Commercial Property Blog

Legal Tips and Traps

Why property buyers need to know the difference between 'Agent' and 'Real Estate Agent'

Posted by Ricky Raad on 21 Jun 2016

The recent case of Tan v Russel [2016] VSC 93 has highlighted the unfortunate consequences of what happens when a purchaser fails to recognise the distinction between an ‘Agent’ and a ‘Real Estate Agent’ when exercising their cooling off rights.

In short, ‘Agency’ is a legal relationship created by contract whereby one party, the Principal, authorises another party, the Agent, to act on their behalf. Once this relationship has been formed, the actions of the Agent bind the Principal. Confusion arises amongst many purchasers who, when dealing with their ‘real estate agent’, mistakenly believe that, given their title, they’re agents for the purchaser. So what happened to the unfortunate Mr Tan? Read on to find out…

The facts

In 2014, Mr Russel, the vendor, engaged Marshall White Real Estate as the real estate agent to market and sell his property. After the property was inspected, Mr Tan and Dr Lo decided to purchase the property through Marshall White, signing the contract and paying a deposit of $350,000. Three days after signing, Mr Tan and Dr Lo emailed the real estate agent, exercising their cooling off rights and ending the contract. Mr Russel however, believed otherwise and denied that the contract was terminated validly.

Who was in the right?

Under the Sale of Land Act 1962 (VIC), a purchaser can end a contract of sale via the cooling off provisions, provided they give the vendor, or their agent, notice that they wish to terminate the contract before the end of the cooling off period. In this instance, it was held that the real estate agent wasn’t authorised to receive the notice from Mr Tan and Dr Lo regarding exercising their cooling off rights. 

The Court held that an ‘agent’ at law and a ‘real estate agent’ are two very separate categories and as such have different relationships with the vendor. The real estate agent wasn’t acting in their capacity as an agent for Mr Russel, but rather, was in the capacity to market and sell the property and as such, their actions (receiving the notice) were not binding on the Vendor. In addition, it was found that the real estate agent didn’t engage in conduct of any kind which would suggest to the purchaser that the real estate agent was acting as an agent for Mr Russel – who should have been sent the notice directly. As such, it was held that the contract was not terminated and Mr Russel was entitled to keep the full deposit.

Conclusion

If you’re buying a property, as the purchaser, you have an obligation to know who notices should be served upon - in this case, the vendor, Mr Russel - and to ask whether the real estate agent has instructions to accept notices on the vendor’s behalf. Failure to ask this simple question means you risk your deposit. In the case of Mr Tan and Dr Lo, it was a $350,000 mistake that could have been avoided.

If you’re buying or selling a property and would like to find out more about where you stand when terminating a contract, please contact: