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The most important things to know when using a brokerage service
In practice, the use of brokers is widespread in the real estate purchase-sale and rent field, usually it works on a principal that in the contract signed with the broker it is agreed on a fixed fee or a percentage of the transaction value, which later will be paid to the broker as a payment when the transaction takes place. Every now and then, tensions arise between the broker and the customer’s communication because the parties have not considered all the relevant circumstances when concluding the contract.
Within the meaning of current law, receiving a brokerage fee expects that as a result of the broker’s contribution the client (the mandator) enters into an agreement with third parties mediated or referred by the broker (it means that it does not matter whether it is a purchase, lease or rental agreement).
To avoid further misunderstandings the first thing to decide should be whether the broker gets paid a fixed fee while finding a suitable buyer/seller or tenant or whether the fee consists of a certain percentage of the value of the transaction, based on a principle the higher the price/lease/rent, the higher the fee received by the broker. A situation may occur as well where real estate cannot be sold with the expected price. If the parties have agreed on a fixed fee, based on a significantly higher-than-expected sales price, a situation may arise where in a worst case the real estate has to be transferred with significantly lower price than expected but at the same time an agreed brokerage fee must be paid, which in the case of a lower value may form a fairly significant part of the total cost of the immovable. Therefore, the agreement on the percentage of the sales price offers more flexibility and motivates the broker for maximum effort to reach the highest possible price.
It would be also reasonable to specify in the contract what are the broker’s duties to be performed under the contract (for example photographing the object, advertisement compiling, search for an active buyer/tenant, communicating with interested parties, demonstrating the object etc) and come to terms on who will bear the costs of these activities (advertisement and photograph costs, broker’s time, broker’s costs regarding the demonstration of the object etc).
It must be considered that the broker’s effort to the sale of the real estate may also remain very modest. With popular real estates the broker could find a buyer immediately without even uploading the advertisement, or the real estate can change an owner within days after the advertisement had been uploaded to the internet portal. The mandator may raise a question that whether the brokerage fee is still justified because the broker did ‘’so little work’’ but at the same time still asks a relatively high payment. In the sense of a brokerage agreement, it does not matter how much the broker realistically works to sell the object but the right to claim fee arises according to finding a buyer/lessee/renter. Thus, it does not matter whether the broker sells the object in a day or a month, because in both cases the broker has found a buyer and the client has to pay a fee to the broker. Therefore, the so-called small amount of work cannot be the basis for not paying or reducing the broker’s fee, except when agreed otherwise.
If the owner of the real estate also wants to actively search for a buyer or a tenant at the same time as the broker, then it would be reasonable to agree on whether and how much the broker should be paid if the real estate owner himself finds the buyer or tenant, but at the same time the broker has made professional photographs and compiled an advertisement or done other activities and contributed their time.
It is also important to pay attention to the possibilities how to terminate the contract and it’s conditions because the wish to sell the real estate or rent it may change over time and therefore you could find yourself in a situation where changing your mind could become very expensive if for example you have to pay all or a big part of the broker’s fee.
In conclusion, while signing a broker’s contract, it is reasonable to think clearly what kind of service would you like to buy, under what conditions and how much are you willing to pay as well as to discuss and record these conditions in writing with the broker.
Marko Pilv/ LEADELL Pilv Advokaadibüroo attorney- at- law/ partner
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