It was in the naughty nineties that backdooring the real estate agent became a sport. A well-intentioned real estate agent would show the property to prospective purchasers. A purchaser would return to the house and meet with the vendor independently. They would strike a deal and effectively cut the real estate agent out.

The reaction of the industry was to create exclusive agent agreements. An exclusive agency agreement states that the agent is entitled to their commission if they have introduced a person during the exclusive agency period. The agency agreement goes on to state that, even if someone else sells the property, the agent is still entitled to the commission.

In the 2003 amendments of the Property, Stock and Business Agent’s Act 2002, Fair Trading sought to deal with this problem. They did not outlaw exclusive agency agreements because they saw that agents should be rewarded for the work they’ve done. What they did was place warnings in contracts stating that, “This is an exclusive agency agreement. If you sign another agency agreement, you may have to pay two commissions.”

Solicitors and other advisors in the industry have advised that two commissions are not plausible. However, the legislation has been drafted in such a way that agents are protected.

If an agent introduces a person to a purchaser, and that purchaser backdoors the agent by going directly to the vendor, the vendor still must pay the agent’s commission.

Agents, don’t rest on your laurels! We are now seeing a return to the backdoor purchaser. We have recently had an issue where the vendor terminated the agency agreement. The purchaser introduced by the agent still bought the property, but there was no agent referred to on the front cover of the contract. Merely having no agent on the front cover of the contract does not exclude the agent from commission. The fact that the agent has an open house list, an offer from the prospective purchaser, and that purchaser appears on the title, means we have an action in the local court.

In this case, the difference between what the vendor wanted and what was actually paid was exactly the commission of the agent. You may have felt that the backdoor days are over, but they ain’t.

 

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538