Real-estate agency

Information about services of the real agency

The real-agency activities are an unqualified notifiable trade in the Czech Republic, and therefore you can meet at the market with lot of real agencies. How to recognize the right and respectable one? Firstly, it is necessary to explain what the real agency engages in. In particular, two major disciplines. The first is the classic intermediating of purchase, sale and lease of real estate. Further, the activities of a real agency are the activities of a developer (construction, and subsequent sale or lease of buildings). In our country, at present, the real agencies mostly engage in combination of intermediating activities and real estate management. However, development shows that specialisation will be needed.
Let us now look more closely to the most frequent activity – intermediating of purchase, sale and lease of real estate. Let us suppose that an owner of a real estate decides to sell the real estate and addresses a real agency. Already when entering the chosen real agency, from the first impressions can be judged its quality. The interior, dress, and behaviour of the staff, as well as manner of welcoming, already predicates something. If an interested person addresses a reputable firm, it is suitable to make an appointment by a telephone call with a particular employee of the chosen real agency. The first visit is usually a sounding visit. The person interested in mediating a sale should be firstly informed in details about the manner of work of the agency which he or she visited. The client should receive all information relating to the essentials of a brokerage contract, scope of services, manner of their payment, amount of brokerage, etc. After this introduction, it is customary to agree upon an inspection of the real estate, and based on its results to agree a term for drafting the brokerage contract. Often it happens that already during the inspection of the real estate, the representative of the real agency refuses to accept the deal. Mostly it is because the price requirements of the client, according to the condition and saleability of the real estate, are not feasible. A respectable real agency in such a case advises the client about such facts and refuses the deal. However, when both have the same opinion, it is possible to enter into a brokerage contract.

Most of the well-established real agencies enter only into so called exclusive contracts. By such contract the client empowers the agency to exclusive representation for the sale of the real estate in question. The vast majority of the persons from abroad, being interested in purchase of a real estate request this exclusivity from the real agency offering the real estate. Therefore, we will consider only an exclusive contract.

What should contain such exclusive contract? In the first instance, it should be clear in accordance with what legal rules the contract is being made. Further, the contracting parties must be of course clearly specified. In case of more owners, their powers of attorney, in which they empower the client to act on their behalf, and to negotiate the sale of the real estate in question, with authenticated signatures, should be produced. Very important thing are necessary documents relating to the real estate. The basic documents are the instruments proving the acquisition title, and certificate from the cadastre (Land Registry). The instrument proving the acquisition title may be a purchase contract, a resolution on inheritance, an agreement on rendition of a thing, a contract of donation, a court judgement of settlement of community property of spouses, etc. The second important document is the certificate –extract from the cadastre (Land Registry), which should be as current as possible, because in recent time more and more cases occur when a real estate is sold in a short time several times, and the original owners are producing a certificate no older than few days or weeks, nevertheless during that time, the real estate already changed its owner. Beside these basic documents, we usually require from the client actual expert appraisal and a land map picture. However, these are documents which the real agency can secure for the client on request. Among another important essential of a brokerage contract belong price, for which the real agency will be offering the real estate, amount of brokerage, term of the contract, and contractual penalty in case of breach of the contract. Let us stop at particular parts.

Setting real sale price is at present very problematic. A reputable agency firstly performs an analysis of the situation at the market, considers technical condition of the real estate, judges and assesses possible encumbrances, charges, easements or other obstacles, and acquaints with such facts the client in details. Here proves in full extent professionalism and respectability of the agency. The client should be convinced that the price is optimal. From the purchase price result also the amount of brokerage. The brokerage is usually between 3-6 %, however it is possible also to agree upon lower brokerage (in particular in case of large real estate), as the case may be, the brokerage can be also higher. It is also possible to agree upon another manner to set the brokerage. Customarily, the brokerage is paid by the party ordering the service, often the brokerage is divided between both the parties; some of the agencies take brokerage only from the purchaser. Implied part of an exclusive contract is the provision solving contractual penalty. This institute enables the agency to cover its costs in case of frustration of the business deal, if the client within the agreed term retains another agency, or sell the real estate himself/herself/itself. For during the entire time, the real agency bears the commercial risks, and therefore it must protect itself at least partially. By signing the brokerage agreement starts another phase of the sale.

Firstly, must be prepared and processed the documentation of the real estate. Photo-documentation is prepared, larger real agencies prepare also a video recording. If exists construction documentation, its copies are made. Then, at competent building authority must be verified possible alternative use of the real estate, or vacant plot, is processed so called exposé – set of documents characterising the real estate. Thereafter, the real estate may be offered. A lot of brokers – beginners think that the only way is advertising. The advertising is important, but well-established real agencies have own rich database of interested persons, and usually cooperate with many other real agencies not only within the country, but also all over the world. It is not decisive, if these real agencies are linked through computers or not, essential is comparable level of services and mutual reliance. Real professionals know that real estate cannot be sold in form of teleshopping. Experienced brokers know that it needs great effort to sell a real estate successfully. It is necessary to have many appointments with the interested person, a lot of negotiations on terms and conditions, to provide help if loan is needed to be arranged, etc. It is comprehensive work with people, authorities, and banks. A team of experienced people is needed for such work, a team which must be in any circumstances prepared to provide services to the client, to protect interests of the client, and to guarantee absolute seriousness of the services.

