service CHOICE Help, or you may want to contact the ACCC for real estate problems relating to contracts. Good luck getting it resolved.

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Hi Brendan,

I have two legal opinions on this issue: the first is that this type of RE Agent payment is unreasonable, unfair, altogether excessive. It does not occur, for instance in NSW and many other states, but is part of our modern, fee-gouging world. The second opinion is that, because I signed the contract, I have no option but to pay it.

My position will be that I fiercely contest it, because in terms of fairness, justice, reasonable basis for one’s professional work, it is manifestly greedy and unreasonable.

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I’m guessing the deposit that was forfeited was significantly more than the $6k you are offering them… How prominent was the fee for fallen through sale in the contract? Also did the sales agreement terminate before the dispute about the fee or after? I haven’t sold a lot of places, but I’d have assumed if the sale fell through I would get the agent back on the case and readvertise and move on - not pay the agent for the failure and then move on, potentially to pay the agent a second time if the sale succeeds (or fails again) - how many times could that happen? indefinitely? I’ve heard it said that fees in contracts still have to be justified, and similar for deposits, that it’s not guaranteed a buyer will forfeit the whole amount - I don’t know if thats true.

Could it be the house was on the market for a while, the agent conjured up a fake buyer with a 30k$ deposit, buyer pulls out and ‘loses’ their deposit (which the agent will give him back next time they play golf, or Sunday at church, or whenever) and the agent hits you for $50k which conveniently covers the $30k, the $6k he actually deserved, and both their golf fees plus some hole-19 flash money … ok I’m a bit of a conspiracy theorist at times :wink:

The fee seems grossly disproportionate to the amount of effort they would have expended even if the sale went through, they don’t have that reputation for nothing. I’d be lodging a complaint with the Real Estate Institute regardless - probably options with fair trading and/or ACCC also?

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Hullo draughtrider,

Thanks for your response to my posting: your last sentence, about three sources for lodging complaints, is very useful.

The deposit forfeited was definitely more than the $6k, by multiples of 6 to 7. In terms of how prominent the fee was in the contract: this is something that a close reading of the fine detail of the contract should have picked up but I believe many people would see it as a long-shot and not think too much about it in terms of the probability of it occurring.

Get the agent back on the case and readvertise: clearly the best solution, so the agent then has another chance. In this case the buyer, by agreement, did not forfeit the whole amount but it was a significant sum for a classy home on the coast.

The buyer was genuine but there were complications because a couple + one parent, were all involved. There were lots of interactions with the buyer and the agent was particularly helpful in this process.

The proposed amount the agent believes he has an entitlement to is still over $38,000. Considering the home is again to to placed on the market, there is considerable stress and disappointment involved.

The lesson is that every clause in a contract - even the fine print, and unlikely but possible scenarios - need to checked carefully. But the fact that agents can insert these clauses in some states - even where it is not common, indicates excessive preoccupation with profit, even at the seller’s expense.

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It may be worth asking the agent for a breakdown of costs which have been occurred on and before the sale that didn’t go through. Costs include those incurred by the agent (hours worked trying to sell, advertising, fixed administration costs etc).

I would imagine that a good agent who wishes to keep your business should be willing to do this.(lawyers do something similar if requested). You may have to pay for this breakdown of costs though, but it may pay off in the long run.

This will allow you to understand better the real costs incurred by the agent and then start negotiating a reasonable settlement associated with the actual costs.

A $50k fee seems a little excessive, but if the property is say worth a few million, expensive advertising in local and regional newspapers has occurred and the property has been listed for a very long time with many open houses/agent involvement, then it could be argued a significant fee (from demonstration of real costs incurred) is possibly reasonable.

I agree with @BrendanMays about possibly getting some preliminary legal advice as this may also assist with any negotiated settlement…if it is possible.

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Hi phbriggs2000

Costs incurred: yes, fair point - the $6000 offered to the agent covered costs to date but, according to the contract, about another $34,000 was due to the agent.

Yes, agreed about expensive advertising costs: but this case study is about the end of costs and the beginning of profit.

I have already got two legal opinions and there has been a difference in them. One went exactly by the clause in the contract; the other challenged the fairness of the clause itself;

Thanks for your comments.

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How do the fees associated with the aborted sale compare to commissions should the property have sold.

If the aborted fees are higher than the sale commission, then one may able to argue the fees are unfair and unreasonable (namely the seller is penalised for actions outside the sellers control, viz. the actions of the buyer). It may be more difficult to mount such an argument if the aborted fees where significantly less than any sale commission.

