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Tips and traps when engaging a real estate agent for your next property development

One of the pivotal components of a successful property development is ensuring all lots in the project are sold for the highest price in the shortest amount of time. There is no consultant that is more important in this process than the real estate agent.

Not only is it important to find the right agent, it is equally as important to engage them on the right terms and conditions to provide you with as much control and flexibility as possible.

Can you imagine spending all that money on advertising only to have the agent walk away with the entire database and then start trying to get them to buy in another project? A good Brisbane property development lawyer can help you avoid this situation.

Appointing agents

Ownership and control of the project database

The project database is the lifeblood of sales for your property development. A comprehensive project database will include full details of all people that have enquired on your project and detailed notes on the interactions the agent has had with that prospect.

Not only does the project database provide you with valuable insight on which forms of advertising are the most effective, it is a lead source that can be nurtured to maximise the number of sales in your project. Keeping in touch with prospects in the database is a key part of your agents’ job.

Unless your agency appointment includes special conditions to deal with the project database, the agent will usually own the database and you won’t have access.

Once of the best ways to ensure you always have a current version of the project database is to include an obligation on the agent to provide you with regular reports. By providing you with a copy of the database each week, you can have full transparency on the follow up the agent is doing and also have a backup of the database in case you need to choose another agent for any reason.

At the end of the day it is the developer’s advertising dollars that have created the database. It is only fair that the developer can continue using this database to generate sales, even after a new agent has been appointed.

Form of agency appointment

Queensland legislation requires a real estate agent to be appointed using a POA Form 6. This form includes the basic details of the appointment and does not include any general terms and conditions.

You can find the POA Form 6 here: Click me

It is usual for a real estate agent to then include the standard REIQ terms and conditions as part of the agency appointment. These terms and conditions are provided by the Real Estate Institute of Queensland, being the peak body for agents. This means they are generally drafted in the agents favour and should not be used by property developers without amendment.

Developers should generally be appointing real estate agents using the POA Form 6 with their own special conditions annexed.

Exclusive vs Sole vs Open Listing

Different types of agency appointments

There are three different types of agency appointment in Queensland:

  • Exclusive listing – This means the agent is entitled to commission if a relevant lot in the project is sold during the agency term. It does not matter whether it was the agent or another person that sold the property.
  • Sole agency – This type of appointment is very similar to an exclusive listing, with one subtle difference. A developer is not required to pay the agent commission where the developer sells the relevant lot in the project themselves.
  • Open listing – An open listing means the agent that is the effective cause of the sale is the one that is entitled to commission. Determining the effective cause of the sale can get messy where the buyer has dealt with more than one agent.

So which one is best?

Experienced developers use a number of different strategies depending on the project and the target market. With that said, the most common strategy we see is for developers to appoint an exclusive agent.

Appointing one agent means they have sole accountability for the success of the project sales. If sales are slow, they can’t point the finger at another agent.

Another thing to consider is the effort that the agent is likely to put into your project. An open listing means the sale they have been working on for so long could be taken at the last minute by another agent. What we find is that agents dedicate most of their time to the exclusive listings.

The main situation where we see developers successfully engage more than one agent is in a co-listing situation with each agent having a different target market. The common example of this is an experienced local agent teaming up with an agent that has an extensive interstate and overseas database of buyers.

What happens if you fire the agent?

Agents are in a powerful position given they are the ones that have a relationship with the buyers in your development. They also have access to sensitive information that you may not want falling into the hands of your competitors.

Unless your agency appointment has special conditions, there are no restrictions on how the agent can deal with your existing database of buyers and the sensitive information they hold.

The main priority when changing agents is to ensure a smooth transition without any disruption to your buyers.

Some key items a good property development lawyer will deal with to assist are:

  • A restriction on the old agent making any contact with the project database
  • An obligation on the agent to promptly pass on any enquiries regarding your project
  • A timeframe for the agent to return any materials they have in their possession. This may include a project phone that receives buyer enquiry

These restrictions and obligations are critical in ensuring the old agent does not start trying to poach buyers for other projects they might be working on.

Payment of commission

It is common for a real estate agent to be paid a portion of their commission once the sale is unconditional with project marketing style agreements. The most common split we see is 50% payable on unconditional and 50% payable on settlement.

With commission already being paid before the sale has settled, it is important that the project marketing agreement protects the developer and this partial commission payment. This includes:

  • An obligation on the agent to repay the unconditional commission payment where the contract does not settle for any reason
  • The ability for the developer to set off future commission payments against refunds owed to it. For example, the developer may not be required to pay commission on Lot 2 becoming unconditional because the agent owes the developer a refund of the unconditional commission payment for Lot 1.
  • Ensuring the developer is not required to pay the balance 50% if you choose not to proceed with the project

Got more questions?

McAndrew Law is a leading Brisbane Property Development Law Firm. We have extensive experience in drafting agency appointments and project marketing agreements for developers to ensure your rights are protected. Call us on (07) 3266 8555 or get in touch with us online to get started. We offer a FREE initial consultation to discuss your needs.

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