Clear and well-drafted contracts are not just a necessity in the real estate industry; they are the backbone of every successful transaction. Just like a well-designed property, they ensure smooth daily functioning and minimise liability. As a business owner, negotiating contracts is a crucial skill that can help you secure the best deals for your agency. This article delves into the critical aspects of real estate contracts to equip you to negotiate effectively.
What is a Contract?
A contract is a legally binding agreement that outlines specific terms, obligations and rights. Except for in particular situations, a contract can be either written or verbal. The purpose of a contract is to ensure that people do what they say. For instance, suppose you agree to pay rent to a property owner every month. You are, therefore, obligated to do so unless the contract itself or the law states otherwise.
What happens if you fail to perform your obligations? A court may award compensation for losses or order you to take specific actions.
What Makes a Valid Agency Contract?
Understanding the elements of a valid contract equips you with a map to navigate the complex world of real estate agreements. By knowing these elements, you can build a strong foundation for any contract and feel more confident during negotiations. They are detailed in the table below:
| Element | Explanation |
| Agreement between the parties | An agreement comes about through an offer and then subsequent acceptance. Offers should be clear, specific and unequivocal to avoid misunderstandings. |
| Intention to create legal relations | The parties must want to enter into a legally binding contract. The surrounding circumstances can often reveal this. |
| Exchange of value (consideration) | Parties exchange something of value. For example, you agree to perform agency services in return for a fee. |
| Capacity to contract | In some situations, young people under the age of 18 or mentally impaired persons are deemed incapable of consenting to a contract. |
| Lawful purpose | There must be a lawful purpose to the contract. For example, you cannot contract to sell illegal drugs. |
What Should an Agency Contract Include?
A real estate agency contract is a legally binding agreement between a property owner and a real estate agent. This contract outlines the terms under which the agent will market and sell, or lease out the property on behalf of the owner. Some key terms that an agency contract should include are:
- full names and contact details of the property owner and the agent;
- a description of the property being sold or leased. If relevant, how the property will be sold (for example, by auction);
- whether the contract is exclusive to your agency or other estate agents can be hired by the owner;
- a description of the services that you agree to provide, such as advertising, conducting inspections and negotiating;
- the start and end dates of the agreement;
- the amount you will earn, which can be a fixed fee or a percentage-based commission;
- any requirements the owner must fulfil (like providing access for inspections); and
- how disputes are supposed to progress.
Before finalising your agency agreement, be sure to check state or territory law for required contractual clauses. The specific clauses you need will vary by location.
Practical Ideas to Negotiate Contracts
Recognise that every negotiation is unique, so you must be flexible when negotiating an agency contract. Build trust and understanding with the owner by focusing on a win-win outcome. This will lay the groundwork for a stable working relationship throughout the contract. Here are some valuable ideas to consider including when negotiating contracts.
Active Listening
Pay attention to the owner’s needs and concerns. This can help tailor your approach so that solutions align with their goals. For example, if the owner says they want to sell a property for a minimum price, you should not advertise below that price.
Research Thoroughly
Know the market by researching comparable sales and listings. Explaining this information to the owner will give them confidence in your abilities. Additionally, by demonstrating your competence, you can negotiate more favourable terms.
This factsheet outlines your key real estate advertising requirements.
Manage Expectations
Set realistic expectations to prevent surprises during the agreement process and after the contract is signed. It is likely that some things are non-negotiable. For example, you might be unwilling to lower your commission for a sale below a certain amount.
Know When to Let Go
Recognise when a deal is not beneficial and be prepared to walk away if necessary. It may be time to move on if you cannot secure a mutually beneficial agreement despite your efforts.
Before presenting an agency agreement to your client, it is highly recommended that a lawyer reviews the contract. This step is crucial to ensure that your interests are protected. The Australian Consumer Law also prohibits unfair or one-sided contract terms in some circumstances. Therefore, it is worth checking that the contract is legally compliant. This is an essential part of the process to help you negotiate contracts that align with your interests and expectations.
Key Takeaways
A real estate agency contract is a critical document that requires careful consideration. By understanding its components and how to negotiate the terms, real estate agencies, like your own, can ensure they enter into an agreement that aligns with their interests and expectations. You should always seek legal advice before signing to ensure you fully understand your rights and obligations.
If you require help negotiating real estate agency contracts, our experienced contract lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
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