In Singapore, you can sign an exclusive real estate agreement with a real estate agent to sell your property. The exclusive agreement is signed when “an estate agent is exclusively authorised or engaged by a prospective seller to introduce a buyer of residential property in Singapore”.
The question is what happen when owner sold the property himself. Is he required to still pay the commission to his exclusive real estate agent ?
CEA Prescribed Estate Agency Agreements
CEA (Council of Real Estate Agencies) is a statutory board under the Ministry of National Development.. Established under the Estate Agents Act, CEA is empowered to administer the regulatory framework for the real estate agency industry.
To consumers, the CEA helps to regulate the real estate agencies and real estate agents. For us, agents, it is like our “government or Ah Kong” for our real estate work 🙂 .
One of its work was to help establish a common framework to make it easier for consumers and agents to work together. To that end, it has issued prescribed real estate agreements that we can use with the consumers. These are generally adopted wholesale by the various agencies in Singapore so you will see a “model” real estate agreement used everywhere with every agent. In fact, very recently in 2019, the CEA has now even issued a template for Tenancy Agreement Template for HDB Flats and Private Properties which was not the case previously (ie every agent or agency will have its own tenancy agreement format).
For the Estate Agency Agreements, there are eight agreements for purchase, sale and lease of properties. There are non exclusive and exclusive agreements to cater to all the possibilities.
Here is a pictorial of the 8 agreements available on the CEA web site.
Exclusive Real Estate Agreement for the sale of Residential Property
For agents, our favourite agreement is Form 5. This form governs the EXCLUSIVE sales for a residential property (circled in RED above).
This form is used when a real estate agent is exclusively engaged by a prospective seller to introduce a buyer of residential property.
I wanted to highlight the word “introduce” as it is critical for consumers to understand this word in the context of the agreement. This is to help answer our questions for today.
In an exclusive agreement, the owner also agreed not to engage another Real Estate agent. This is clearly seen in Part 7 in Explanatory Notes of the Form 5, “Exclusive Estate Agency Agreement for the Sale of Residential Property”.
The questions we want to answer today are :
(1) What happen when an owner, who has signed an exclusive agreement with a Real Estate agent, somehow ended up selling the property himself ?
(2) What happen in some sad under the table situations, the buyer and seller of the property decided to by-pass the Real Estate agent (who has introduced the buyer to the seller in the first place) and conclude the sale between themselves ?
(3) What happen in some even extreme cases, a buyer and seller came to an agreement to only do the deal AFTER the exclusive agreement has officially ended ?
Thank god for Form 5, “Exclusive Estate Agency Agreement for the Sale of Residential Property” who has specific answers to resolve the above questions.
What happen when an owner sold the property himself
Imagine a situation like this. A seller of a private property signed an exclusive property with a Real Estate agent. The Real Estate agent proceeded to help him prepare this property for sale and to do digital marketing.
Separately, one night, in a dinner with a friend, the seller told his friend he is selling his property. The friend, who has seen this property before, is very interested and that very night, they agreed to the sale. The friend even gave the 1% option fee.
Must the seller pay the commission to the agent in this situation?
The answer is YES. This is again seen in point 7 of Form 5 Explanatory Notes, “Exclusive Estate Agency Agreement for the Sale of Residential Property”.
In the above situation, assuming a bona fide transaction, my advice is still to maximise the use of the exclusive agent. While the friend might have agreed to the deal, it is best for the seller to leave the final negotiation, paper work and all other things that real estate agents are trained for to properly protect the seller. Eg is the beautiful $30,000 chandelier in the dining room part of the deal ? Can the seller remove his 82″ 4K Smart TV that has been fixed to the wall as part of the deal ?
A friend is a friend. A business deal is a business deal.
To avoid any doubt, do read Clause 6(a) of the main body of Form 5.
What happen if buyer and seller try to do a deal themselves
The above clause also applies to the case where some sellers and buyers, having been introduced to the seller by the exclusive agent, proceeded to try to close the deal themselves. They did so thinking they can save some monies through the non-payment of commissions.
Again, the clause 6(a) and point 7 of Explanatory notes made it clear that the seller has to pay for the commission. It is not fair as the buyer WAS INTRODUCED by the agent as part of his marketing efforts for the seller.
What happened if the buyer and the seller waited till the exclusive agreement’s Validity Period is over (in most cases, this is about 3-6 months, depending on negotiations between agent and seller).
Here is what clause 6(b) of Form 5 has to say then.
Within 3 months of the END of the VALIDITY PERIOD of the exclusive agreement, any sale between the buyer (having been introduced by the agent) and the seller will be liable for the agreed commission. This is really to protect the agent.
In my line of work, I do see a few good faith cases above. And most of the time, actually sellers do not resort to such a move and it is not really common.
At the end of the day, the value of an agent (in protecting the interests of the seller) more than outweighed any reasons to avoid paying the commissions.
An Exclusive Agent Can Help You A Lot
An agent can help a seller a lot. In the context of the rather large sums of monies involved in a real estate transaction, a good real estate agent can really help you a lot. An example is when a buyer backed out of a real estate deal and the agent can step in to help resolve the issue.
An exclusive agent will take that even further. He or she will be exclusively focused on your property. He or she will be spending monies to exclusively market your property (and honestly, it is getting expensive to market a property). He or she will be looking for interested buyers through ads and digital marketing. He or she will be working with buyers or their agents and doing viewings. He or she will protect the seller’s interests during negotiations and closing the deal. He or she will plan the timeline to make sure the deal is smoothly closed to the benefit of the seller.
Nowadays, with more and more DIY HDB buyers, the HDB seller’s exclusive agent may even end up having to help the inexperienced HDB buyers so that the deals can be closed properly. Such is the reality of the market today.
Considering how much a property actually cost, it is, to a seller’s benefit, not to miss the forest for the trees.
Hiring an exclusive agent is the right way.
Paying them is the correct and ethical way too 🙂