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How do you cancel a real estate agency agreement? The standard period for a sole agency agreement in New Zealand is 90 days. If the agent, who is a party to the agreement, sells your property before the expiry of the agency, they are entitled to receive a commission, as set out in the agency agreement.
What if you want to cancel the agreement before the 90 days is up?
Sole agency agreements almost never contain a cancellation clause. Under s 130 of the Real Estate Agents Act 2008 (REAA 2008) vendors have until 5pm, the next working day after a copy of an agency agreement is given to them by the agent, to cancel the agreement. It follows that if you, as a vendor, are not given a copy of the agency agreement, you can cancel the agreement at any time during the period of the agency with immediate effect.
Assuming that an agent does the right thing and provides the vendor with a copy of the agency agreement and the agreement is not cancelled by 5pm the following working day, there is nothing in contract law or the REAA 2008 that allows a vendor to get out of a sole agency agreement before the end of the initial 90-day agency period. The only way you can get out of the agreement at this stage is by mutual consent – i.e. a request to end the agreement from the vendor and acceptance that the agreement has ended from the agent.
Request a cancellation
While real estate agents are under no obligation to cancel an agency agreement before the end of the initial agency period, many agents will agree to a cancellation request. Agents ultimately have an interest in preserving relationships and also their professional reputations. An unhappy vendor can make a lot of unwanted noise. If you are unhappy for whatever reason, request a cancellation and also request a cessation of all marketing activities. It will be as uncomfortable as trying to cancel a gym membership or trying to unsubscribe from a newspaper. The agent will likely claim that they have promising buyers lined up for an inspection or they were just about to present an offer. If this is true, give the agent until 5pm the following working day to present you with something and state that if they are unable to, you would still like the cancel the agreement. If the agent agrees to a cancellation at this point, be aware that the agent may still be entitled to receive a commission if you then sell your property to someone who the agent introduced to you or property in some way.
Where does this 90-day agency period come from?
On the surface, it doesn’t make a lot of sense. Vendors are under no obligation to accept offers presented to them by agents, so why can’t vendors cancel the agency agreement at any time? After all, if a vendor is unhappy with an agent’s performance, they can reject all offers and make sure the agent does not receive a commission.
The unobstructed 90-day sole agency period is designed to protect agents. From the real estate industry’s point of view, if an agent is using their resources, network, and connections to market a property and they find a suitable buyer for a given property, it is only fair that the agent receives the agreed-upon commission. The fear is that after a marketing campaign, a vendor could cancel an agency agreement and then privately agree to sell to a buyer who found out about the property as a result of the agent’s introduction and/or marketing efforts.
The 90-day agency period is one of the protections that stops this from happening. If a property is sold during an agency period, the agent will be entitled to receive their commission. This is true even if the vendor finds the buyer and sells the property without the agent’s knowledge or input. Equally, there are now instrumentality and buyer familiarity clauses that protect agents beyond the agency period.
What if a vendor met with a buyer privately and told the buyer that if he/she puts in an offer in two weeks (once this hypothetical agency has ended), the vendor wouldn’t have to pay a commission of $30,000 and the vendor would therefore knock off $15,000 from the asking price? To contractually combat scenarios like this playing out in real life, commissions are often payable if the agent introduces a buyer to the vendor. In most cases, a buyer will see a listing and contact an agent for more information. If the buyer then goes onto put in an offer within the agency period, the agent will obviously be entitled to receive a commission. If the buyer puts in an offer outside of the agency period, evidence of the agent interacting with the buyer during the agency period is all the agent needs as proof that they introduced the buyer to the vendor/ property. This is why agents get prospective buyers to sign-in when visiting an open home. It is not to keep prospective buyers updated as many agents claim. It is to ensure that if the property is sold to anyone who goes to an open home, the agent has proof that they should be entitled to a commission. Most agency agreements state that if a vendor sells to a buyer introduced to them within 6 months of the agency ending, the agent will still be entitled to a commission. This catchment period is sometimes longer, but almost never shorter.
How does an agent prove that they introduced the buyer to the vendor?
Without email or text message communication or some acknowledgement from a buyer, it is very difficult to prove. Knowing this, agents are now encouraged by the Real Estate Authority to include a vague instrumentality clause in agency agreements. This clause will typically state that if a buyer purchases a property during or sometime after an agency (usually 6 months) the agent will be entitled to receive their commission if the agent was instrumental in some way.
