Monthly Archives

September 2018

What’s an Agency Agreement?

Last week we answered Diana’s question on why her home had not sold, and because we mentioned that it might be because she is using the wrong agent we thought we should tell you what is involved in a Sole Listing Agreement, and when and how you can cancel it. The real estate agent you choose to sell your house will ask you to sign an agency agreement.

This is a legally binding contract so make sure you read and understand it before signing. Your agent should also recommend that you take legal advice before signing.

Your agent must also give you a copy of the REAA  Agency Agreement Guide which explains your rights under the agreement.

If you use any of the major Auckland real estate brands you will most likely be signing an agreement that contains just the approved standard clauses – if your agent modifies the agreement in any way then definitely seek legal advice before signing.

Your agent must explain to you when the agency agreement will end.  Make sure you check the cancellation terms. These can vary from agency to agency.

A sole agency agreement gives one agent or agency the exclusive right to market and arrange the sale of your property. If you sign a sole agency agreement you should not sign another agency agreement with any

other agent until you have cancelled the first agreement.  If you do, you may have to pay all agents a commission,  regardless of which one arranged the sale.

If the sole agency agreement is for a residential property and for a term longer than 90 days, the client or the agent can cancel the agreement at any time after 90  days.

Make sure you check what happens when the sole agency agreement is cancelled. Some sole agency agreements become general agency agreements when cancelled – this means that you will also have to cancel the general agency agreement if you no longer want to work with the agency.

When a sole agency agreement is cancelled your agent must give you a list of people they have introduced.

If you sell to one of these people, the agent may be entitled to a commission.

If you change your mind after signing a sole agency agreement you can cancel it by 5.00pm on the first working day after you have been given a copy. This must be done in writing ie, letter, email or fax.

However, if an agent carries out any work before the agreement is cancelled and that work results in the sale of the property after the agreement is cancelled, the agency agreement will be legally binding and you will have to pay that agent commission.

Why isn’t my Home Selling?

Q: We put our home on the market 3 months ago (auction) and had no bids. Since then we have put a price on it, but we haven’t received even one written offer. Our agent is a lovely lady but we just don’t seem to be getting anywhere. Any suggestions? Diana C.

A: There is nothing as frustrating for a home seller as their home not selling, and I’m sure your agent feels the same way too!

There are a number of possible reasons, but the most obvious is the price. If you have been through an auction campaign and had feedback at say $1m and you are holding out for $1.2m then maybe that’s your problem, especially if the market is not on the rise. We are often confronted with a potential seller who has based their price on what the house owes them, or what a neighbour’s property sold for. The sale price is determined by the buyer, not the seller I’m afraid.

Another reason can be your choice of agent. There is no doubt that a good agent will get you a better price than an average agent, and in a tough market such as now, this is even truer. We have written before about choosing the right agent for you, and as we say, it’s even more important in the current market. Certainly, make sure they have a good rapport, but also check their listings to sales ratio: How many properties have they taken to market this year, and what percentage of them have sold? Over 80% or 90% is good.

There may be a whole raft of other reasons you are still on the market. People will tell you that presentation makes a big difference, and it does. But the price will always trump any other reason: If your home needs a $100,000 makeover then it will be reflected in the price. Drop the price by $100k and you will very likely sell. If you want to spend the $100k doing the makeover you may find it easier to sell, but not necessarily for an extra $100k!

We’re sorry you haven’t managed to find your buyer, but keep an open mind and think hard about what you are willing to accept in order to move on.

Next week we will talk about what your rights are in terms of a listing with a sole agency.

What is a Reverse Mortgage?

We read the following article online and thought it might be of interest to our readers. The Australian Securities and Investment Commission (ASIC) are reviewing reverse mortgages:

 What is a Reverse Mortgage?

Essentially, it is a loan that allows you to borrow money against your home by using the equity built up in your home as the security. This type of loan can be taken as a lump sum, a regular income stream, a line of credit, or a combination of these.

With this type of loan, although there aren’t repayments while you live in your home, there is interest charged like any other loan. The interest will compound over time and be added onto your loan balance.

These types of mortgages are usually taken out by retirees to complement their lifestyles and provide an additional income stream during retirement years.

However, there are many long-term financial risks when taking out these loans.

As these loans are mainly taken out by retirees, the loan must be repaid in full (including interest and fees) when you move into aged care, move out, or pass away. Until this time, you are able to stay and live in your own home, all the while accumulating interest and reducing the value of your estate.

Risks

The current ASIC review of reverse mortgage lending in Australia found that borrowers typically do not recognise or understand the long-term risk of taking out this type of loan.

There are large risks when taking out a reverse mortgage, the main risk being severe financial distress later in life.

Some of the risks associated with these loans:

  • The payments may impact your pension eligibility.
  • The banks will offer higher interest rates and charge higher ongoing fees than the average home loan.
  • As you are aging in life, your debt will increase as interest rises on your loan.
  • Debts will increase quickly as the interest compounds over time.
  • The value of your home is not guaranteed to always rise, and if the value of your home falls, you may have less money than expected for future medical treatment or aged care.
  • Maybe high break costs involved.
  • In some circumstances, if you have someone living with you, not on the mortgage, such as children, family or friends, that person may not be able to stay if you move out, or pass away as the bank will need to recoup their loan.

We strongly advise that if you are considering taking out a reverse mortgage you seek independent financial and legal advice as well as speak to your family as there may be other ways to obtain funds in your retirement years.