Vendors: Appointing an agent
A vendor can sell their own property without engaging an estate agent, although they need to employ an agent to conduct a formal auction, if they want to hold one. Individuals who act as estate agents must be licensed. The licensing body is the Business Licensing Authority (BLA).
In Victoria, the BLA, together with the Estate Agents Council, regulates estate agents’ activities and trust accounts, administers the estate agents’ guarantee fund (which repays clients when estate agents or their staff steal money held in trust) and investigates complaints.
The Real Estate Institute of Victoria (REIV) is the representative body of estate agents practising in Victoria; most agents are members of REIV.
An estate agent should be formally appointed in writing as the agent for a vendor’s property as this protects both the vendor and the agent. The agent is not entitled to take their commission without a written appointment; however, an agent can market a property without being appointed.
There are three types of appointment:
- general sale authority: this makes the fees payable only if the agent is the effective cause of the sale;
- exclusive sale authority: this makes the fees payable if the property is sold by the agent, or by any other person including the vendor, to a person who was introduced to the property during the authority period, or up to 120 days after the end of the period, and who buys as a result of the introduction; and
- exclusive auction authority: this makes fees payable on the same basis as the exclusive sale authority.
The authority must contain specific information about the agent’s fee, a statement identifying discounts and rebates, etc., and a statement about where complaints about the agent can be made.
The right of the agent to sell under a general and an exclusive sale authority lasts for 60 days and under an exclusive auction authority for 30 days, unless another period is specified in the agreement.
A vendor may also negotiate the fees, advertising costs and the terms with the agent.
Vendors can engage multiple agents for the one sale to act for them simultaneously, either as conjunctional agents (so that the agents share the fees) or by giving each agent a general sale authority (which entitles only the selling agent to receive commission).
Most residential properties are sold through exclusive sale authorities as this option gives the agent the greatest incentive to earn the fees.
Sale by private treaty or auction?
Vendors need to decide whether to sell by private treaty or by auction. Sale by auction is popular, but a vendor should only choose an auction if they:
- are prepared to pay the extra expenses;
- understand the agent’s authority; and
- are satisfied that it is the best marketing strategy for their property – the estate agent should provide guidance on this.
Auctions and COVID-19
At the time of writing (1 July 2021), due to the restrictions put in place in response to COVID-19, auctions are being conducted online, usually during the week.
Unless the estate agent’s authority states otherwise, the cost of advertising a property for sale is paid for by the vendor, not the agent. The cost of advertising for a private treaty sale is usually much less than the cost of advertising for an auction sale.
It is recommended that vendors ask for a detailed list of advertising expenses from each agent when they are selecting an agent to sell their property.
Advertising is generally sold at a discount by websites, newspapers, signboard suppliers and printers to bulk buyers (such as agents). Vendors are entitled to this discount. The estate agent’s authority may state that the agent can keep the discounts. A vendor can delete this clause and ask that the discounts be paid to them.
Estate agents’ fees
Fees are stated in the estate agent’s authority. There is no limit on the amount an agent can charge. It is up to the vendor to negotiate a price.
An estate agent’s authority must show:
- details of the commission and outgoings; and
- if the fee is calculated on a percentage basis, a statement of the fee expressed as a percentage and dollar amount that would be payable on the reserve price or other relevant amount.
The fee can be based on a service or series of services, such as holding open for inspections, negotiating the contract and collecting the deposit, or it can be a commission on the price.
Vendors should ask for a detailed price list from the agent before signing the estate agent’s authority.
Victoria has enacted underquoting laws that apply to residential properties. Agents must prepare a statement of information for each residential property they are engaged to sell. The statement of information must include an indicative selling price for the property, details of the three most comparable properties and the suburb’s median house or unit price. Complaints about underquoting are dealt with by Consumer Affairs Victoria.
Advice to vendors
Shop around for an agent. You should consider the costs, and the agent’s competence and experience before making your choice. It is also recommended that you conduct thorough negotiations before appointing an agent. Negotiations should cover the type of appointment, commission and advertising costs.
As a vendor, do not:
- sign a contract of sale that contains terms (including a price) that you are unhappy with; ask the agent to renegotiate with the buyer;
- agree to sell the property to the agent, or to anyone employed by the agent, or to a company associated with the agent without first seeking advice about section 55 of the Estate Agents Act 1980 (Vic). These contracts may involve the buyer in a conflict of interest. You should consider raising your price by the amount of commission or get the agent to forego commission to ensure that the agent is not getting an artificial discount not available to any other buyers;
- sign a contract of sale by which your property is sold for a price less than the value of the loans secured on the property (including overdrafts that are indirectly secured) unless you consult your lender and your solicitor or financial adviser first.
Ultimately, selling the property is your decision as the vendor. You must determine whether an offer is acceptable. An agent must pass on all offers to you. If the offer is above the sale price specified in the agent’s appointment and you refuse it, you may be liable to pay the agent’s fee.
