What is an agency agreement in real estate?

What is an agency agreement in real estate and why is it important to have one? How does it protect your agency, your clients and the professional relationship you will develop? And what components of an estate agency agreement are the most important to pay attention to when you are on the cusp of providing your services to a client?

Let’s take a look at what an agency agreement in real estate is, why it is so important and legally compulsory to have one between your agents and your clients.

What is an estate agency agreement?

An estate agency agreement is a legally binding contract between a client (or vendor) and a real estate agent. The contract includes several important details that outline the expectations, responsibilities, parties involved and payment terms of the agent working for the client. Whether you are a sales agent, buyer’s agent or property manager, you need to arrange an agency agreement for yourself and your client to sign before you can begin working for them.

Some of the details that should be made clear in an agency agreement include:

• The details of the estate agent
• The details of the client
• The type of agency agreement
• The property’s estimated sales price or letting costs
• Agent’s commission and fees
• What sale method would be used if selling a property
• The period of settlement
• The duration of the agreement
• And more

In the UK, there are three main types of estate agent contract:

1. Sole agency agreement – this is the most common type of estate agency contract and provides a single agent with full and exclusive rights to sell a property. However, if a client finds its own buyer then they will not have to pay the estate agent fees.
2. Sole seller agreement – similar to a sole agency agreement in that this type of contract grants the one estate agent with exclusive rights to sell the property during the term of the contract, however,  will still have to be paid even if a client finds its own buyer.
3. Multi agency agreement – this type of agreement allows a client to instruct multiple estate agents to sell its property at the same time and the agent who makes the sale will obtain the commission.

These are the basic principles that underpin each type of agency agreement, however, it’s important to note that each contract is negotiable between an agent and client and terms surrounding commission, fees and duration can be altered between the parties before anyone signs.

Why is an agency agreement important?

An estate agency agreement provides legal cover to both the agent and client during a professional partnership. The contract clearly outlines the terms of the deal and what can be expected from all parties involved. It ensures that the agent can be held accountable to their services and responsibilities, while the client must keep to the payment terms they agreed to.

Without an agency agreement, both parties won’t have the legal protection to fall back on if something were to go wrong. Once a contract has been signed, the agent will then be free to start marketing the property and gathering interest from prospective buyers. The sooner a contract can be negotiated and signed, the sooner agents have permission to begin the sales process.

How does an agency agreement work?

How does an agency agreement work exactly? The document will first have to be negotiated by both the agent and the client to ensure all terms are mutually agreed upon before signing. After the contract has been signed, there is typically a 24-hour cooling-off period where either party may decide to change their mind. Once this period has ended, the agency agreement becomes legally binding.

One of the terms that will be agreed on before the signing is the duration of the contract. This is the given time frame that a sales agent has to sell the client’s property. If the agent sells the property before the outlined duration ends, then the agency agreement will be considered completed. If the outlined duration ends before the agent is able to sell the property, then it is up to the client to decide whether they would like to extend that agreement with the existing agent, or if they would like to find a new professional to take over the sales process.

If the agency agreement is for a property manager, then this duration period will be much longer and include different payment and commission terms. All types of agency agreements may include an early termination clause if the client is dissatisfied with the agent’s services, however including this will have to be negotiated prior to signing.

3 key components of an agency agreement

There are many different components that make up an estate agency agreement. Each is important for estate agencies to understand the full range of responsibilities they must uphold when working to sell or manage a client’s property.

These three key components of an agency agreement are essential to outlining the terms of the contract and should be carefully considered and, when necessary, negotiated between the parties.

Identification of parties involved

The two main parties in an estate agency agreement are the client and the agent. The contract should clearly state the client’s name, address and full contact information.

The agent will have to include all the relevant contact and licensing information for their estate agency as well as the specific service they will be providing for that agreement, sales agent, property management or auctioneering.

Scope of the agent’s authority and duties

The scope of the agent’s authority and duties will be outlined by what type of agency agreement is decided on. If the contract is for a Sole or Exclusive Agent, then the agent will have exclusive rights to the sale of a property within the duration period of that agreement. If it is a multi-agency agreement, then the client will maintain the right to work with other agents throughout the sales process.

Duration of agreement and termination clauses

There are two types of a duration period that can be agreed upon in an estate agency agreement.

• Single appointment – has a set start and end date and is typically used for estate agents who have been hired to sell a property.
• Continuous appointment – only has a start date and is typically used for estate agents hired as property managers.

An open listing agreement doesn’t need a termination clause as the client maintains the right to end the contract at any time in writing. For sole agent agreements, both parties will have to negotiate if they want a termination clause. If a termination clause is included, then its conditions will need to be clearly outlined—including any penalty fees owed to the agent.

Contact MRI Software

MRI Software provides cutting-edge technology solutions for estate agencies across the UK. From detailed real estate reporting to automated systems and processes, our software will change the way your agency conducts business.

To find out more about how we can help, please request a demo or call us today at +44 (0)20 3861 7100.