Home » Resources » Redress » Understanding the terms of an agency agreement

Understanding the terms of an agency agreement

"Having signed a 16-week sole agency agreement, a sale was agreed but fell through and the sellers' niece bought the property. The agency charged the sellers the full commission. Unacceptable, says Katrine Sporle, The Property Ombudsman.

Katrine Sporle
THE COMPLAINT

Property buyers imageA recent case that The Property Ombudsman (TPO) was asked to review came from property sellers concerning the dispute of the commission fee. The sellers were charged £2,280 plus VAT by the agent after they sold their property privately.

The sellers signed a 16-week sole agency agreement. After a few weeks of the property being on the market with the agent, the sellers accepted an offer and the conveyancing process commenced, but the buyer later withdrew, and the property went back on the market.

It is imperative for an agent to understand the terms of their agency agreement and only seek a commission fee under those agreed terms.

The sellers then informed the agent that their niece had made them a direct offer which they had accepted.

The agent told the sellers that they were still liable to pay the commission fee, but this was queried as the agent had not introduced the buyer and had not secured the sale.

INVESTIGATION

Within the agency agreement, clause 6 stated that:

“If during the period of the agreement, a buyer is introduced by any other agent, these fees are still payable to us. It is confirmed by the vendor that no effective introduction of a prospective buyer for the property has been made already save as disclosed in writing at the date of this agreement.

“No charge will be made, unless a buyer is introduced during the currency of the agreement and that buyer eventually purchases the property.”

The estate agent queried the fact that the sellers, by agreeing to the above clause, had advised that no party was interested in purchasing at the time that the agreement was signed.

They also said that the sellers’ niece was potentially interested in purchasing the property prior to their instruction and as such the information on the agreement was inaccurate.

This was the basis for the agent’s belief that a commission fee was due to them, but, The Property Ombudsman found, there was absolutely no evidence to support this allegation.

The sellers’ understanding was that they did not owe the fee to the agent.

Section 5 of the TPO Codes of Practice sets out the estate agent’s obligations regarding their agency agreement and the payment of their commission fee. Fees must be fully explained, clearly and unambiguously stated in writing.

The agent described their instruction as sole agency in their agency agreement and set out the scenarios when a commission fee may be due.

However, they didn’t comply with paragraph 5g of the Codes of Practice as they attempted to widen the circumstances of when they would be entitled to a fee.

They included scenarios in which they were not involved in either the introduction of the buyer or negotiations with that buyer.

This approach, said the Property Ombudsman, is not consistent with that of a sole agency instruction, but that of a sole selling rights instruction where a commission would have been due if the property had sold during the set period regardless of whether they introduced the buyer or not.

The estate agent had, in effect, endeavoured to claim a commission fee on a sole selling rights basis but they confirmed to TPO that their agency agreement was in fact a sole agency one.

The Ombudsman did not consider that it was appropriate for the estate agency to claim a commission fee bearing in mind they had no involvement in the transaction.

OUTCOME

A sole agency arrangement is where a single agent is appointed to market a residential property for sale.

The agent will only be entitled to its agreed fee if it introduces, or has negotiations with, the eventual buyer of the property.

Both parties had agreed that it was a sole agency agreement and therefore the sellers were reasonably entitled to believe that they would not have to pay a commission fee after they secured the buyer and the sale progressed independently of the agent.

The Ombudsman was satisfied that the agent had not introduced the buyer to the purchase and had not had any dealings with her. The Ombudsman commented that it was imperative for an agent to understand the terms of their agency agreement and only seek a commission fee under those terms.

It is simply unacceptable to try to amend the terms to seek a fee to which an agent is not contractually entitled. This agent should have recognised this rather than making the sellers pursue a complaint thought TPO.

The Ombudsman supported this complaint and directed the agent to waive their requested commission fee of £2,280 plus VAT.

November 20, 2018

What's your opinion?

Please note: This is a site for professional discussion. Comments will carry your full name and company.

This site uses Akismet to reduce spam. Learn how your comment data is processed.