Most people have some understanding of the terms “agent” or “agency”. But when it comes to determining the roles and responsibilities of agents in real estate transactions, a great deal of confusion arises. In this section we explain the difference between an “estate agent” and the role of “agent”.
What does “agent” or “agency” really mean?
Most people understand the term “agent” as meaning someone who acts on behalf of another person. This definition of the term is insufficient, and can be very misleading.
The High Court of Australia has said that an agency is:
“…a word used in law to connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties.”
(International Harvester Co of Australia Pty Ltd v Carriganes Hazeldene Pastoral Co (1958) 100 CLR 644 at 652.)
Another way of stating this is to say that an agent is someone who is given authority by a another (known as the “principal”) to deal with third parties on behalf of the principal, so that the principal will be legally responsible for what the agent does.
Is an estate agent really an agent?
According to the High Court, the use of the term “agent” in relation to an estate agent is misleading. (See below)
The average Real Estate Agent is simply an “introduction agent”, whose role is to introduce purchasers to vendors’ properties. This is confirmed by reference in the REIV
‘s Exclusive Sale Authority (see below) to “introductions“.
When the parties have been introduced, the estate agent’s role is complete, and it is then up to each party to find a lawyer who will represent them in the formal sale negotiations. (Only qualified lawyers and Lawyer Estate Agents can legally negotiate on behalf of a vendor in a true agency capacity.)
The Lawyer Estate Agent is an agent
The Lawyer Real Estate Agent, on the other hand is a true agent for the seller (also known as the vendor). This is because the Lawyer Real Estate Agent actually represents the vendor – a role that extends well beyond a simple introduction.
Lawyers have long been regarded by law as agents for their clients. This means that the client of a Lawyer Estate Agent has the benefits of the lawyer-client fiduciary relationship.
Who can be an agent?
The simple answer to this question is that the law recognises a variety of ways in which a principal can appoint an agent, but the most common is an appointment by way of a written contract. A relationship of principal and agent can also arise by implication, such as where a client engages a lawyer.
Who can be an estate agent?
In Victoria the Estate Agents Act 1980 declares a person to be an estate agent if they perform certain functions. For example, any person who places an advertisement in a local paper, saying that he is in the business of selling real estate or negotiating real estate sales on behalf of others is an “estate agent” as far as the Estate Agents Act is concerned.
This is why a lawyer who negotiates sale contracts or sells properties for clients is automatically an “estate agent”.
However, unless a person acting as an “estate agent” is a lawyer, or is otherwise exempt, he or she must have an estate agent’s licence.
The effects of the Estate Agents Act 1980 are discussed in more detail below.
The Estate Agents Act 1980
The Estate Agents Act 1980 uses a specific definition to declare a person to be an “estate agent”.
The definition of “estate agent” is found in Section 4 of the Act:
“estate agent” or “agent” means any person (whether or not he carries on any other business) who exercises or carries on or advertises or notifies or states that he exercises or carries on or that he is willing to exercise or carry on or in any way holds himself out to the public as ready to undertake the business of-
(a) selling buying exchanging letting or taking on lease of or otherwise dealing with or disposing of;
(b) negotiating for the sale purchase exchange letting or taking on lease of or any other dealing with or disposition of;
(c) collecting rents for-
any real estate or business on behalf of any other person;
This definition automatically includes a number of professionals whose normal functions include the buying and selling of real estate, sale negotiations, leasing etc. Lawyers are included in this group, because the buying and selling of real estate has always been a legal process, and is a standard function of the lawyer.
The Estate Agents Act recognises that certain professions operate under their own legislation. For example, lawyers operate under common law and the Legal Practice Act 1996. An exemption is provided at Section 5(2)(e):
This Act shall not be construed as requiring-
any legal practitioner for the purpose only of carrying out the ordinary functions of a legal practitioner to hold a licence under or (except in respect of any provision of this Act which is specifically expressed to apply to any class of persons referred to in this sub-section) to observe the requirements of this Act.
