Real Estate Sale Negotiation - Lawyer vs Estate Agent
A real estate sale
negotiator requires a thorough knowledge of the laws and regulations affecting real estate, drafting expertise to convert ideas into a written document that will give legal effect to
the agreement reached, and the ability to recognised threats to the legality of the sale (and to be able to deal with them if they arise).
Only a
lawyer has the ability to properly
negotiate the sale of real estate on behalf of a vendor.
The myth of the estate agent negotiator
Estate agents have created the myth of the real estate "
negotiator" as a way of convincing consumers of the agent's importance in the sale transaction.
In reality,
estate agents
take no real responsibility for the
contract
or the conduct of the sale. The
estate agent
drops out of the transaction well before it is complete, leaving all final negotiations to the lawyer. It is a little known fact that, when a real estate agent is involved in a sale, the most important negotiations take place after the sale has taken place. The real estate agent just watches from the sidelines, hoping that the
commission will not be jeopardised.
True responsibility rests with the person whose role it is to ensure that the vendor is aware of the legal requirements, obligations and rights associated with a sale - the
lawyer.
It is the
lawyer's duty to ensure that the vendor complies with Section 32 of the
Sale of Land Act, to draft the
contract of sale
and any special conditions the vendor may need, and to take the sale transaction to its conclusion at
settlement
- and sometimes beyond.
As
lawyers, we are constantly called upon to correct mistakes made by
estate agents
during their "
negotiations".
Estate agents - conflict of interests problems
Estate agents
invariably find themselves in situations of
conflicting interests, and this weakens their ability to
negotiate.
An
estate agent does not actually
represent either party. Only a
lawyer can
actually
represent a vendor or a
purchaser in a true
agency sense.
Writing - the estate agent's downfall
Estate agents have a major shortcoming when
it comes to real estate negotiations - they cannot negotiate on paper.
Why can't the estate agent cope with written negotiations? It is all
comes back to representation. The estate agent does not represent
a client in the same way as a lawyer does. Estate agents cannot commit themselves to writing for fear of breaching the
Legal Profession Act by illegally providing legal advice (and risking a penalty of imprisonment for 2 years).
Written real estate negotiations are easy to prove, and are usually legally binding. Verbal negotiations are difficult to prove, and very difficult to enforce in real estate matters.
Only a lawyer
has the qualifications, the authority, and the skill to properly represent a client in written negotiations.
Finally, estate agents are not trained to write, and are not expected to be competent in writing. The Vetassess Certificate IV in Property (Real Estate Agency Practice) Examiner Report for May 2006 had this to say when explaining why estate agents had a failure rate in excess of 50%:
"Some candidates are tempted to offer opinions in response to questions. For example, for a case study question on frustration (impossibility of performance), a candidate may offer an opinion such as "the landlord's insurance policy will pay for the repair of the building". In these circumstances, the legal basis for any action has been ignored and a pointless digression is initiated into an area this is not particularly relevant to the unit. Needless to state that valuable marks and time are lost when this occurs. Such problems presumably arise because the candidate has not initially identified the legal concept that the case study was designed to examine.
Candidates with weak literacy skills seem to have significant difficulties with the examination in general. Some candidates fail to answer many questions, and when answers are given, they tend to be illegible or even incomprehensible. The prescribed entry requirements for the Certificate IV in Property (Real Estate Agency Practice) include acquisition of competency to 'read, comprehend and discuss printed information in English and write simple sentences.'"
It is little wonder that so many estate agents struggle with the sale closure stage of the real estate sale.
What is "negotiation" really?
Negotiation involves conferring or discussing matters with another person, with a view to reaching some form of compromise or agreement.
In real estate matters, compromise can be difficult to reach. This is because, what may sound like a good idea in theory, can result in unexpected problems.
(For example, a vendor may agree to allow the purchaser to store goods under the house before settlement
day. But what happens if the fuel in a lawn-mower belonging to the purchaser results in a fire that destroys the property? Who will carry responsibility for such risks? Taking such matters into account, and providing legal advice on them, is beyond the capacity of the estate agent
.)
Negotiating on behalf of another person requires special skills. In particular, the negotiator must know the needs of the client, and the legal means by which those needs can be achieved.
The negotiator must also be in a position to advise the client with regard to the legal position of the other party, so that the client can make well-considered decisions.
Knowing the law is one thing, but being able to express and apply it in writing is another. Negotiation requires an ability to convert verbal instructions
into a written form that is clear and enforceable at law.
Finally, the negotiator must be independent.
It is impossible for an estate agent
to remain impartial in sale negotiations. This is because the estate agent
will lose many thousands of commission dollars if the sale fails to eventuate. This, in turn, places tremendous pressure on the estate agent
to make a sale - any sale at any price - in order to win the commission.