Advice to buyers
The expenses of conveyancing, the fee for using an electronic conveyancing platform, stamp duty, the mortgage lodgement fee, registration fees, insurance and other charges can add around six per cent (or more) to the purchase price of a property. Note that every buyer will fare differently due to the duties, insurance and concessions that apply.
Pre-purchase contract review
Before you make an offer to buy a property, you should send your conveyancer or conveyancing solicitor the contract of sale to review. They will recommend which special conditions to have struck out, what conditions to add, and what to do further diligence on in light of what has been disclosed in the vendor’s statement.
You should get the contract reviewed before you make an offer, as once you have signed the contract, you cannot amend it unless the vendor agrees.
As a buyer, do not sign a contract of sale until:
- your conveyancer or solicitor has reviewed the contract of sale and the vendor’s statement;
- your lender informs you in writing that finance is pre-approved (unless you include a finance clause, as discussed above);
- you have checked that the boundaries of the land correlate with the title measurements (which are on the title plan in the vendor’s statement) – check the distance from the land to the street corner (or the ‘connecting point’) shown on the plan, to ensure that the land inspected is the same as the land in the title (note that your ability to object to a title based on minor discrepancies in the dimensions of the land may be restricted under a standard contract);
- you have checked whether you are required to install child-proof locks and barriers that comply with Australian standards for any swimming pool or spa on the property;
- you have checked with the local council that the swimming pool or spa has been registered with the council and that the pool or spa fencing is compliant (and the vendor has a compliance certificate);
- you have checked with the local council to ensure that the land can be used in the way you intend;
- you have checked the area’s planning permits (at www.planningalerts.org.au) and considered if these will affect your amenity or privacy; and
- any conversations you have had with the estate agent about early access to the property, certain goods coming with the property or other special conditions are written into the contract.
The documents you are required to sign immediately on purchasing the property are the contract of sale and the vendor’s statement. Do not sign any other documents without independent legal advice.
Section 27 statement
At the time the buyer signs the contract of sale, it is common for the vendor or their agent to present a section 27 statement for the early release of the buyer’s deposit (pursuant to section 27 of the SL Act). This statement contains details of any mortgage or caveats over the property, which allows the buyer to make an educated decision about whether to consent to their deposit being released. Also, where a property is encumbered by a mortgage, the buyer has the right to request a letter from the lender stating the circumstances of the loan (e.g. the total amount currently owing and whether the borrower is in default).
In certain circumstances, lawyers consider it safe for the buyer to consent to the vendor accessing the deposit before settlement. Most importantly, the vendor should have sufficient equity in the property to enable the mortgage to be discharged at settlement without relying on the deposit and they should not be in default of their mortgage (and the vendor agrees to not re-mortgage the property). ‘Sufficient equity’ is generally understood to mean that the total debts owing on the mortgage do not exceed 80 per cent of the purchase price.
If a buyer agrees it is safe for the vendor to have early access to the deposit, they can sign the section 27. Once this done, whoever is holding the money in trust is authorised to release the deposit to the vendor (often less real estate agent fees and commission).
If a buyer objects to their deposit being released early (and they need to state a valid reason for the objection), the vendor will not be able to access the deposit until settlement.
If a buyer neither consents nor objects to the request, 28 days after service of the section 27 on the buyer, the deposit can be released to the vendor by the person holding it in their trust account.
A buyer has 28 days from receiving the section 27 to object to the early release of the deposit. It is permissible for an estate agent to provide the section 27 with the contract so that time begins to run from the signing of the contract. However, it is not permissible for an agent to ask a buyer to sign a section 27 consenting to the release of the deposit at this time. This is because a buyer is entitled to have a reasonable opportunity to assess the information (or have their lawyer assess it).
If you receive a section 27 statement, seek legal advice before signing it. If the agent gives it to you directly, ask for it to be forwarded to your conveyancer or conveyancing solicitor for their review.
Inspecting the building
The contract of sale may contain warranties about the quality of the building. The rule is still caveat emptor, meaning ‘let the buyer beware’. However, deliberately misleading statements made by the vendor or their estate agent may give the buyer a right to compensation.
There are two types of pre-purchase inspections:
- A building inspection involves a builder examining the building, inside and out, and noting any issues from major structural faults to minor defects, maintenance issues and safety hazards. Outside, a building inspector will look for cracking and rising damp, and will examine drains, gutters, sheds, retaining walls, fences, windows and roofing. Inside, a building inspector will look for cracks in the walls, uneven or springy floorboards, leaky ceilings and the quality of the finishes and fittings. Some inspectors will also investigate roof spaces (to check the framing and insulation) and under the floor, but these areas are often excluded.
- A pest inspection looks for evidence of timber pests (e.g. termites).
There are two ways buyers can do a building/pest pre-purchase inspection:
- If the property is not being sold at an auction, buyers can make an offer subject to a satisfactory inspection. The special condition is added to the contract and the buyer is given a set time frame to organise the inspection. If the inspection identifies ‘major structural defects’ (which is the normal wording of a building clause but can be varied), they can terminate the contract and get their deposit back. Another option is to add a condition to the contract that allows a buyer to terminate the contract if an inspection reveals defects that to fix require work above a certain value or not to their satisfaction.