The exemption is worded so as to ensure that a Lawyer Estate Agent acts for clients as a lawyer. If a lawyer were to operate as an “introduction agent” only, then he or she would require an estate agent’s licence.
It is because the Lawyer Estate Agent represents the client in a lawyer-client fiduciary relationship, and as a true agent of the client, that the Lawyer Estate Agent must avoid some of the more questionable methods used by estate agents in their capacity as mere “introduction agents”.
Can “estate agents” perform legal work?
Only the Lawyer Estate Agent is permitted to perform all of the legal work associated with real estate transactions.
“Estate agents” do have authority to perform some legal work, but it is very limited. The Estate Agents Act 1980 recognises that the use of contract documents is legal work, and that an estate agent engages in unqualified legal practice (an offence that carries a penalty of imprisonment for 2 years) every time she so much as fills in the blanks of a Contract Note.
Sometimes both the vendor and purchaser of a property may be unrepresented. This means that neither party is represented by a lawyer, and no contract has been prepared. In such cases the estate agent is permitted to use a standard form Contract Note
or a standard form contract of sale, by filling in the blank spaces. The exemption at Section 53A of the Estate Agents Act allows this.
If a lawyer has prepared a contract of sale, but is not available to attend to the execution of the contract, the estate agent is permitted to fill in the blank spaces of the prepared document. The exemption at Section 53A of the Estate Agents Act allows this.
It is important to note that estate agents are permitted to do no more than fill in the blanks of specified documents. They are not permitted to write any additional terms or conditions into any contract. Section 53A states:
(1) An agent or agent’s representative who fills up-
(a) any standard form of contract permitted by the regulations or approved by the Legal Practice Board or an RPA (within the meaning of the Legal Practice Act 1996); or
(b) any contract prepared by a legal practitioner is not guilty of an offence against, or of contempt of the Supreme Court under, section 314 of the Legal Practice Act 1996.
(2) This does not apply if the agent or agent’s representative fills up the form for, or in expectation of, any direct or indirect fee, gain or reward other than the appropriate commission.
Sub-section (2) prevents “estate agents” from performing this legal work other than in a transaction in which they are directly involved.
What the High Court said about estate agents
The High Court had to consider the role of the estate agent, and found that the use of the term “agent” when describing an estate agent is misleading.
What the High Court said:
The expression “agent”, when used in relation to an estate agent acting for a vendor, is misleading, as has been pointed out by this Court in Petersen v. Moloney (1951) 84 CLR 91, at pp 94-95 , and by the House of Lords in Sorrell v. Finch (1977) AC 728, at pp 750, 753. Such so-called agents do not have a general authority to act on behalf of the vendor in relation to the contract.
(Brien v Dwyer (1978) 141 CLR 378)
“When a person is employed to find a buyer of property, he is commonly said to be employed as an agent, and the term “estate agent” is a common description of a class of persons whose business is to find buyers for owners who wish to sell property.
But the mere employment of such a person under the designation of agent does not, apart from the general rule that the employer will be responsible for misrepresentations made by him, necessarily create any authority to do anything which will affect the legal position of his employer.
He may, of course, be given any express authority which the employer thinks fit to give him, and estoppels may arise, but the law does not imply from the mere fact of employment to find a purchaser a general authority to do on behalf of the employer anything which may be incidental to the effecting of a sale.”
(Petersen v. Moloney (1951) 84 CLR 91)
The Exclusive Sale Authority
The Exclusive Sale Authority is a document provided by the Real Estate Institute Of Victoria
to its members, and is designed to comply with the requirements of Section 49A of the Estate Agents Act 1980. Section 49A states that an estate agent cannot claim payment from a client unless the estate agent has been engaged in writing.
The Exclusive Sale Authority sets out the services provided by the Commission Estate Agent in the form of a contract, but it does not appoint the estate agent as a full agent of the client. The Exclusive Sale Authority confirms that the services offered by the Commission Estate Agent are of an “introductory” nature only.
The Exclusive Sale Authority does not appoint the estate agent as an agent of the vendor in a full principal and agent capacity.