Agency agreements in real estate

An agency agreement is a legally binding contract between a real estate agent and a client. It outlines essential information about the property, the service being provided, and the terms of engagement.

Key information that usually appears in an agency agreement includes the names and contact details of all parties involved, a full description of the property, the proposed method of sale or lease, and details around commissions or costs. It will also specify the start and end dates of the contract and any conditions related to ending the agreement early.

At MRI Software, we understand that real estate agencies need these agreements for a variety of reasons, including to help with their real estate reporting. Agreements vary, but most follow similar principles. The terms can be negotiated before signing, and it’s important that all parties fully understand the conditions. Once the document is signed, it becomes legally enforceable.

Table of contents:

• Commission, fees and expenses
• Disclosure of rebates and discounts
• Ending the agreement
• Types of agency agreements
  • Exclusive agency agreements
  • Sole agency agreements
  • General listing / open agency agreement
  • Multiple listing
  • Auction agency agreement
• Cooling–off period
  • What is it?
  • Cancelling the agreement during the cooling–off period
  • Waiving your cooling–off rights
  • The contract of sale
  • Exchange of contracts
  • If you encounter problems
  • Other tips
• FAQs

Commission, fees and expenses

The financial terms of an agency agreement are critical for both agents and clients. This section defines how the agent will be compensated and what costs the client may need to cover beyond the commission.

Commissions can be expressed as a percentage of the final sale price or as a flat fee. Some agreements may allow for performance-based tiers, where a higher commission is paid if the sale exceeds a certain price. There may also be charges for advertising, staging, photography, or other sales-related services.

It’s essential to clarify whether these extra costs are included in the commission or charged separately. Agents should present all fee structures transparently and be ready to explain how and when payments will be processed.

Disclosure of rebates and discounts

Disclosure requirements are in place to prevent conflicts of interest and maintain trust. An agent must disclose if they receive rebates or benefits from services recommended to the client. This might include discounts on printing services, online listings, or cleaning services.

If these disclosures are not made, the agreement could be challenged later. Clients should read this section carefully and ask questions about any third-party providers mentioned in the agreement. Full transparency ensures everyone understands the financial landscape of the partnership.

Ending the agreement

An agency agreement can be brought to an end in several ways. It might expire naturally at the end of the agreed period, or it may be concluded once the agent sells or leases the property.

Clients and agents may also choose to terminate the contract early. Termination clauses vary depending on the type of agency agreement. For example, general or open agreements often allow either party to walk away with written notice. Exclusive or sole agency agreements may require a longer notice period or include termination fees.

Understanding your rights at this stage is vital. Some states have rules about how terminations must be handled. Always ensure these rules are reflected clearly in the written agreement.

Types of agency agreements

The type of agency agreement selected will shape how the property is marketed and how commission is managed. Each format has its own implications for exclusivity, responsibilities, and competition.

Exclusive agency agreements

In this structure, one agent is given the exclusive right to market the property. Even if the client sources a buyer independently, the agent is still entitled to receive their full commission. This model is commonly used in residential sales and is considered best for maintaining control over marketing and pricing.

Sole agency agreements

This model is similar to exclusive agreements but provides more flexibility for clients. The agent is given the right to sell or lease the property, but the client retains the right to find a buyer on their own. If the client sells privately, the agent typically forfeits their commission.

General listing / open agency agreement

Under an open listing, the client can work with multiple agents. The first agent to sell or lease the property earns the commission. This format may work in competitive markets but can lead to inconsistent marketing and confused messaging.

Multiple listing

Multiple listing services allow different agents to collaborate on a shared platform. While this approach increases exposure, commission is usually shared between the listing agent and the selling agent. It’s often used in commercial real estate or high-volume residential environments.

Auction agency agreement

This type is used when the property will be sold at auction. It specifies the date of the auction and defines roles and responsibilities during the lead-up and event itself. These agreements often include detailed marketing schedules and compliance with auction-specific legislation.

Cooling–off period

What is it?

The cooling–off period offers clients a short timeframe to reconsider their decision. The length of this period varies by state but usually ranges from one to three business days. During this time, clients can cancel the agreement without facing a financial penalty.

Cancelling the agreement during the cooling–off period

If a client chooses to cancel within this timeframe, they must do so in writing. The cancellation takes effect immediately upon delivery. This mechanism protects clients from pressure or rushed decisions and gives them time to seek further advice.

Waiving your cooling–off rights

Clients can waive their right to a cooling–off period if they wish to start the process quickly. This waiver must be provided in writing and may require a legal certificate confirming the client understands their decision. It is wise to obtain independent legal or financial advice before making this choice.

The contract of sale

Once a buyer is found, a contract of sale is drafted. This document includes agreed-upon terms such as price, settlement date, and any special conditions. It is separate from the agency agreement and finalises the deal between the buyer and seller.

Exchange of contracts

When both parties have signed the contract of sale, copies are exchanged. This formal step confirms the sale and makes it legally binding. After exchange, the buyer typically pays a deposit, and both parties work toward settlement.

If you encounter problems

Disputes can occur even in well-managed transactions. These often relate to commission disputes, misleading advertising, or service delivery issues. Keep records of every stage of the agreement, including emails and signed documents. These materials may be required if a resolution cannot be reached informally.

Other tips

Before signing an agency agreement:

• Request a copy in advance and review it thoroughly
• Ask about any unclear terms or charges
• Make sure all verbal agreements are written into the contract

FAQs