It must be mentioned that often sale of real estate is very time-consuming process. In spite of that the real agency agreed with the client a price according to its best knowledge and belief it happens that at the moment, there is no interest in such type of real estate. Clients often impatiently visit the real agency demanding quick sale with arguments that their friend has sold similar real estate (and often for a higher price), and the real agency is incapable to realize such sale. Usually it turns out that it is not true, nevertheless the atmosphere is nervous, and for the staff it is very difficult to explain that to such client. Every real agency is doing its best to sell a real estate. Even a large firm cannot be successful within the given time. Therefore, trust and confidence is necessary from the part of the client. Wanting a real agency to sell within a month or two is nonsense. Six months is the usual period for which a contract should be made, however, it should not be shorter than four months. During the entire term, when the real estate is offered, the client should be regularly informed about the state of his/its/her matter, and according to the development of the situation, the client should flexibly cooperate with the real agency.

Let us suppose that the real agency is successful and found an interested person who respects the price, as the case may be additional conditions and encumbrances. Immediately, the real agency contacts the client, and informs him/her/it about the same. In most cases the client agrees with the sale to the selected interested person. Now is time to prepare a purchase contract. To limit the risk of withdrawal from the purchase contract being prepared, a pre-contract is being made, and usually the purchaser deposits a non-refundable security in amount up to 10% of the purchase price. This action is a security for the real agency in case that the purchaser breaches the pre-contract, and refuses to accept the purchase contract. Many respected lawyers have doubts about the effectiveness of a pre-contract (also due to well-know functioning of courts), and therefore the deposit is the only tangible security.

Drafting a purchase contract is a very complicated process, in spite of standpoints of some of the brokers or lawyers. Because no contract is the same, and there exist a whole range of circumstances that are individual for each case. From our experience we can confirm that from the point of easiness the best thing is to engage a notary or an attorney at law to prepare the purchase contract. He/she also bears all guaranties for correctness. By drafting a purchase contract, the work of a real agency does not end. It is necessary to secure entry – registration in the cadastre (Land Registry), by which the ownership right passes to the purchaser. In these chaotic days, full of not respectable business partners, the real agency has the possibility to delay the entry into the cadastre till the day the purchase price is paid, and thereby to protect the purchaser. More complicated it is in case of purchase on credit, when the purchaser wants to use the real estate as collateral. Then, the contract must be made only in form of a notarial deed (which is a public instrument), which enables without complicated court litigation execution of the property and assets of the purchaser failing to pay the purchase price in term set in the contract.

Simpler is a case when the real agency is addressed by a person interested in purchase of a real estate. It/he/she can come either interested in a particular real estate, or (this happens more often) with a request to find a certain type of real estate. Every larger real agency has these co called demands kept in its databank processed by computer, so each new order with respect to a sale of a real estate the computer matches and chooses from the demands of a suitable interested person. Thereafter, such person is continually informed about a concrete offer. Recently, selected real agencies start to link and to exchange demands and offers. They share information about the situation at the market in their region.

Let us return to the case when there is a person interested in particular real estate which is being offered by the real agency. How should he/she/it proceed? Firstly, exposé, from which can be gained the basic information, must be requested. In particular, such information means ownership relations, technical data, burdens, easements and encumbrances, as well as content of expert opinion, amount of collateral, requested price. Significant is also the fact if the real agency has exclusivity. If there is no exclusivity, we advise you to be very careful in negotiations, because the same real estate can be offered also by other real agencies, and before the person interested in purchase arranged the required financing (also often at additional cost), the real estate may be already sold by another real agency. After reviewing findings, as the case may be seeing a video recording, it is necessary to inspect the offered real estate. Always it should be with the assistance of a representative of the real agency. If everything is ok, the purchaser usually deposits a security deposit, signs a pre-contract (agreement to make a purchase contract), as the case may be record on security deposit, and provides the real agency with data and documents needed for preparing a purchase contract. Further, the procedure is as has been stated hereinbefore.

Similar procedure, as when selling or purchasing a real estate, is in case of leasing a real estate. In this case we recommend to pay particular attention to the content of the lease contract, because usually it is made for a period longer than five years, and therefore it is necessary to reflect into the contract the development of rent prices, services, as concerns the long-term leases also impact of inflation, or as the case may be possible revaluation of currency, repairs paid by the tenant or proprietor, etc. From our experience we know that a lease contract drafted in high quality, in particular as concerns large real estate, is the most important thing.

On the above stated advices, we can formulate a summary of these fundamental advices.

Summary of practical advices for visitors of a real agency

  • Use services of well-established reputable real agencies. Do not let yourself be beguiled by individuals promising fantastic real estates and services.
  • The level of particular real agency is evident also from the equipment of its offices, behaviour of its staff and entire atmosphere.
  • Open your mind and get informed about the manner of operation of the agency which you have chosen. Study its operating rules.
  • Enter into a contract with the agency after careful consideration. No respectable businessman, and therefore also a real agency, should force you to decide quickly.
  • Reserve in the executed contract that you will accept only such purchaser who will fulfil all the terms and conditions of the sale as specified in the brokerage contract.
  • Require complete and perfect brokerage contract, request accurate wording of all its provisions, important are also the dates, terms and amount of brokerage. In case of any doubts, consult the entire thing with a lawyer before signing the contract.
  • Accept only such purchase contract which is prepared by a notary or an attorney at law. Refuse a contract drafted by other persons.
  • When purchasing a real estate via a real agency, request a proof documenting that the real agency may offer such real estate. By that you can avoid later worthless problems.
  • Inspect duly the real estate you want to buy, in case of any doubts address an expert. Request all necessary documents relating to the real estate, as well as other information. Make your decision only after thorough consideration of all facts.
  • If you expect respectable conduct from the part of the real agency, act also respectable. The basis of a successful deal is mutual trust in each other.