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When it comes to choosing a real estate agent, most people have already made their decision long before the contract is signed.
They often focus, rightly or wrongly, on first impressions, who offers the most impressive sales statistics, or who promises the lowest rates or highest sales price.
But regardless of who they decide to go with and their reasons for doing so, when it comes to the contract – those tedious terms and conditions – most will gape, flip through the paperwork, and sign on the dotted line.
And yet, no matter how much they may trust the smartly dressed manager or appraiser who convinced them with their well-rehearsed sales pitch, within that document lurk potential dangers that could come back to haunt them.
Stealthy clauses: We explain the fine print to take into account before signing with a real estate agency
It could tie them to the contract for many months or exclude certain buyers who have not been “financially qualified” and, in some cases, mean they end up being responsible for two sets of agency fees.
Jeremy Leaf, North London estate agent and former residential president of the Royal Institution of Chartered Surveyors, says: “When sellers and buyers hire an estate agent, especially first-time sellers and buyers, they don’t necessarily expect to be met. disadvantaged, so they can be very vulnerable to fine print that turns out not to be in their best interests.
‘The only way to protect yourself is to seek as much transparency as possible. If there is something you don’t understand in the contract, ask the agent to explain it to you.’
Leaf continues: ‘The problem is that we can get carried away with the excitement of buying a house.
“You may have seen a property that you are desperate to buy, so you will sign almost anything, but this is the time to keep a level head and not let yourself be pressured into anything.”
These are some of the dangerous clauses to look out for in a real estate agent’s contract.
1. Push buyers toward your in-house mortgage broker
The first thing to note is a clause that suggests buyers will need to be “verified” by the agent’s in-house financial team or a partner company.
Verifying that the buyer has the necessary funds is one thing, but some agents may pressure buyers to obtain a mortgage through their in-house broker or a connected company to earn a referral commission.
This approach may discourage buyers who prefer to do their own research.
Read the fine print: Real estate agent contracts are often packed with terms and clauses that could backfire on you
Leaf says: ‘A salesperson may view this as a positive, designed to eliminate wasted time. But how do you know that these financial intermediaries are the best available and will be able to access the necessary financing under the best conditions?
‘The buyer might prefer, for example, to stay with his trusted broker who covers the entire market.
‘Some agents go too far and we know of those who are more interested in selling mortgages and other services than houses, especially in quiet times.
“We have also heard of agents not presenting a buyer’s offer to the seller if the buyer does not register with their particular mortgage broker.”
Paula Higgins, chief executive of the Homeowners Alliance adds: “While it makes sense for estate agents to ask for proof of funds to avoid wasting time, it is important to clarify with your agent that they do not insist that all buyers use their in-house mortgage.” runner.
“This is just a ploy to make money off the buyer through referral commissions and could result in offers being filtered out from serious buyers who don’t succumb to the pressure of using the estate agents’ own mortgage broker.”
2. Long bonding periods
It’s common for real estate agent contracts to include a minimum time limit on how long you’ll use (and pay for) their services.
‘Four weeks or 12 weeks are the most popular terms. Any more than this is unnecessary,” says Higgins. ‘If you are ultimately dissatisfied with their service, you will want to be able to terminate estate agent contracts within a reasonable time.
‘We have found cases where exclusive agency agreements have time limits of 20 weeks.
“Five months is a long time to be tied to a real estate agent you’re not happy with.”
Jeremy Leaf warns that some agents insist on giving two or three weeks’ notice before a new agent can market your property
3. Long notice periods
Another thing to consider is how much notice you would need to give if you wanted to market your property with another agent.
“Another clause to consider, one that really bothers me, is what happens if you switch to another agent,” Leaf says.
‘Some agents will insist on giving at least two or three weeks’ notice before your new agent can market your property to discourage you from leaving, during which time you will be in limbo and wasting valuable marketing time.
“This is an unfair clause, but perhaps it could be negotiated at the beginning of the contract; you could argue that if they changed agents, a few days’ notice would be sufficient.”
4. No reflection period
Real estate agents may use their charm when pitching your business, but after you sign up, you may decide that they weren’t right after all.
That’s where reflection periods come in.
Higgins says: “The Property Ombudsman’s Code of Practice says you are entitled to a 14-day cooling-off period if the contract was signed at a location away from the agent’s business premises – usually this means that if you signed the contract on your property.
‘But if you signed the contract in their offices, they may ask you to waive your right to the cooling off period so they can market the property immediately.
“If that’s the case, take your time and negotiate the terms of the contract you’re not comfortable with before you sign it.”
Paula Higgins, founder and CEO of HomeOwners Alliance, says some agents will try to tie you into the contract for 20 weeks.
5. “Ready, Willing and Able” Clause
“Some estate agent contracts may include a ‘Ready, Willing and Able’ clause,” says Paula Higgins.
‘This means that if someone is ready, willing and able to purchase your property, and even if an exchange of contracts does not occur, then the agent will be entitled to charge a fee.
‘Don’t accept this. It means you have to pay the agent to find a buyer, even if he decides not to sell.’
6. Exclusive sales rights
Agents have an important role to play, but you may very well end up finding someone to buy your home without their help.
For this reason, you want to avoid signing a contract that gives them exclusive selling rights.
Leaf adds: ‘If the agent has exclusive selling rights, but you meet someone at the school gates who is buying your property, you are still responsible for paying a fee.
“But if it’s a multiple agency, you’ll only have to pay one fee if the agent presents the property to the buyer.”
7. Continuous or persistent liability
Property sales don’t always go smoothly, and someone who first looked at your home months or even years ago may decide to return later with a winning offer.
“If you change real estate agents, keep in mind that the first agent may claim a commission if they sell your property to someone they originally introduced your property to, even if months or years have passed since then,” says Higgins.
‘Two years is pretty standard. Before signing the contract, make sure you understand whether you will have any continuing liability to the agent for a fee if you terminate the agreement.
“Otherwise, there is a risk of having to pay two commissions: to the first agent who initially introduced the buyer and again to the real estate agent who finalized the sale.”
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