The real estate agent's approach is best summed up by reference to a cynical definition provided on a leading real estate agent business coaching website:
"Q. What is the number one skill required of Australasian sales agents at the moment?
A. Negotiation. The ability to bring about a successful compromise between a vendor with unrealistic expectations and a purchaser who doesn't want to increase the offer."
Implicit in this perverse definition of negotiation is the need to get the vendor to be "more realistic" regarding price in order to bring about a sale. And who gives the vendor these "unrealistic expectations" in the first place? That's right, the real estate agent!
The need for thorough legal knowledge
Knowing a little bit about the law can be extremely dangerous, and often leads to disaster in real estate matters.
Some
estate agents
know that the law can be a dangerous area for those without special training and qualifications, but many are prepared to take risks that their clients can ill-afford.
Misleading and
deceptive conduct
is so common in real estate that it has become cliché.
Unfortunately, when an
estate agent
engages in conduct that disadvantages a purchaser, it is not only the agent who is responsible - in many instances the vendor is regarded as being responsible for the estate agent's wrong-doing. At the very least, the vendor
will probably have to deal with the results of the
estate agent's
behaviour.
A
lawyer is a professional who has been trained, not only in discovering and interpreting the law, but also in applying it to specific circumstances and advising non-lawyers on their rights and responsibilities.
A real estate
lawyer is both a guide and a helping hand, from the very start of the matter to the very end.
The importance of drafting skills
Drafting is the term used to describe the process of writing down a client's requirements in such a way that the law will recognise them and protect them.
The real estate
lawyer finds out what client needs, offers
legal advice as to the way in which these needs can be satisfied, advises as to available options and their consequences, then seeks the client's decision as to which option should be followed.
The
instructions
given by the client must then be put into writing, with such precision as to allow a third party to read them, understand them, and follow them without a dispute arising as to how they should be interpreted.
For example, a special condition drafted by an
estate agent
and inserted into the
contract
for a property being purchased by a client of ours read as follows:
"The vendor agrees to the erection of a fence between the two properties."
The problem with this special condition is that it does not state WHO is to erect the fence, who will bear the COST of erecting the fence, what TYPE of fence is to be erected, WHEN the fence is to be erected, exactly WHERE the fence is to be
erected, and the CONSEQUENCES if the fence is NOT erected as agreed.
Fortunately, the client had the
contract
checked before it was signed. We changed it so that both parties knew exactly where they stood.
Keeping everything together
The
estate agent
drops out of the transaction as soon as the
contract
has been signed.
This is because the
estate agent
has nothing whatsoever to do with the legal processes involved in taking the sale from the agreement stage to the completion stage. This task falls to the person who has the legal expertise to keep things on track - the
lawyer.
Negotiation invariably continues, well after the
contract
has been signed. The purchaser may want to occupy the property before
settlement
, the vendor may want to bring
settlement
forward, loan approval may be held up and an extension of time is required, the purchaser has found a tenant and wants to come to an arrangement with the vendor - and so on.
All of these matters must be
negotiated so as to ensure that the parties' interests are protected, and the only person capable of doing this
the
lawyer.
An example of true real estate negotiation
This is an example of true real estate negotiation. It highlights the need for legal knowledge, tact, and the ability to anticipate the needs of the parties:
When settlement was only two weeks away and our client, still in a state of shock, telephoned and asked, "What do you do when your purchaser dies suddenly?"
We explained to the client that the property should be put back on the market immediately, and we contacted the solicitors representing the Executors of the purchaser's estate. We knew that, in the circumstances, there would have to be an inquest into the death, and that it would take some time before the deceased purchaser's estate would be in a position to settle. We also knew that the Executors of the estate would be faced with the problem of having to pay stamp duty on the new purchase, and then having to arrange for the property to be sold, and the proceeds returned to the estate.
We advised our client that, in these circumstances, the Executors would probably welcome an offer to cancel the contract, and we sought his instructions to enter into further negotiations.
The property went back onto the market, and eventually sold for the same price. The new contract was drafted with a special condition that stated that the sale was subject to the cancellation of the original contract.
The solicitors for the Executors negotiated an arrangement with us, and it was eventually agreed that our client would be paid a lump-sum, plus costs, in return for immediate cancellation of the original contract. For the Executors, this was a much cheaper option than proceeding with the purchase. For our clients, the lump sum and payment of costs made the fresh sale a very worthwhile exercise - a win-win situation.
Conclusion
Preparing a simple
Contract Note
, or completing the blank spaces in a
contract of sale
prepared by a solicitor is as much as an
estate agent
is legally entitled do in relation to the sale of real estate.
When sale
negotiation is required, the services of a trained and qualified expert are required, and the only person who has the capacity to truly
negotiate a real estate sale is the
lawyer.
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