Out of pocket when binding contract falls over – but realtor saves day.
Vendors should watch they’re not left out of pocket when an unconditional sale falls over.
That’s the warning from Queenstown house seller Lan Bale, who was only saved from his predicament by the generosity of a local real estate firm.
Bale explains how Southern Lakes Real Estate found a buyer prepared to pay $500,000 for his Fernhill home within a week of listing it.
The buyer paid a non-refundable five per cent deposit – $25,000 – to accompany the binding contract but was subsequently unable to settle because of difficulty getting a mortgage.
After the deal fell through, about $19,000 of the $25,000 deposit was legitimately due to Southern Lakes as its standard four per cent sales commission, leaving just $6000 to vendor Bale.
Bale says his share wasn’t enough to cover his expenses, such as legal fees.
“In my ignorance I had thought ‘no sale, no commission’, so the deposit would have been mine.”
Bale accepts Southern Lakes was entitled to some commission for finding a buyer and putting the contract together – even though the deal didn’t stick.
“But everyone I spoke to felt it wasn’t quite ethically right that we should be out of pocket and yet the agency got its full commission on a house that didn’t sell.”
So Bale approached Southern Lakes and was delighted when the firm there and then wrote out a cheque for a further $5000 – taking his share to $11,000.
Southern Lakes also volunteered to take only half its commission if and when it resold his property – but Bale has since decided to take the house off the market.
Southern Lakes principal Stephen Hebbend: “It is a relatively unusual occurrence in the residential market that a property sale is confirmed [as] unconditional by the solicitors and then the purchaser doesn’t settle.
“The reality is that once the solicitor confirms an agreement [as] unconditional, there is physically no more work expected of a real estate company other than processing the deposit, releasing keys when instructed, and the normal follow-up from the salespeople involved with the vendor and purchaser.”
Hebbend also notes that “we were not able to secure the normal 10 per cent deposit from the purchaser – he was only prepared to pay five per cent, which left the vendor with costs which he had incurred in the process above that of our fees.
“Because of this, we decided to cover all these expenses to ensure that the vendor didn’t incur any financial loss.”
Real Estate Institute branch president Adrian Snow says the agency agreement dictates when a commission is payable – either when a deal becomes unconditional or on settlement.
He says a deposit is paid for two reasons – as an act of good faith by the purchaser, and to cover costs such as realtors’, solicitors’ and marketing fees should the deal fall over. In this case, Snow notes, the deposit was only five rather than 10 per cent.
“Once a vendor accepts less than 10 per cent, it would be good agency practice if he/she is warned of the risk [that all costs mightn’t be met if the deal falls over].”
He adds: “Agency fees vary from office to office.
“A typical fee structure is on a tiered scale and may be in the order of four per cent to $400,000 and thereafter at two per cent plus GST, with the highest commissions up to approximately five per cent as a flat fee.”