Home sellers should avoid the freeze clause route
Category Blog
Real estate agents who fail to sell a home within the period of a sole mandate should step aside and make way for another agent to do the job – with no strings attached. Unfortunately, it doesn’t always happen. Common practice is that, when a sole mandate expires, the original agent presents to the seller a list of all the people he or she brought to the house during their mandate. This is done to claim commission if anyone on his or her list subsequently buys the property. This process effectively “freezes” the listed prospective buyers, primarily because the original agent is no longer working on the property. Secondly, both the seller and the new agent may subsequently steer clear of those (listed) buyers to avoid the risk of exposure to double commission and / or legal action. The net result is that those first buyers are not serviced either by the original mandated agent or by the second agent. They remain in the ‘deep freeze’ – although the right buyer may well be amongst them! The original price may have been too steep, or they were simply not ready to buy at that stage.
A clause that has strayed
The freeze clause is normally effective for three to six months after the expiry of the sole mandate. Unfortunately, it has strayed way beyond its original purpose, which was to prevent buyers and sellers from negotiating directly, post-mandate, to avoid paying agent commission. My best advice to sellers is: Seek out the freeze clause; read it; read it again – and then delete it. If they don’t, the outcome could roll out as follows: A seller gives a three-month sole mandate to Agent A, who fails to find a buyer within the mandate period. Agent B is now involved on the property. Then, one of the original prospective buyers (who viewed the house during the first mandate) returns to buy the property – under agent B’s mandate. Everyone is happy – but, sadly, not for long. Why? Because Agent A has reappeared, waving the original sole mandate agreement. It contains a clause entitling him or her to the commission on the sale of the property if it sells within a period of up to six months after the expiry of the original mandate.
A costly pitfall
In the instance when agent A claims commission, the seller hopes and relies on agent A and B to come to some arrangement to share the commission. But this is reliant on the goodwill of both agents, given that there is no contract between them. They may decide not to share – some real estate companies have a no-share policy on commission – in which case the seller then faces the possibility of double commission, and a legal process. A reasonable solution would be for Agent A to exclude for, say, a fortnight or three weeks, the two or three buyers that are really interested in the property from any other open / sole mandate that the seller may give to Agent B. A recent incredible example reportedly occurred when an agent from one of the country’s big real estate groups gave a seller a list of 3 000 buyers – apparently virtually their entire database – to be excluded for a period of six months from buying the property through another agent. They did this on the basis that they had emailed their database with the property details.
Ennik Estates does not subscribe to these practices.
Author: Ronald Ennik
