If you are going to sell a property through an estate agent, you will almost certainly be asked to sign an agency agreement and terms of business. There are a number of different agency agreements, each of which have their own advantages and disadvantages and specific terms and conditions under which you will have to pay a fee. To help you make an informed decision, we provide an overview below of the different types of agreement that you might be asked to sign and advise on the relative merits of each.
Sole agency agreement
Under a sole agency agreement, you will appoint one agent, for an agreed period of time, to sell your property. The agent will only earn a fee or commission on the basis that they find a buyer in this period and the buyer completes the transaction. If the property has not sold at the end of the agency period, you can choose to retain the agent or move to a new agency without penalty.
Pros
- By offering an agent “exclusivity” for a period, the agent should be willing to offer more favourable fee/commission rates.
- If you personally find a buyer yourself, you do not have to pay a fee/commission to the agent.
- Creates alignment between the seller and agent, as the agent is incentivised to achieve the highest selling price, as their commission is calculated as a percentage of the price.
- As you will be working with only one agent, it generally results in a stronger relationship between seller and agent.
- It will be easier to coordinate activity and viewings as you will have only one agent/point of contact to work with.
Cons
- You are committed to the one agent for an agreed period of time, so if the agent fails to perform, you have to wait until the end of the contract period before you can switch to another agent.
- If another agent introduces a buyer during the sole agency period, you may be liable to pay fees to both agents.
Sole selling rights
Under this agreement an agent is given sole selling rights, which means that you will have to pay the fee even if you find a buyer yourself.
Pro’s
- Creates alignment between the seller and agent, as the agent is incentivised to achieve the highest selling price, as their commission is calculated as a percentage of the price.
- As you will be working with only one agent, it generally results in a stronger relationship between seller and agent.
- It will be easier to coordinate activity and viewings as you will have only one agent/point of contact to work with.
Cons
- The major drawback is that you will have to pay the agent irrespective of who finds the buyer, including if you find a buyer yourself.
- You are committed to the one agent for an agreed period of time, so if the agent fails to perform, you have to wait until the end of the contract period before you can switch to another agent.
Multiple agency agreement
Under a multiple agency agreement, you are free to appoint as many agents as you like and you will pay the commission/fee to the agent that eventually finds you a buyer that completes the transaction.
Pros
- Agents can not be complacent, as only one of them will earn a fee. In theory each agent should be incentivised to try to get the deal done – but see below.
Cons
- While in theory every agent should be incentivised to work harder to get the deal done and earn the fee, in reality, agents may put in less effort and focus on properties that they are selling under sole agency agreements where they are guaranteed a fee.
- Because this arrangement carries more risk for the agent, fees are almost certainly going to be higher than under a sole agency agreement.
- There is no perfect alignment of intent between seller and agent (as there is with a sole agency agreement). Under this arrangement an agent is more likely to recommend that you accept the first offer or a lower offer, so they can earn the fee. Under a sole agency agreement, an agent will not be in any rush to get you to accept an offer and should make an objective recommendation to you based on the relative strength of the offer.
- If buyers see your property listed with multiple agents, it might give the impression that you are “desperate” to sell and as a result, it might attract lower offers than you might receive under a sole agency.
- You will have to coordinate the activity and viewings arranged by multiple agents, so it could get a little chaotic.
Joint sole agent agreement
Middle ground between a sole agency and multi-agency agreement is a “joint sole agency agreement”, although these types of contract are rarer. Under this agreement, you appoint two agents who might agree the terms under which fees will be split between them, irrespective of who sells the property. This usually only makes sense if you want to appoint a specialist agent who acts nationally (for example marketing exclusive or overseas homes), as well as a generalist local agent. Because the fees have to be shared, you should expect to pay a higher commission rate under a joint sole agency arrangement.
Pros
- You can reach two defined and distinct markets through agents who specialise in those markets. If your property would benefit from this kind of marketing then a joint sole agency should be considered.
Cons
- Fee will be higher
- If you sell your property through a third agent during the agency period then you will have to pay multiple fees.
- You will have to coordinate viewings arranged by both agents.
- As with multi-agency agreements, there is no perfect alignment of intent between the seller and agents.
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