This is where vendors need to be careful. If you cancel an agency agreement and then sell to a buyer a few weeks after an agency has ended, the agent could claim that they are entitled to a commission. How? An agent could argue that the only way a buyer could have known that the property was for sale was because of their marketing efforts (or instrumentality) during the agency window. This is less of an issue if the vendor signs another agency agreement and markets the property with another agency. If, however, the vendor didn’t sign another agency agreement and sold the property privately, they would have to prove that they marketed the property or otherwise found the buyer (or the buyer found them) and it had nothing to do with the efforts of the original listing agent. This is one of the reasons some agents won’t let you cancel a sole agency during the initial 90 days. They know that if they continue to market your property for the full 90 days, more people will be exposed to the property and there is more of a chance that they will be able to argue that their instrumentality is the reason the property sold once the agency ends.
Signing with another agent
Whether you cancel an agency agreement within the initial 90 days or outside it, be particularly careful if you plan to sign on with another agent. If a cancellation is not carried out correctly, there is a very good chance that you will owe a commission to two sets of agents. This is why independent legal advice is so important. If you want to cancel an agency agreement, always seek and take advice from your solicitor(s). Your lawyer should be able to provide guidance on your particular situation. Equally, consulting a lawyer limits your exposure to financial loss. Lawyers have professional indemnity insurance for this reason. If you receive incorrect advice and find yourself on the line to pay one or two commissions unexpectedly, you will at least have a claim against your lawyer and may be able to claw back some or potentially all of the money owing from your lawyer.
Be aware that even if you cancel an agency agreement early, the agent will likely claim that all marketing money has already been spent and cannot be refunded. If this happens, request tax invoices showing that all of the money has been spent. If the agent cannot produce them, you are entitled to a refund of any marketing money that the agency is still holding. Many agencies will claim that they are unable to produce an invoice for certain types of marketing or that they have agreed on a marketing spend and have yet to be invoiced. Agents must keep and produce tax invoices on request – after all, the money belongs to the vendor and not the agent. If they claim that they can’t cancel a marketing commitment, request as much information as possible before accepting the agent’s word. For instance, larger agencies receive heavily discounted ad rates in local newspapers and property publications like One Roof and Property Press. The agency will agree to spend a certain amount every week and then on-sell ad spots to individual agents. The agent will then sell those spots to vendors to market their properties. While the agent needs to commit to a certain number of weeks, their agency has already committed to the ad spend and may be able to find another agent’s listing to fill an ad spot.
Extending a Sole Agency
If the agent doesn’t sell your property within the 90-day agency period, and you would like to continue marketing with your agent, ask for an extension of the sole agency under the existing agreement. This means that you would adjust the end date of the agency period set out in the original agency agreement. Do not sign a new sole agency agreement at this time or let the agency run into a general agency. By extending existing agreement beyond the initial 90 days you, as a vendor, place yourself in a much stronger position.
Under s 131(1) of the Real Estate Agents Act 2008, sole agency agreements that run for longer than 90 days can be cancelled at any time by giving written notice to the agent. Most agencies know this. This is why, at the end of the initial agency period, the agreement will almost always convert to a general agency. The agreement will then have separate terms that apply once the agreement becomes a general agency. Why is this important? If you extend the initial sole agency beyond 90 days, it means that you can unilaterally cancel the agreement at any point from the 91st day. If you let the agreement run into a general agency, you may find that you are required to give a notice period (usually 14 days’ written notice) to cancel the agreement, which means the agreement actually lasts at least 104 days if cancelled as soon as it becomes a general agency.
Of course, none of this applies if you would prefer a general agency and want to take on other agents to market your property following the initial agency period. If you do extend the sole agency beyond the initial 90 days and would like to cancel the agreement outright, use wording similar to this:
“Please accept this as notice that [I/we] [am/are] cancelling the sole agency agreement signed on [date], and any subsequent general agency agreement, between [agency name] and [vendor name] in respect of the property at [address of property] with immediate effect, in accordance with s 131(1) of the Real Estate Agents Act 2008.”
In an ideal world, everything will run smoothly with the sale of your property and you won’t ever consider cancelling an agency agreement. If you find yourself in a position where you would like to cancel an agency agreement, for whatever reason, consult your lawyer in the first instance. Your lawyer will be able to provide you with appropriate guidance. If you do cancel your agency agreement, do not assume that you will no longer be required to pay a commission. There is a lot of money on the line and no matter how friendly you are with your agent, never assume that they will just let it go if you change your mind. The best thing you can do is make sure you do your due diligence before signing an agency agreement to avoid the likelihood of issues down the line. Only ever sign an agency agreement with someone you trust.
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