Vendors will usually only accept an offer made subject to an inspection that reveals a major building defect or a major pest infestation. This is a higher threshold than a report needing to be to the buyer’s satisfaction. If this is the case, a buyer will only be able to terminate the contract and get their deposit back if the inspection reveals these major issues.
- If the property is being sold at an auction, your only option is to get the inspections done before the auction.
Buyers can employ a licensed building inspector or an architect to conduct a building inspection – and if necessary, a licensed pest control operator – to ensure the property is sound before making an offer. The professional fee for a building and pest inspection of an average-sized house is about $500–$700.
What are chattels?
Chattels or goods are movable items that are not fixed to the land (e.g. a non-integrated dishwasher, washing machine, garden shed, a non-affixed garden statue, television antenna, light fittings, a swimming pool pump and filter, and floor rugs).
Unless specified and included in the contract of sale, the vendor is entitled to remove chattels. If a buyer wants to purchase these movable items, they should be included in the chattels or goods clause in the contract of sale.
The vendor must give the buyer a vendor’s statement (also called a ‘section 32 statement’) before the buyer makes an offer on the property.
The vendor’s statement is a key document in the sale of a property; the contract is void without it. The vendor’s statement contains information about the land. It does not contain information about the quality and condition of the buildings or fittings, the conformity of buildings with building regulations, any land wrongly included inside the fences, or any land in the title that is outside the fences.
A buyer should make independent enquiries to verify the information contained in the vendor’s statement, and to discover any information not included in the statement.
An omission or error in the vendor’s statement may allow the buyer to avoid the contract of sale without any penalty at any time before settlement.
It is in the vendor’s best interest to ensure that the vendor’s statement is carefully prepared by their solicitor or conveyancer.
If there is a dispute raised by the buyer, the vendor may challenge the contract avoidance and may win if a court is satisfied that the vendor acted honestly and reasonably and ought fairly to be excused for the wrong information, and that the buyer is in substantially as good a position as if all the information had been provided.
Buyers seeking to avoid the contract of sale due to an error or omission in the vendor’s statement should seek legal advice about the strength of their claim and the associated costs and legal implications before starting legal proceedings against the vendor.
A well-drafted vendor’s statement contains all the information required by the SL Act (s 32), including:
- the title and plan of subdivision;
- warnings about planning controls;
- easements, covenants and similar restrictions (including leases);
- planning information;
- prohibitions in the planning scheme against building a dwelling house, if the land is outside the metropolitan area;
- whether there is road access to the property;
- rates, taxes and outgoings charged on the land, or a statement that the charges do not exceed a specified amount;
- statutory charges on the land;
- services connected to the property;
- insurance details if the contract does not provide for the property to remain at the vendor’s risk until the settlement date;
- building guarantees and permits obtained in the previous seven years;
- any notice, order or approved proposal affecting the land that the vendor could be reasonably assumed to have known about;
- owners corporation notices and liabilities;
- contaminated land;
- orders under the Land Acquisition and Compensation Act 1986 (Vic);
- Growth Areas Infrastructure Contribution;
- energy efficiency information.
If land is sold pursuant to a vendor terms contract, the vendor must provide additional information, including details of interest and repayment terms of the loan. Details must be provided of any mortgages that will not be paid out, and the vendor’s default on the loan(s) (if applicable).
A copy of a current title search (also called a register search statement) must be attached to the vendor’s statement.
If the property being sold is an off-the-plan property, the vendor should disclose the latest version of the proposed plan of subdivision in the vendor’s statement.
It is common for the vendor’s statement to include other searches and certificates from the relevant rating and tax authorities to show the outgoings as at the date of the contract of sale.
It is mandatory for the vendor or their agent to give the buyer the due diligence checklist issued by Consumer Affairs Victoria before the buyer signs the contract of sale and the vendor’s statement. This checklist is available at www.consumer.vic.gov.au/duediligencechecklist.
In addition to the vendor’s disclosure regime set out in the SL Act, the Sale of Land Amendment Act 2019 (Vic), which took effect from 1 March 2020, provides that vendors and agents cannot knowingly conceal any material facts about a property from a buyer.
This helps a buyer make a fully informed decision before buying a property, as some information about a property might only be known to an owner and may not be known to a buyer, even if they have personally inspected the property.
Material facts can include:
- whether a murder has occurred on the property;
- whether any building work has taken place without a building permit or planning permit, or that is otherwise illegal;
- the underlying cause of an obvious physical defect where the cause is not readily apparent on inspection (e.g. a large crack in a wall would be obvious to a buyer, but the underlying reason for the crack, such as defective stumping, may not be clear to a buyer);
- whether the property has been used as a methamphetamine laboratory;
- whether the property has flammable cladding;
- whether there is any asbestos on the property.
The vendor or agent must answer any questions from a buyer about material facts as fully and frankly as possible.
For more information, see the Material Fact Guidelines on the Consumer Affairs Victoria website.