When Is An Estate Agent Entitled To Commission On The Sale Of A Property?
This is not such an easy question to answer as there are a number of aspects to consider such as, amongst others, the common law, the agent's mandate from the client, the terms of the deed of sale, the Estate Agency Affairs Act, and the regulatory Estate Agents' Code of Conduct.
Perhaps we should look at this important question from the client's perspective, i.e. When does the estate agent have a claim for commission from a client? And then of course who is liable to pay the commission and when is payment due? We need to answer the who and when question first so that the original question relating to a possible claim can be discussed meaningfully.
- Who is liable to pay? This is usually determined by the mandate (agreement) between the agent and the party concerned. It may also be recorded in the deed of sale. As an agent is not a party to the sale agreement, he/she cannot enforce the commission clause in the agreement of sale, therefore a clause must be inserted whereby the agent accepts the benefits flowing from the commission clause. In the absence of such an agreement, the commission is payable by the mandator. In South Africa the mandator is more often than not, the seller of the property.
- When is commission payable? There are four aspects that need to be considered when determining when commission is payable:
1. Is the estate agent acting within the ambit of the law?
A person holding him/herself out as bona fide registered and qualified estate agent must be in possession of a valid Fidelity Fund Certificate (FFC) as issued by the Estate Agency Affairs Board (EAAB).
In order to earn commission the courts have found that the claimant must have been in possession of a valid FFC at the time that the relevant transaction took place.
The consumer can of course (and should, in fact) ask the agent for a copy of his/her FFC.
This applies to all acting estate agents and also those employees that work for attorneys as estate agents who also need to be registered with the EAAB. If an attorney is acting as an estate agent, e.g. under a trading name other than the attorney's registered practice name, the attorney also requires to undergo the relevant qualifications and registrations with the EAAB in order to legally earn commission on the sale of a property that is not being sold within the course of or from the premises of the attorney's registered practice.
If any estate agent practices without an FFC (license) that agent is disqualified from earning commission and simultaneously disqualifies the firm that he/she is acting under from earning commission.
2. Did the agent have a mandate to sell your property?
A mandate is an instruction to market and sell a property along with an undertaking to pay commission on the fulfillment of the said mandate. A mandate can come into existence either expressly, conditionally or impliedly and can be in writing or given verbally and be either a sole, exclusive or open mandate. A sole and or exclusive mandate however, must be in writing, have a specified termination date and be for a reasonable period of time. If a sole/exclusive mandate resulted from direct marketing by the estate agent, the mandator has the right to cancel such an agreement within five days of signature.
It is thus imperative that property sellers ensure that they understand the nature of the mandate that they have given the agent and that the agent explains the possible consequences to the mandator. The agent's mandator could also possibly, but not often, be a potential purchaser.
3. Has the mandate been fulfilled?
The agent would obviously not have a claim if the mandate that he/she received has not been fulfilled. If the mandate was to sell the property and the agent introduces a tenant who wants to lease the property, the agent would not have a claim for a rental commission as he/she did not have a mandate to let, but only to sell. If the mandate was to sell OR let, then there would be a claim. It is also necessary to establish what the terms of the mandate are, as a mandate could be specific in terms of a price and if that price is not realized, the specific mandate may not have been fulfilled.
In the absence of any contrary provisions in the terms of the mandate an agent is deemed to have performed his/her mandate if the agent introduced a willing and able purchaser to the property after which a binding agreement of sale is concluded in accordance with what the mandator envisaged.
4. Was the agent the effective cause of the sale?
Now this is where it really becomes tricky! Unless otherwise agreed, an agent is not entitled to commission merely on introduction of a willing and able purchaser who concludes a binding contract...he/she must be the effective cause of the sale. This means that it must be his/her efforts that resulted in the purchaser buying the property. It could, however be, that it is the agent's introduction that leads to the sale...
I know of a case where an agent A introduced B to a property by physically showing B the property, but B indicated that he needed three bedrooms and this property only had two. Other than that, B really loved the home and could afford the asking price. The next day B visited another agency and the agent C on duty told him about the same property (as it fell within his price range) but also showed him approved building plans to add a third bedroom. Agent C then enquired from a builder what it would cost to add the third bedroom as per the plans. B then made an offer minus the building cost through Agent C which was duly accepted. Agent C was deemed the effective cause of the sale even though he did not introduce the purchaser to the property...but it was his efforts that resulted in the sale.
So you see, it is not that simple...agents actually have to work for their commission and cannot assume that the commission is earned just because they introduced the purchaser to the property! But, on the other hand, there have also been cases where the introducing agent had a legal claim for the commission after a second agent had concluded the sale!
The best way to overcome any issues like these when dealing with an estate agent is to ensure that your agent works for a professional and compliant firm that provides you with the necessary protection and well drafted documentation that they can explain to you explicitly as well-trained and qualified persons out to protect your interests.
Pam Snyman CPRE (NQF Level 7)
(MPhil, Dip Advanced Property Practice, Dip Property Investment & Valuation)