What Is an Exclusive Agency Agreement?
An exclusive agency agreement is a legally binding contract outlining the relationship between a potential property seller and their selected estate agency in Australia, exclusive to them. Under an exclusive agent agreement, a named estate agent is the only authorised party permitted to secure a buyer for a property within a set period of time, usually at a negotiated fee.
The agreement serves to protect both the interests of the seller and the agent, and includes terms relating to the sale timeframe, agent commission, and the procedures to follow in the event of a sale.
At its core, an exclusive agency agreement proves mutually beneficial for the seller and agent in that it engenders a sense of loyalty and commitment to assist with the sale of a property, while simultaneously making clear the expectations of both parties. It is a model that has been proven to work well within the Australian property market context. It works because it focuses the efforts of the real estate agent to do their best work .
Like any agreement, the specific terms of an exclusive agency agreement depend on individual preferences, timeframes, and financial requirements, but there are some common elements within every exclusive agreement:
The Exclusivity Period
The timeframe denoted by the exclusive agency usually lasts between 30 to 90 days, with longer agreements sometimes used for high-value properties with unique resale prospects, such as luxury real estate. The exclusivity period is the amount of time the agent is given to market a property without interference. If the exclusivity period ends and the property has not been sold, sellers may choose to have the agreement extended or market the property with another agent.
Agency Commission
The real estate commission fee is a negotiable sum paid to the agent once a property sale closes. This fee often takes the form of a percentage of the resale value of the property, but incentives for a higher commission rate may also be offered, such as a 5-10% sliding scale agreement.
Termination Terms
Most exclusive agency agreements also stipulate reasons for early termination. Common reasons include breaches of terms, unlicensed agents, or other acts which may jeopardise an owner/agent relationship.
It is a rare case that an exclusive agency agreement with its listed termination terms will be invalidated.
How Are Exclusive Agency Agreements Different from Other Types of Agreements?
Exclusive agency agreements are distinct from other types of agreements such as non-exclusive or sole agency agreements. With a non-exclusive agency agreement, there is no obligation on the principal to give an agent a period of notice or to fulfil any contractual obligations they may have. The agent is free to sell or lease any property without seeking the approval of the principal, and they also have the right to represent any other party simultaneously in the same transaction. As such, agents under a non-exclusive agency agreement cannot enforce any obligations against the principal if they refuse to give them a period of notice.
Conversely, under an exclusive agency agreement, there is an obligation on the principal to give the agent a period of notice, and the agent cannot sell or lease any property without the approval of the principal. The agent cannot represent another party in the same transaction, and all dealings with third parties must be with the agent before contact is made with the principal. Under an exclusive agency agreement there must be no cross representations. If an agent communicates with a buyer, the principal may not make their own communications with the buyer.
A sole agency agreement is similar to an exclusive agency agreement, but may provide for circumstances in which the agent has a right to sell or lease a property, or the right to make some other claim, without approaching the principal.
The Benefits of an Exclusive Agency Agreement
The exclusive agency agreement benefits the agent in a similar way that the exclusive distributorship benefits the distributor. The agent, of course, has more security with respect to a direct market to influence purchasing rather than seeing the principal sell directly to major customers, and the agent obtains the large commission payments from those sales as a reward for his or her efforts. For the principal there is increased order volume resulting from competitive pressure on a narrow number of competing agents. The principal obtains the security of a limited number of outlets to service its product line thereby making strategic decisions about where to devote its marketing resources. The exclusivity allows the agent to learn the principal’s product better and this greater loyalty to the product benefits the principal if well trained sales and product support are provided. Finally the existence of a confined number of agents means that a substantial amount of time and market energy can be directed to developing the principal’s line and nothing else.
Downsides and Things to Watch Out For
As exclusive agency agreements can limit the freedom of parties to work with whom they wish, they may not always be suitable or advantageous to both parties. Exclusive agreements can be much more difficult to deal with if a party wishes to terminate the agreement early or perform its obligations under it in a different way. There is, of course, also the risk that the parties may have misgivings at the beginning about committing themselves to work with a single agent and becoming beholden to them, only to get stuck with an exclusive agreement that didn’t work out when they are no longer on good terms with one another. It may not be worth risking an otherwise good working relationship with an reliable agent or agency just in service to having a little more flexibility.
Exclusive agreements can be difficult to enforce if they lack clarity or if the parties have different interpretations of them. Even in cases where parties genuinely believed that the terms of the agreement were mutual and that they understood what was meant by the agreement , subsequent parties might make different assumptions or come to different conclusions. If the agreement doesn’t clearly stipulate what happens in the case of non-performance, someone could find themselves badly out of pocket as a result.
Although it can benefit all of the parties involved to have a clear agreement in writing spelling out terms of agent exclusivity, it’s important to remember that sometimes a verbal agreement can be perfectly fine too. Sometimes an agent will only need a verbal agreement that they will recruit or promote an artist exclusively on behalf of a particular client, rather than a written agreement that is binding on both the agent and the artist, as well as the client.
Legal Criteria and Enforceability
The enforceability of an exclusive agency agreement depends on several factors, with the principal ones being whether there is sufficient specificity in the terms of compensation and whether the agreement is supported by sufficient consideration. The exclusive agency agreement must be clear as to the contractual authority granted to the agent to act on the principal’s behalf and in regard to compensation. The contract must be sufficient to satisfy the Statute of Frauds but in a simple agreement, it should at a minimum be "written or assented to by the principal and agent, and signed by the agent, or by his lawfully appointed agent." (California Civil Code ยง 1622) Consideration for an exclusive agency agreement generally can take the form of a fee or some other advantage that is conferred on the person seeking to enter into the exclusive agency agreement. The bar to finding consideration is relatively low in that it can be, in many circumstances, a mere acknowledgement of an agent’s submission (or intention to submit) to the fiduciary duties implied by law on the part of an agent. For example, in a case involving an insurance broker, the California Court of Appeal found that the existence of an implied exclusive agency relation with the broker was supported by consideration where the agent submitted a signed application; in this case, there was nothing in addition to the application that supported a finding of an exclusive agency arrangement. (Hess v. Ford Motor Co. (2003) 72 Cal.App.4th 739) In another case, the California Court of Appeal upheld the existence of an exclusive agency agreement where the agent both paid an initial amount of money and accepted a reduced commission in exchange for the right to receive a stream of monthly payments for a further six months. These cases make clear that an agreement may be binding and enforceable despite its brevity and informality.
When Do You Want an Exclusive Agency Agreement
Exclusive agency agreements are most suitable in sales industries characterized by high-value transactions or where the service or product offering involves particular expertise . In such cases, the sales representative’s specialised knowledge may be critical to making the initial sale and providing ongoing service to the customer. Sectors most commonly using exclusive agency arrangements are real estate, financial services (e.g., selling mutual funds, insurance or derivatives), and franchising.