Who can help? – A real life comparison
Just to illustrate what I said about using a Real Estate Agent here’s what happened to me;
In October we were looking at buying a retail food business. We heard it was for sale from one of it’s opposition and approached the owners in person. For two years previously we had helped a friend starting up in a similar business in another suburb, for a couple of hours a week. One of the other employees there, Cathy, was also looking for a business too.
Cathy saw an advertisement on the Internet and phoned the agent, Michael, who gave her some details and arranged to meet her the following Saturday at the shop to show her around. She went, waited and he didn’t show up, so Cathy introduced herself to the owners and looked through the shop. It was old, tired and surrounded by other similar businesses, so she decided to look elsewhere. The agent and the owners quoted her a price of $145,000 and she made a counter offer of $110,000, which they rejected.
Later Cathy and I were discussing what we had seen over the weekend and we realised that we had both looked at the same business. I didn’t recognise it at first until she described a few unique features about the business. I had been quoted $120,000 for the same place. That’s $25,000 cheaper!
I went back and did a bit more research and was surprised at the result. The agent had listed this business over a year ago on a “Sole Agency” contract. This meant that the owners could not advertise with any other agent unless the sole agent agreed (and they rarely do when they know another agent is interested). It was a one year contract. During that time the agent had listed it on the Internet and done nothing more. The agent’s contract ran out two months ago but being lazy, he had not removed the ad off the Internet, where Cathy had seen it. Technically there was no “Sole Agent” contract in force. I had come along and the owners had offered the business to me for the price they would have received after the agent’s fees were paid. – saving me $25,000. As far as they were concerned (and legally speaking) the “Sole Agency” agreement was no longer in force.
They were quite within their rights to sell me the business without the involvement of the agent (and the whopping commission fee). I was legally entitled to buy the business at their offered price.
On the other hand, according to the Real Estate Institute of Victoria, even though the agent’s “Sole Agency” contract had expired, Cathy could not buy the business for the price I was offered ($25,000 less). If she did, the Real Estate Institute could try and claim the agent’s commission from the sale. According to them, the agent (through the agent’s ad on the Internet) had introduced Cathy to the business.
As members of the public, we assume the experts are right – after all they are experts, licensed Real Estate Agents, Real Estate Institute etc etc , right?
The fact is that Cathy can buy the business at the price I was offered, saving herself $25,000. Believe it or not, even though the agent had not bothered to renew the “Sole Agency” contract, he would still be entitled to the full commission. However, the fact the agent did not physically show up and introduce her to the site, by law means he was not the introducer. He lost his rights when he didn’t show up to the appointment. To resolve this could mean a court case – not what you want while you renovate your new business.
As it turned out we both agreed that even if the owners accepted Cathy’s offer of $110,000 for the business, she wouldn’t buy it because the squabbling with the Real Estate Institute and the Agent, would be an extra unwanted hassle while trying to revamp the tired old business.
During my investigation, I asked my solicitor to draw up a sales agreement and do all the legals for buying the business and it cost me just under $2,000.
- So, I would have bought the business for $122,000, whereas
- Cathy, using an agent too lazy to renew his own agreement, take his ad off the Internet and even show up for the appointment at least once, would have paid $145,000 for the business plus at least $1,000 of legal fees – a total of $146,000.
In other words, using the agent would have cost her an extra $24,000 extra for no extra benefit
I guess you could say the real losers were the business owners who engaged a real estate agent in the first place. Their shop is still on the market and they lost two potential sales. If they haggled I reckon Cathy would have come up $10,000 to the price they offered me and she already had the finance arranged! The only thing that was bugging her was the potential for a legal fight over the agent’s fees with the agent and the Real Estate Institute of Victoria.
I didn’t go through with the sale because I was offered a vacant shop in a better location and it worked out far less to set up.
The business is still for sale and the ad is still on the Internet.