Many agents properly and correctly participate in the process of exchanging contracts either with a cooling off period for residential property or immediately following a sale by auction of property in all categories.
The great majority complete this process without error but there are some stunning examples of very costly mistakes being made.
Here are some simple procedures to follow to avoid those mistakes:
• When you receive the contract in your office ensure that the necessary documents are annexed as required. (Page 2 of the Standard Contract for Sale has the checklist)
• Ensure that the attachments are the relevant ones for the property. It is not uncommon to find the wrong S.149
• Certificate or Sewerage Diagram – make sure they are for
the right address and not missing any pages.
• Check the original against the counterpart to ensure they are exactly the same. One missed page can destroy the integrity of the document and provide the opportunity for
the purchaser to rescind.
• Be particularly careful when photocopying- always check the result no matter how tedious it may be.
• Check both the “Inclusions” and “Exclusions”. Are they as nominated by the Vendor and do they match your understanding?
• Check that the vendors name(s) and property particulars are correct.
• Check that all lots are identified. Particularly important when selling Strata property. Units, car spaces, garages and storerooms may be separate lots in the Strata plan, make sure they are all included.
• Are you selling with vacant possession or subject to tenancy? If tenanted the details must be included, (copy of lease).
• Settlement time, is it as you expected?
• Check the GST status; if applicable make sure you fully understand the implications and discuss with your client and their solicitor (and accountant if necessary).
WARNING: Do not give GST advice to prospective purchasers or anyone else for that matter – they must seek their own advice.
• Are the improvements properly represented on the contract?
Whilst some of the details are strictly not your “responsibility” as such you do need to check to make sure there is no confusion.
Let’s face it – a simple mistake or a missing page can provide the opportunity for the purchaser to rescind and have their deposit refunded, cost the vendor a sale and cost you your selling fee. If the mistake is a result of your negligence then legal action will almost certainly follow and you can be sure that it will be very costly!
When it comes to “filling up” the contract in preparation for exchange remember that an agent can only complete the details inside the “black box” on the front page.
These details are:
Purchase Price, Deposit Amount and Balance
Some Handy Tips
• Have the purchasers write their full name(s) and address on a separate piece of paper together with their solicitor’s name and contact details BEFORE you fill these in on the
contract. This avoids making errors and then also avoids very untidy corrections.
• Do the calculations for purchase price, Deposit and Balance separately also. Have someone else check the maths to ensure you are correct, and then fill in the contract.
Deposit Danger Zone
The deposit must be as shown on the contract, normally 10%. On no account should an agent alter the amount of the deposit without written instruction from the vendor’s solicitor or conveyancer. If a purchaser is seeking to pay a deposit less than the amount stipulated in the contract then it must be agreed before the auction or before negotiations are finalised and the agent so authorised in writing.
This also applies to an exchange with a cooling off period for residential property. Some agents have adopted the practice of amending the contract to reflect only .25% as the deposit. This is completely incorrect.
The obligation on the purchaser is to pay the full deposit as shown on the contract, normally 10% and then to forfeit .25% of the purchase price if they cool off.
You as agent have both a duty and serious obligation to collect the full deposit as nominated. Failure to do so can expose you to legal action and a potential financial minefield.
In the same way agents MUST NOT delete, add, alter or amend in any way any clauses or special conditions in the contract, and this includes the completion date, without first having written instructions from the vendor’s solicitors.
• Have the vendor sign the front page of the original contract and then initial each page, including attachments. It is also good practice for them to initial the purchase price and
deposit in the margin.
• The purchaser(s) sign and initial the counterpart contract in the same way.
• Signatures need to be witnessed on the front page.
• Have both parties sign the appropriate “authority to exchange” document.
• Physically exchange the contracts by handing the one signed by the vendors to the purchasers and vice versa.
Once this has occurred the parties can choose to give the contract back to the agent to forward on to the respective solicitors. This is provided for in the ‘Authority to Exchange’ document.
The law provides the right for agents to participate in the exchange of contracts in certain circumstances and it is in the best interests of all parties that this process occurs efficiently and without confusion and error.
Principals and their staff should feel confident in this participation, by following the simple checklist and by not stepping outside the rules will ensure that this level of confidence is achieved.
From Compliance Matters – EAC From the Boardroom – Summer Edition 2012