Real Estate Agency Agreements – benefits and risks

On 1 January 2014, the so-called Deregulation Act made it possible for anyone who wanted to, to start working as a real estate agent. In practice, this means that in order to operate as a real estate agent, it is no longer necessary to fulfil any conditions or to have specific knowledge, which was previously confirmed by the acquisition of a professional licence.

If we then add to this the numerous television programmes in which young, handsome, successful people present flats in a simple yet charming way – “this is the kitchen, this is the living room and this is the master bedroom with eastern exposure”. – and the already mythical commissions, it is not difficult to imagine that this profession seems to be a real gold mine!

But the true is, this is an extremely hard and often unrewarding journey.

Requiring expertise in legislation, market principles and the basics of psychology as well as marketing. It’s definitely not a job for everyone!

At RE/MAX, every agent undergoes comprehensive training before starting work, ending with a challenging exam. This perfectly verifies the perceptions of the profession, while maintaining a high level of professionalism. This applies to all agents regardless of the continent on which they work.

Our standards are based on the experience gathered by agents all over the world. Since the brand’s establishment in 1973, we have been providing brokerage services at the highest possible level.

One of the basic assumptions of RE/MAX Poland is co-operation based on an exclusive real estate agency agreement, commonly referred to as the “exclusivity agreement”, which, unlike other commonly used so-called “open agreement”, is the best and most beneficial form of security for the client.

Article 180 section 3 of the Act on Real Estate Management provides that the scope of real estate agency activities is specified in the real estate agency agreement. It should be considered as a source of rights and obligations for both the broker and the other party to the agreement.

Since, following the aforementioned deregulation, the statutory provisions in the area of real estate agency have been reduced to a minimum, it is extremely important that all contractual details are clarified in the agreement. This is precisely the possibility offered by this “exclusivity agreement”.

It is therefore worth knowing what benefits the client derives from a real estate agency agreement based on this clause.

I will discuss them using the example of the risks posed by the so-called open agreement.

For the sake of clarity, I will call the agent working on open agreements a Broker and the RE/MAX agent an Advisor.

1. The Broker collects a commission from both parties to the transaction. And since each party pays for the service, it naturally expects greater benefits. It is worth considering who is the biggest beneficiary of such an arrangement. Whereas with an exclusivity agreement, the Advisor represents only one party to the transaction. They are obliged to act in order to ensure that the transaction takes place on terms that are most favourable to their client. Since they only receive remuneration from one party, they are happy to work with other agencies.
2. Each Broker who works on the basis of an open agreement describes and presents the offer according to their own standards or the standards of the agency for which they work. Long story short, as many Brokers as many versions (and often as many prices!). This devalues the offer. A real estate that is presented in this way causes information overload for interested parties and thus discourages them. The offer prepared by the Advisor is presented in exactly the same way in every media space. It has the same photos, descriptions, price and, most importantly, it is not repeated in different versions and thus gives the offer the character of exclusivity (limited edition)
3. Each Broker receives feedback from the market only in the scope of their offer. And this means that they do not have all the information about the interest in the real estate. The Advisor, who is the only one to look after the offer, receives full feedback, which allows them to get the best price and to react quickly in case of unfavourable market behaviour.
4. Brokers expect commission to be paid and agreements to be signed, even from those who are not interested in such co-operation. Without this, the Broker cannot (will not) communicate the address and present the property. This significantly reduces the number of interested clients. This is why it is so common to avoid Brokers and seek “direct offers”. The Advisor, on the other hand, is, as I mentioned, remunerated one-sidedly. This way they do not withhold the address of the property ( complete transparency of the offer) and do not discourage interested buyers. It’s the other way around! Such persons are willing to receive free professional assistance. 
5. The Broker does not invest their own money in marketing of the property as there is no guarantee of a return on their investment. By devoting time and financial resources to promoting the offer, they can contribute to the completion of the transaction by another Broker. The Broker competes not only with other agents but also with the property owner. A Broker’s advertising budget covers the necessary minimum and is usually limited to taking quick photos with a phone and posting the offer on advertising portals. An Advisor with exclusivity agreement works with the owner as well as with other agents. They employ professional photographers, use paid forms of advertising (targeted advertising), prepare promotional materials and organise open doors days. They expand the reach and impact of the offer and thus stand a great chance of completing the transaction and recovering their incurred costs. 
6. The Broker making the presentation of the property often has insufficient knowledge of it. All information is derived from descriptions made frequently by another agent in their agency. The Advisor, on the other hand, as the only one responsible for preparing the sale, knows the property very well. At the presentation they represent their client ensuring that all relevant information about the legal status, technical condition and standard of finish is provided.

I have observed that an increasing number of serious real estate agencies are abandoning open agreements in favour of exclusivity, which clearly and precisely defines the principles of co-operation between the parties, securing their interests. This is the most clear and obvious business arrangement.

That is why RE/MAX real estate agents work only on the basis of an exclusivity agreement.

The risks posed by the so-called Open Agreement

• commission charged to both parties to the transaction – no specific representation of the parties
• many agents – many versions of the offer, different descriptions, photos and often different prices of the offered property.
• incomplete feedback (no feedback)
• imposing their services and expecting remuneration also from a party who has not expressed a wish to co-operate with the Broker
• limiting the reach of the offer by not co-operating with other agents and direct customers unwilling to sign imposed agreement
• insufficient motivation to invest in marketing the offer (promoting the offer at minimum cost with maximum cost reduction)
• insufficient knowledge of the property
• the need to compete with other agencies and the property owner