Croatia: Real Estate Agencies – What is the Client Actually Paying For?

Real estate agencies and the services they (should) provide

Conditions for business activities of licenced real estate agencies (Agency) in Croatia – as well as their obligations and rights when providing intermediation between buyers and sellers of real estate – are regulated in detail under the Real Estate Intermediation Act (REIA). In general, an Agency incorporated in an adequate form and registered for real estate intermediation must obtain and maintain a valid license¹. All licenced Agencies carrying out business activities in Croatia must be registered as such with the publicly available Registry kept with the Croatian Chamber of Economy.

Under REIA an Agency must use its best efforts to connect buyers and sellers of property; to inform its client (buyer/seller) on market conditions and other relevant circumstances; to obtain and inspect ownership, zoning and other documents; to market the property; to enable inspection of property; to mediate in negotiations; and more.

The Agency is engaged on the basis of a written agency agreement concluded with its client for a definite period. Such agreement, which may also be exclusive for a certain client or property, must define the rights and obligations of both parties in detail.

The Agency is entitled to an agency fee for its services, which is freely agreed on (usually 3% of the purchase price of the subject property) under the agency agreement. According to REIA, the agency fee must be paid at the earliest at the conclusion of the intermediated (pre)agreement between the client and the other side. The Agency may, for example, be engaged by the buyer on one side and separately by the seller on the other side, and thus be entitled to an agency fee from both sides.

What to avoid in practice

Practice shows that some Agencies choose not to perform all the services an Agency is supposed to provide under to REIA, and for which their client is actually paying. Below are some of the most common violations of Agency obligations, as observed in practice.

One of most frequently encountered situations is that a person/company who is not a licenced real estate agency is engaged. Without knowing the requirements prescribed for Agencies or where to check the basic credentials for an Agency, it may prove difficult to recognise such a false real estate agency.

Even if an Agency is engaged, it may happen that it is not familiar with even basic documents proving ownership over property, with zoning documents showing building possibilities and restrictions, or with standard market terms and conditions for sale and purchase contracts.

It is not rare that an engaged Agency requests payment of an agency fee from the other (intermediated buyer/seller side) even without being engaged by such person. Due to the other side’s lack of knowledge, Agencies get such “double” fees paid without having provided any service to the other side.

The lack of engaged Agency’s familiarity with standard market terms and conditions may lead to unnecessarily long and exhausting negotiations, and even be a deal-breaker. Dealing with such lack of knowledge may be especially frustrating for attorneys representing one of the parties.

Finally, a client should insist that payments to and from the Agency (eg, earnest money from a buyer) be done via wire. Cash payments have led to “misunderstandings” and disputes. Also, an Agency is not allowed to ask for any payments up front (except for certain out-of-pocket expenses, if agreed upon).

Although it may appear that finding a qualified and trustworthy Agency is not easy, practice has shown that there are very competent and dedicated Agencies who know their job. In case of doubts about whether the Agency is doing its job properly, or to check whether the chosen agency is indeed an Agency, it may be a good idea to hire an attorney. Although seemingly more costly, this approach may prove to be the more cost- and time-saving option.

¹Croatian Agencies carry a license issued by the Croatian Ministry for economics. An Agency seated in another EU member state must carry a licence according to their domicile regulations.

authors: Jana Cvirn Adamčić, Ksenija Šourek