BUYER AGENT………BUYER BEWARE

If you have read my welcoming blog you will be aware that I have drawn a distinction between the Buyer Agent operating in the market who pronounces that he is an “estate agent”, and myself.  I am a practicing solicitor who also engages in Buyer Advocacy representing purchasers of property.

Caveat Emptor, is latin used in legal terms for “let the buyer beware”.  At common law when buying goods without warranty, the purchaser took the risks as to quality upon himself, and had no legal remedy if he chose to rely on the bare representations of the seller, unless some sort of fraud could be proved.  Over time the legislators have installed some consumer protections in the various Acts that imply conditions as to the merchantable quality and fitness for purpose of goods.  In the case of the sale of land there are rules that a contract of sale must be in writing and include minimum disclosure provisions known as a Section 32 Statement, which must form part of the contract of sale.  Obviously minimum disclosure, by the very term, may not give the absolute full picture so there is now the further vendor advice statement which must be included in the contract of sale, warning that a potential purchaser must also do their own Due Diligence, outlined in a three page document and attached to the contract.

When you are a buyer in the real estate market, and you decide that you prefer or require the assistance of a Buyer Agent to identify and purchase the right property for you, then the same responsibility of Caveat Emptor applies to the “purchase” of those services from the service provider, the Buyer Agent.

You must do your own Due Diligence so as to get the best possible provider and avoid the possibility of the lengthy and expensive litigation processes should a dispute arise from the failures in the lead up to and execution of the contract of sale.  You cannot build a pyramid on a point, you must have a solid base.  Therefore the first consideration in the process is to seek out, question and select the right person for the job, and ensure that the person that you do select has been given the proper and sufficient authority which maintains sufficient legal protections and enforceability.

The Agent.

The term Estate Agent itself is often a misnomer failing to properly describe the service provider.  The Estate Agent’s Act describes an Estate Agent as a person engaged in the business of selling, letting or collecting rents for a property.  Such a person must be licensed under the Act and the licensing procedure includes an area of study and qualification.   An Agent’s Representative is a person employed by a Licenced Real Estate Agent to work at the selling coal face.  Usually an Estate Agents office has one Licenced person and numerous representatives but the practice today is that these representatives often refer to themselves as Estate Agents.

Where a Buyer Agent espouses that he is or was a Real Estate Agent, it is wise that you should verify whether he is a Licenced person as described under the Act, or an employed salesman.  This does not of itself necessarily preclude or diminish ability, but the difference is the licensing qualification, which on the surface at least, gives some measure of protection that he has the training which covers the legal liabilities and responsibilities of the Contract of Sale of Land.  Ask the questions and evaluate the qualification and experience of your potential agent.

Unlike the Real Estate Agents Act, there is no similar licensing procedure or legislative control presently in place for Buyer Agents.  There is a representative body called the Real Estate Buyer Agent Association (REBAA), which stipulates as one of the criteria for membership that members be licensed real estate agents.  This is a purely voluntary organisation which is not representative of the industry as a whole and precludes those with different qualifications, like myself.

The Agent Agreement

The process of engaging a Buyer Agent will always include an exclusive agreement.  This is the authority for the Buyer Agent to perform the task of acquiring a property and outlines the parameters and objectives of the service to be provided.  It usually includes a number of terms describing the duties and liabilities of both parties.  Your preferences or circumstances may well be that you instruct the Buyer Agent to sign the contract on your behalf, you may be interstate or overseas or otherwise unavailable. I have seen Agreements which give the Buyer Agent authority to sign the Contract of Sale for and on behalf of the purchaser client, if authorised in writing to do so.  The Agreement further incudes an indemnity for the Buyer Agent from any liability incurred in signing the contract.  The question is, is that enough?

The contract of sale of real estate includes an instruction that if the contract is signed under an Authority, then the type of authority must be noted beneath the signature, in the case of a Buyer Agent it must read “as agent authorised in writing by one of the parties.”  Is the Agreement which indemnifies the buyer Agent sufficient authority without a further written instrument?

Consider the real life situation where an estate agent, acting for a vendor, is approached by the Buyer Agent keen to purchase a property for an overseas client.  The Buyer Agent has no other authority than the Buyer Agent/Client exclusive agreement which purports to give the Buyer Agent authority to sign the contract, but indemnifying him from all liability.  He has no additional authority in writing.  We have a keen seller and a keen buyer intending to bid at auction.  The estate agent acting for the seller is content to get the highest price and a signed contract, but would the Buyer Agent signing without further written authority constitute a legally binding contract, and if so, with whom? Where do the parties stand if there is a dispute or default?

The Buyer Agent can sign the contract in his own name and including “and/or nominee” and the contract can be later assigned to the new purchaser client.  General condition 18 of the sale of land contract states however that the person signing the contract in those circumstances remains liable in the case of a default.  The Buyer Agent remains intent on avoiding any liability and so signs the contract in the name of the client.    Is this a legally binding contract?  If so, who is bound by the contract?

A second real life scenario involves the Buyer Agent representing a client under a Buyer Agent/Client exclusive authority.  However in this instance he is not content to act solely under his agent’s authority and drafts a conditional Power of Attorney authorising him to engage in all duties required to enter into a contract of sale of real estate for his client.  He successfully bids at auction purchasing a property for his client and signs the contract under the Power of Attorney.  It subsequently becomes apparent that the Power of Attorney produced may be invalid as it fails to comply with the newly revised Power of Attorney Act 2014.  Is this a legally binding contract, and if so with whom?

The Consequence of Uncertainty

You may say that this could not happen, but these are factual events which were eventually resolved by amicable negotiations between the parties’ lawyers, but this may not always be the case.  As soon as you have a situation with “what ifs” you have uncertainty and the potential for expensive dispute resolution.  Leaving aside the situation of liability under the contract, “what if” the vendor receives good legal advice that the Buyer Agent’s authority is questionable and just prior to the auction the vendor refuses to enter into a contract with that Buyer Agent due to the uncertainty. You lose the opportunity to buy what may have been just the right property.

The whole purpose of the contract of sale is to ensure certainty.  When everything is done correctly, the terms and conditions are negotiated and set out in the contract, and the particulars of sale as to valid authority and purchase price are all fully disclosed prior to the parties signing the contract, there is certainty as to the expectation of the parties.  The result of any uncertainty inevitably leads to a dispute situation which is expensive enough if resolved by the parties’ lawyers, but extremely costly when it escalates to litigation.

Conclusion

If you engage the services of a Buyer Agent, and you perform your own due diligence in the selection process, it’s not just time you may be saving. You are looking for the additional knowledge and experience to find you the right property at the right price and presumably to get hold of the keys to your new property with a minimum fuss.  Not an unreasonable expectation but the first obligation is on you.

Be particular of whom you engage.  Do your due diligence on your representative so that you have somebody with the knowledge and procedures to protect your rights and interests.  If you engage a Buyer Agent, and he is not a lawyer, you will also need to engage a lawyer/conveyancer to complete the purchase and settlement of the property so have them examine the Agent authority prior to signing it.  Also make sure that your lawyer checks the contract before signing. If you get the process correct from the start then you reduce the possibility of heartache in the future.

 

Phil Kelly

 

 

 

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