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Frequently asked questions Pages
What are we talking about?
REIV Information Officers David Dundas and Jim Lourandos, address some of the current common questions from Members.
Jim Lourandos & David Dundas
REIV Information Officers
When is it “sold”?
Ever been caught out by marking it “sold” too soon?
There are some simple steps to avoid this: • Present the offer to the vendor in the form of a Contract of Sale signed by the prospective purchaser and detailing the amount of deposit already paid. • If the vendor accepts the offer, have them sign the Contract of Sale and leave a copy with them. • Have the vendor sign and date a separate document acknowledging they have received a copy of the contract signed by them and the purchaser. • Deliver to the purchaser a copy of the
Contract of Sale with their signature and that of the vendor. • Have the purchaser sign and date a separate document acknowledging they have received a copy of the contract signed by them and the vendor.
After completing these steps, it is safe to inform people, including the vendor and the purchaser, that the property has been sold subject to the terms of the Contract of Sale including any cooling rights.
The filling out of a Contract of Sale by an agent or agent’s representative is permitted by section 53A of the Estate Agents Act, contrary to what some members of the legal profession, particularly in non-metropolitan areas may suggest. Contracts prepared by the Law Institute of Victoria and the REIV are available for purchase at low cost from the Institute. Having a contract and section 32 statement at commencement of marketing avoids the risk of one or both of the parties changing their minds and jeopardizing a sale while waiting for the vendor’s legal representative to prepare a contract. Taking a deposit at the time of obtaining the purchaser’s signature is not a legal requirement, but there are some practical reasons why it should be done. (Refer to the next item about the importance of a deposit).
The process satisfies the requirements of section 126 of the Instruments Act, which specifies that an agreement for the sale of land must be expressed in writing and be signed by the parties to the agreement. While a barrister will argue it is possible for the agreement to be on other than a contract of sale, there is no point creating the grounds for such an argument by not using a contract. The interests of your client will be protected as well as your entitlement to commission.
The exchange of contracts and the signing of acknowledgements satisfies
the requirements of The interests of section 53 of the Estate your client will Agents Act. be protected as Using a contract in the well as your negotiation of a sale entitlement to avoids being frustrated commission. by either party agreeing to the terms of the sale but later retracting the agreement before signing the contract. Also, asking a prospective purchaser to make their offer by signing a contract will confirm their intention to genuinely make an offer. The importance of a deposit The sale of real estate does not always proceed smoothly to settlement, sometimes buyers exercise a cooling off right and in other instances may fail to settle. Both circumstances are unpleasant, but they can be less so if a substantial deposit has been collected at the time of taking an offer. CONTINUED ON PAGE 16
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Cooling-off
Section 31 of the Sale of Land Act allows the purchaser in certain circumstances to terminate a contract simply because they no longer wish to proceed with it. If they do so there is a penalty payable by them to the vendor, it is $100 or 0.2 % of the purchase price, whichever is the greater.
The penalty can be deducted from any deposit paid and the balance is refunded to the purchaser.
If the agent has not collected sufficient deposit the vendor is left with their property unsold, a marketing campaign disrupted, and the likelihood the purchaser will not pay the penalty.
Failure to settle
The Contract of Sale copyright 2019 prepared by the Law Institute of Victoria and the REIV contains the following important deposit related information under General Condition 35 “Default not remedied”:
Section 35.4 If the contract ends by a default notice given by the vendor: • The deposit up to 10% of the price is forfeited to the vendor as the vendor’s absolute property, whether the deposit
has been paid or not; and • The vendor is entitled to possession of the property; and • In addition to any other remedy, the vendor may within one year of the contract ending either; • Retain the property and sue for damages for breach of contract; or • Resell the property in any manner and recover any deficiency in the price on the resale and any resulting expenses by way of liquidated damages; and • The vendor may retain any part of the price paid until the vendor’s damages have been determined and may apply that money towards those damages; and • Any determination of the vendor’s damages must take into account the amount forfeited to the vendor.
While the above is in the LIV/REIV contract it is likely that a similar condition will be in contracts obtained from other sources.
If the purchaser fails to settle by the due date, it is not only inconvenient and stressful for the vendor, but also expensive. Costs include commission, marketing expenses, legal fees, possibly costs such as bridging finance or penalties related to a purchase the vendor may be making, as well as costs related to the resale of their current property. There is also the risk that the resale may be at a lower price. If at least 10% of the purchase price has been collected as a deposit the vendor will not have to pursue the purchaser for that amount and it will ease their unexpected financial burden.
Cleared funds
While the purchaser may pay a deposit it may be the case, depending on the means of payment, that it will not immediately appear in the agent’s trust account as cleared funds. This can even occur in the case of some electronic transfers. During this delay the purchaser could put a stop on the payment. A very cautious vendor would not sign the contract until there is confirmation of the cleared funds being in the trust account. Of course, such a delay in
signing would not be practical when selling at auction, but the risk remains.
Instalments
A vendor may decide to accept an offer with portion of the deposit having been paid and the balance due by a specified date. It is essential that the agent maintains a follow-up to ensure that the payment is made in accordance with the contract. If the payment is not made the vendor and their legal practitioner should be informed immediately as the purchaser is in default under the terms of the contract.
how are vendor price expectations formed?
Vendors are influenced in many ways as to what they think their property will be sold for, and their decision-making processes will probably be somewhere on a spectrum between rational and emotional. The agent’s communication with the vendor needs to be managed with these things in mind as progress is made towards achieving a sale. Influence will come from family, friends, neighbours, media reports and even other agents. It will not always be in the best interests of the vendor; family members may be focused on their inheritance, friends may be making comparisons with out of area properties, neighbours may have unrealistic expectations about the value of their own properties, and other agents may be acting unprofessionally because they were not appointed.
The selling agent needs to have in mind a range of scripts for dealing with what they know, or suspect is being fed to the vendor from other sources. They also need to have reliable data about recent happenings in the local market – the auction clearance rate, the time on market, the sale prices, and the difference between advertised price and selling price. Broader economic, social, and demographic trends are also relevant and can be gleaned from news media.
The thought processes of vendors will not always be logical, for example, expecting to recover purchase price and stamp duty when the property has been held for a very short time; thinking it is worth more because it is the home they grew up in; or needing a certain amount for what they hope to do after the sale. None of this influences what a buyer is prepared to pay, but selling agents need to prepare to deal with this type thinking.
Communication with the vendor must be an ongoing process during the marketing of the property, it is not enough for the selling agent to just attempt to convince the vendor when there is an offer to present.