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Hi phbriggs2000

The aborted fees are not higher than the sales commission but from the seller’s point of view the sale is being treated as a significant success when it is really back to the start. Coverage of costs around the $6000 mark reasonable; another $35,000 - $40,000 is unreasonable, though entitled by the contract. This case illustrates a developing trend - which does not exist in many Australian states - where the commercial interests of the agent become too dominant.

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Some thoughts…

It is difficult as the aborted sale was also outside the control of the agent as well.

From experience, most of the agent’s work occurs up to the signing of a contract. …thereafter, it is usually an administrative process which does not involve the agent with exception of possibly key release at settlement (and sticking a sold marketing sticker on any signage).

I would imagine this is how an agent would view an aborted sale after a contract goes unconditional.

Not withstanding this, it is also argued that the sale did not proceed so any reasonable costs (and associated profit) could be claimed by the agent.

I would be negotiating a better contract arrangement if the same agent is used for the relisting. I would use the tact that the agent found the buyer and it appears that the buyers was somewhat flawed resulting in an aborted sale… …shared responsibility.

Maybe package up both the aborted sale with any future sale…making them one rather than two separate/wholly discrete sale transactions. See if the agent will leave the current deposit in their trust account to be settled on the final sale of the property.

This approach has merit as you the seller will be obliged to use the same agent for relisting of a saleable property, thus allowing the agent to gain additional commission (albeit at a discount if the aborted sale is taken into account). You also benefit from reduced total comissions…eventhough these will be more than a individual sale but less than an aborted sale together with a settle sale.

It may worth getting independent legal advice should this be acceptable to the agent…so the conditions represent what is agreed.

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Hi phbriggs2000,

This is a live, evolving and ongoing case at the moment so I am being discrete.

A few responses:

It is difficult as the aborted sale was also outside the control of the agent as well.

“it is also argued that the sale did not proceed so any reasonable costs (and associated profit) could be claimed by the agent.”

The key word is ‘reasonable’. Recovery of all agent costs + an extra $5000 seems reasonable to me but not, at this stage, to the agent. The agent’s argument is that the clause about percentages due to the agent being explained and inserted in the contract at the beginning, is sufficient defence.

“I would be negotiating a better contract arrangement if the same agent is used for the relisting.” The agent in this case was very capable at critical moments but whether I want to use the agent again, or recommend this agent, is still a sore and undetermined point.

" See if the agent will leave the current deposit in their trust account to be settled on the final sale of the property." Will consider this.

“It may worth getting independent legal advice should this be acceptable to the agent…so the conditions represent what is agreed.” The agent’s argument was that the procedure to be followed in an aborted case was clearly explained and also covered by a clause in the contract. An alternative legal opinion is that the amount the agent has stipulated for their fees, in the case of an aborted sale, is not in line with widespread practice throughout Australia and represents a trend that should be resisted.

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Wow, we are about to put our house onto the market, This is something I will very carefully look at.
Thank you posting

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I believe this is covered under standard form contracts and suggest you contact your state consumer affairs office to provide advice on how to proceed before you engage a legal practitioner. However, this is a good reason for never signing the real estate agents standard documents or simply accepting their scale of fees. You are entitled to insist on your own contract which may well be a modified form of the agent’s one anyway, which is checked out by your own lawyer. You are also entitled to negotiate your own scale of fees. Jenman and Associates are a worthwhile contact for you to make and will provide free advice on how you should proceed. Nil Jenman is hated by the RE Industry because he makes a living by exposing their fraudulent activities. Good Luck.

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Get onto this guy personally for the best advice. http://www.webuyhouses4cash.com.au/
Karina

Hi Peter,
Thank you for starting this thread. I am about to enter into a contract to sell a house and will look closely for this. I confess I would find it very difficult to continue working with an agent who did this. Good luck.

I would advise you to be very careful before you take legal action. A lot of solicitors have the same moral standards as those real estate agents. They will assure you, that you have good prospects and then the big spending starts…
You might well end up losing a lot more money than you did in the first place.

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A good bit of advice, that. Some in the legal profession will fight for your rights to your last dollar.

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Hi fredstanvic,

The main lessons I’ve learnt are to read the contract very carefully or get an expert to look at it very closely; and also to consider that worst case scenarios do occur, even though unlikely for most transactions.

Hi erwinhecht,

Fair point: I have a brother who is a lawyer. His advice to me: keep away from lawyers, they only cause trouble!

Hullo male: You wrote: ‘insist on your own contract’. That makes a lot of sense to me. Cheers, Peter