Estate agent contracts can be complex - know what you're signing, challenge anything you don’t like and never pay more than you need to. We explain different types of contracts, clauses to be careful of and what to expect in relation to fees, standard terms and notice periods.
There are different types of estate agent contracts the estate agent may offer. Each has its benefits and drawbacks, so make sure you know what they are and choose carefully.
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Find and compare estate agentsWhen it comes to types of estate agent contracts, estate agents that are signed up to The Property Ombudsman’s Code of Practice for Residential Estate Agents must take ‘particular care for example in defining and distinguishing between ‘sole agency’ and ‘sole selling rights’; and in describing a ‘ready, willing and able’ contract.’
The Code also says estate agents must use the relevant definitions in full, display them prominently and clearly explain the implications of the terms to the seller, especially where multiple definitions are used.
With estate agent contracts you should understand that you when you sign on the dotted line, you are entering into a legally binding contract under which you may be liable for fees.
When you are agreeing the estate agent fees and the terms of your contract, your estate agent should quote their commission rate including VAT and set out their total fee calculated using the asking price. Check this is the case when you are reviewing your agent’s commission:
Use our calculator to work out how much commission you will pay your estate agent. Adjust the calculator settings for the commission rate, and use the slider to select your estimated sale price. If you wish, you can see how this compares to ‘fixed fee’ agents like Purple Bricks or Yopa. Otherwise, you can set the ‘fixed fee’ to zero to see the total commission you would pay.
Some agents prefer to work on a fixed fee or fixed commission basis. Most online estate agents will ask you to pay a fixed fee upfront. This has the advantage of working out an exact budget for estate agents’ fees and the total fee is often lower.
However on the flip side is that the agent may be less motivated to get you the best price, as they will receive the same fee regardless. As with % commission, always check if VAT is payable on top of the fee.
If you’re considering using an online estate agent it’s also important to shop around to get the best online estate agent at the best price.
Most high street agents offer no sale no fee estate agent contracts. However some online estate agents offer a ‘no sale, no fee’ option as well. This means you won’t have to pay if the online estate agent doesn’t find you a buyer or if the sale falls through. Although the fee you’ll pay will usually be more if you opt for a no sale, no fee package.
Most estate agent contracts will specify a tie in period. But if you end up not being happy with their service, you will want to be able to terminate estate agent contracts within a reasonable timeframe.
Finding the best estate agent at the best price is vital when you’re selling a house.
Make sure you check estate agent contracts for extra fees, such as marketing (which should be included in the commission fee!) or penalties for ending the contract early. Ask for these to be removed if you don’t like them. Any additional charges need to be agreed with you in writing in advance of you being charged.
It’s extremely important to make sure you read and understand estate agent contracts before signing. Don’t feel pressured into just signing it. And the Property Ombudsman’s Code of Practice for Residential Estate Agents spells out that you have the right to a 14 day cooling off period if the contract was signed at a location away from the agent’s business premises – usually, this means if you signed the contract at your property.
If you do cancel and they agent wants to recover costs incurred during this cancellation period, the agent must have got your agreement in writing to those specific costs before work commences. And if the agent plans to charge a fee or recover costs for terminating the instruction, they must make this clear in their Terms of Business and specify the fees and costs. The Code adds: ‘Fees and costs should reasonably reflect the activity undertaken and not include a penalty charge.’
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If you have signed up to an open-ended agreement, beware that the agent can claim commission if you sell to someone who they originally introduced to your property, even if months or years have passed since.
For example, imagine you were with Agent A, on a sole agency contract. But were not happy with their service so you terminated the arrangement, served your 2 weeks notice and were off. Then you signed up with another estate agent – Agent B. Three months later, the sale of your property goes through. You pay Agent B the commission you owe them for selling your home only to be approached by Agent A asking for a percentage as well because they argue the purchaser was originally “introduced” by them. This could happen months, or even years after you left the original contract if you have an open-ended agreement.
Before signing estate agent contracts make sure you understand whether you will have any continuing liability to the agent for a fee if you terminate the agreement. The Code of Practice is clear that if a seller terminates their contract with an estate agent, the agents must explain clearly in writing any continuing liability the seller may have to pay the agent commission. And also any circumstances the seller may have to pay more than one commission fee.
The this explanation must include a list of parties that agent has introduced to the property. If they don’t give this to you – ask for it. And then share it with your new agent. Read guide on changing estate agents: what to consider.
If the estate agent contract allows the agent to ‘financially qualify’ potential buyers then you should carefully consider whether you want to retain this clause. It may look like it’s in your favour, but in reality it could mean estate agents use it to insist that all buyers use their recommended mortgage broker.
Some estate agents are known to not pass on offers from buyers who won’t use their recommended mortgage broker because it means they won’t earn referral fees. The practice is known as conditional selling and means that you as a seller may have a smaller pool of buyers and could get less for your house.
Paula Higgins, chief executive of HomeOwners Alliance, said: ‘We have always believed that estate agents should not be able to make money from both the buyer and the seller in the same transaction. There is a real conflict of interest. Failing to pass on offers is an illegal practice, however enforcement is non-existent so estate agents get away with this.
‘Sellers are having the wool pulled over their eyes as they agree to buyers being ‘financially qualified’ but what they don’t realise is that they are limiting the number of buyers which is not in their interest. In one case, the seller ended up losing £5,000 because the ‘preferred’ buyer pulled out and ended up having to remarket the property for less.’
According to James Munro, senior manager of the National Trading Standards Estate and Letting Agency Team, estate agents who don’t pass offers to sellers for these reasons are in breach of their professional duties and can face sanctions.
However, he warned that some estate agents try to get around the rules by adding terms to the contract the seller signs such as that they agree to ‘refuse buyers which have not been financially qualified by us.’ Although, he said he thinks a judge would side with the seller if a legal claim was made on this matter.
Also, bear in mind that The Property Ombudsman Code of Practice states that by law the estate agent must tell the seller if they ‘intend to offer buyers surveying, financial, investment, insurance, conveyancing or other services or those of an associate or connected person in connection with that purchase, before the seller has committed any liability to you.’
They must also tell the seller in writing or in the memorandum of sale, ‘as soon as reasonably possible after you find out that a buyer, who has made an offer, has applied to use one or more of these services in connection with that purchase.’
Find more information including what to do if this happens to you as a buyer in our guide Do I have to use an estate agent’s mortgage advisor?
Review any estate agent contracts carefully before signing and before allowing the agent to take photos or to begin marketing your property. Be mindful of the following:
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