This article has been written by Shruti Chaurasia, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.

Introduction

The process of selling a house can be very challenging. It is a process where one has to invite strangers into their house who will inspect each and every corner of the house, criticize the place and offer less money than one may expect. With no experience of this process, there are high chances that a seller might make a lot of changes. However, appointing a broker for selling the house can avoid the complexity of the process. A broker works independently to help people to buy, sell, and to rent homes and other properties. Brokers with good experience in real estate are likely to find the best buyer as per the requirements of the seller. In this article, we shall study the importance of appointing a broker and shall learn the drafting of important clauses of an agreement for the appointment of a broker for selling a house with examples.

Role of broker in selling the house

The broker performs the following functions in selling a house:

• He lists the seller’s home for sale on the local and Multiple Listing Services.
• He shares the property listings with other brokers to get potential buyers for the property.
• He shares the listing commission with successful buyer brokers.
• He advises the seller in preparing his home for listing and showtimes.
• He supervises the showing and reports to the seller the results and feedback of all the visits.
• He submits advantageous offers to the seller for consideration.
• He helps the seller negotiate those offers to try and execute a purchase contract with a potential buyer.
• He works on the seller’s behalf in coordinating the transaction process.
• He delivers and explains documents, disclosures, and transaction items to the parties.
• He works with the seller through the closing and their move-out from his home.

Advantages

Selling a house with or without experience is a major emotional undertaking. In order to avoid making lots of mistakes in the course of financial and emotional transactions the seller must appoint a broker for this purpose. Following are the advantages of appointing a broker for selling a house.

• The broker will list the property for sale which makes it easy for other brokers or potential buyers to view.
• The broker will solicit calls from interested parties, answer questions and make appointments for sellers.
• The broker, as a messenger, represents the seller’s interests without turning off potential buyers who want to grumble about the price and can negotiate the best value for the house.
• An experienced broker has the required knowledge as he deals with the same type of contracts and conditions on a regular basis, and is familiar with which conditions should be used, when they can safely be removed and how to use the contract to protect the seller.
• The broker has a list of competent buyers who may be looking to buy a house with specifications just as the seller’s, this can act highly in favor of the seller.

While there are certainly people who are competent to sell their own homes, it is suggested that the process isn’t as simple as many people assume. And when you get into a difficult situation, it can really pay to have a professional on your side.

Important clauses

Agreement for appointing a broker like any other agreement consists of a title clause which signifies the nature of the agreement in this case it will be an “Agreement to appoint a broker for selling the house”. Another important and common clause will be the date of execution and effective date clause and the name of the party clause which includes the name of both the parties, their addresses, etc. Let us see some of the important clause exclusive to this agreement:

• Consideration for which the house is to be sold

The Seller will have some expectations for the value he wishes to receive for his house. It is always a good option to convey it to the Broker and then after calculation with the market value of the house, the final selling price is mentioned under this clause. This is can be drafted as: 

“Consideration clause-

1. The Seller authorizes the Broker to sell the property for a consideration of Rs……………… ( Selling Price).
2. The Purchaser shall out of the Selling Price pay Rs …………………. in advance as earnest money and the balance amount of Rs …………………. shall be paid within a period of three months at the time of registration of the conveyance deed.
3. The Seller agrees that after the receipt of the Selling Price from the Purchaser, the Seller shall deliver the abstract of title showing that he is the owner of the property and the property is free from mortgage, lien, charge, or any encumbrance.
4. The Seller agrees that on receipt of the entire Selling Price in respect of the Property, the Seller shall execute conveyance deed in favor of the Purchaser.”

• Time frame within which broker shall sell the house

This clause as the name suggests consists of the time limit within which the Seller needs the house to be sold. It can mention what will happen in case the house is not sold within the time period agreed between the parties. The clause can be framed as:

“Time Frame

1. The Broker shall be liable to sell the property within a period of ___month from the date of these presents.
2. In the event the Broker fails to sell the property within the period mentioned under sub-clause 1, the broker shall be _______”

• Commission

A commission is a service charge assessed by a broker or the seller for handling the sale of the house for the seller. The broker derives much of his profits from charging commissions on the contracted transactions. This commission is pre-decided and mentioned under the “Commission” clause of the agreement. It is always advised to agree to pay the commission only during or after the deal is executed on the paper. No commission is payable unless the house is sold i.e. unless the broker is able to sell the house. The commission can either be paid fully at once or in parts, whatever is agreed should be mentioned in the agreement. This clause can be worded as follows:

“Commission

1. The Seller agrees to pay to the broker the commission at the rate of __% of the Selling Price.
2. The Commission shall be payable to the Broker at the time of execution of the conveyance deed of the property.”

• Details of the property

The agreement must have a proper description of the property. It must consist of the total plot area, identification number, details of construction, the exact location, and surroundings. The property schedule must be incorporated in the Agreement to define the accurate location of the property. This clause can be drafted as:

“Details of the Property-

1. The Property is 10 years old, it consists of 2 floors which is divided into 2 one living room, one kitchen, one master bedroom, two normal bedrooms and a balcony attached to the living room. 
2. The Property measures ____.
3. Each bedroom has a bathroom and there is also a common bathroom in the living room.
4. The Seller is the first owner of the Property.”

• Representations and warranties

Representations are affirmation which the parties to an agreement make to each other which protects the contracting parties from any misgivings related to the transaction.  A warranty is a promise that an affirmation of fact is true and is typically supported by an implied promise of indemnity if the condition or assertion is false. It may apply to the present and future. A warranty is a contractual statement that a condition is, and/or will be, true when made and/or for a period of time, often for the term of the agreement. In the present agreement, it is important for the Seller to give in writing that the property is free from any encumbrances and that it has clear and marketable value. This clause can be drafted as:

“Representations And Warranties-

1. The Seller hereby represents and warrants that 
   1. The details of the Property as described in the Agreement are true and correct. 
   2. the title of the Seller to the said property is clear, marketable, and free from any encumbrances.”

• Declaration

This is a very precise clause. It mentions the declaration that the Seller is appointing the Broker for the purpose of this agreement. It can be worded as follows:

“Declaration-

1. The Seller hereby declares that the Seller has appointed the broker on his behalf to deal with the Property in a due diligent manner and has been vested with all rights for the execution of the same.”

Conclusion

A real estate broker works to negotiate and arrange real estate transactions. His day-to-day responsibilities include supervising transactions for sales and purchasing activities on homes, land, and commercial properties and preparing contracts for the same. The broker undertakes all the major responsibilities whilst working for a seller. That is why it is important to draft a precise agreement while appointing a broker for selling a house.

References 

1. https://www.forbes.com/2010/05/25/why-you-need-real-estate-agent-personal-finance-commission.html?sh=3fb97c7a4496
2. https://www.investopedia.com/articles/mortgages-real-estate/08/home-seller-mistakes-selling-house.asp 
3. https://legaldesk.com/real-estate/real-estate-agent-agreement
4. https://www.thebalancesmb.com/what-is-a-real-estate-broker-2866372 

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

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