QUESTION: Sir John, I am selling my 4 storey building that I inheritted from my parents. A Broker want me to sign a contract. Ano po ba ang difference ng Exclusive Authority to Sell versus Exclusive Right to Sell?
ANSWER: In Exclusive Authority, only you and the broker can sell it. Sa Exclusive Right, only the broker can sell it. I suggest, you choose neither, just sign a Non-Exclusive Authority to Sell. You only sign an Exclusive Right if the Broker pay for the advertising such as tarpaulin, newspaper, and on-site open house, pero dapat clearly defined ang financial investment niya sa advertising. Please allow me to give you an example on the applicability of the Exclusive Right to Sell, Exclusive Authority to Sell, and Non-Exclusive Authority to Sell.
1. WHEN IS EXCLUSIVE RIGHT TO SELL APPLICABLE?
For example, the property you are selling is worth P100,000,000 (100 million pesos). You are willing to pay five percent commission to the lucky Broker who will close the sale, so that would be around P5 million.
If I am the Broker, I will be attracted to the P5M commission, for sure. My success of selling your property depends on how much effort, time, and advertising I will spend for it. Another risk I am facing is the risk of "bypass". A bypass is when a buyer sees my advertisement but chooses to deal directly with you, so, in case of bypass I won't get anything. If I spend for advertising, I would naturally want my investment to be risk-free, and what I want is I should be entitled to the commission even if the buyer will go directly to you. The contract that will make me entitled to the commission even in the event of bypass is called Exclusive Right to Sell.
When I ask for Exclusive Right to Sell, it means that I am willing invest in the advertising. If I will have you sign an Exclusive Right to Sell with effective period of one year, I will have to include a provision in the contract that I will be spending P1M for advertising (around 20% of the potential commission). So, as a Broker, I am willing to spend P1M to advertise your property and get a chance of earning P5M commission -- that would be fair and risk-free for you and me.
Now I want you to be alert at all times. If the Broker will have you sign an Exclusive Right to Sell without specifying his obligation to spend in advertising, I would advice you to reject that Broker right away because that is a crook!
2. WHEN IS EXCLUSIVE AUTHORITY TO SELL APPLICABLE?
The Exclusive Authority to Sell is applicable as an instrument to protect a Broker during the period of negotiation with the buyer. You only need this if the Broker only have a Non-Exclusive Authority to Sell prior to the negotiation. You don't need Exclusive Authority to Sell if the Broker already have Exclusive Right to Sell.
For example, sometime 3 months ago, the seller gave me Non-Exclusive Authority to Sell, and yes of course the seller also have been giving Non-Exclusive Authority to Sell to many other Brokers. Now, I have a buyer who wants to negotiate. I want my right to the potential commission to be secured during the 30 days negotiation period, and I don't want the seller to be negotiating with other brokers or buyers during the 30-day negotiation period with my buyer. To protect this 30-days negotiation period, I will have to make the seller sign an Exclusive Authority to Sell that will expire in 30 days. This Exclusive Authority to Sell is an instrument that is like a reservation of a short specific period to protect the negotiation from externalities.
2. WHEN IS NON-EXCLUSIVE AUTHORITY TO SELL APPLICABLE?
Sellers normally want to sell their property fast and achieving this may need a lot of Brokers competing separately to find buyers. The more Brokers will sell the property, the wider would be the potential buyer contact, the higher is the chance of selling it fast. This is when Non-Exclusive Authority to Sell is applicable. This is the most commonly used contract among all. This is like a generic contract. If you are selling your property and Brokers come to you to ask for permission to join the competition for the commission, I would say that this is the safest contract you can give to them.
I dedicate this blog to my Facebook friends who celebrate their birthdays today.
Caspe Jeffrey, FeJj Nepomuceno, Jah Azores Alcober, Janice Lorona, Jon Cometa, Leoniel Chrisben Pracullos Esquibel, Lylah Dijamco, M.A. Ritzell Petalcorin Vega, Mary Ivie Arlan, Mikhail Cleator TwoTowns, Norkhalila Mae Mambuay Campong, Pechaii Chaii, Roxie Rabaya, Sarah Lee Campos, Shiela May Quijano