Effective Cause: Who earns the commission when you sell your property?

A professional Real Estate Agent is an invaluable asset in securing the sale of a property. Commission is the fee due to the agent in exchange for the successful facilitation of a property sale. The Seller is liable to pay the agreed commission, typically a percentage of the sale price achieved, once the property has been legally transferred into the new owner's name.

Where a sole mandate is agreed, the Seller and Agency have an exclusive relationship for a specific time period, and any potential Purchaser introduced to the property during this time is deemed to have been introduced via the Agency holding the mandate. Commission is therefore payable to the mandated Agency, regardless of who actually introduced the Purchaser to the property. This is easily understood by all parties.

Sometimes, Sellers want to work with two Agencies who may be Area Specialists and will therefore sign a joint mandate with both Agencies for a specific time period. A commission split is agreed upfront between all parties and affected once a successful sale is concluded.  Typically, the Agency concluding the successful sale will take the larger share of the commission, with the other Agency taking the smaller share. In some instances it is structured that the Selling Agency takes all the commission. This too is an easily understood concept.

Where Sellers have an open mandate with a number of Agencies marketing the property (not a situation we recommend for a variety of reasons, not least of which is the potential over-exposure of the property and/or giving prospective Purchasers the impression of a desperate Seller and therefore inviting unrealistic offers), the situation is more complicated and there is the potential for conflict regarding who introduced the Purchaser, and therefore to whom commission is payable.

In this situation, how do we determine who is the effective cause of the sale, and is therefore due the commission? The following factors are considered should a dispute arise:

·      Which Agent made the initial introduction? The Agency who made the initial introduction would typically be considered to be the effective cause of a successful sale.

·      What were the intervening factors? It is possible for other factors to have played a more important role in the successful sale than the initial introduction. If it can be shown that intervening factors were so pivotal to the Purchaser's decision to purchase the property that they outweigh the initial introduction, then the Agent responsible for these factors would be entitled to the commission. This is where the Agents' experience and business acumen play a pivotal role in successfully concluding the sale.

It can be tricky, when there are competing Agencies, to determine who is the effective cause of the sale. It may be that more than one Agent is entitled to commission. This was put by a Judge in a judgement in Webranchek v L K Jacobs & Co Ltd 1948 (4) SA where he said: 'Situations are conceivable in which it is impossible to distinguish between the efforts of one agent and another in terms of causality or degrees of causation. In such a situation it may well be that the Seller may owe commission to both agents and that he has only himself to blame for his predicament; for he should protect himself against that risk.'

As cited in Aida Real Estate Ltd v Lipschitz 1971 (3) SA 871 (W) where Marais J said: "... protracted negotiations about finances are often attendant on transactions brought about by an estate agent. In that case it was the purchaser who had concluded the deal, but it was the estate agent's 'wisdom and business acumen' that brought together the eager seller and the purchaser who was able to overcome financial obstacles. Marais said that 'in such a case the agent would be entitled to remuneration, no matter whether he selected the potential purchaser by chance or by foresight. A commission agent is paid by results and not by good intentions or even hard work."

At Hamilton's Property Portfolio, we focus on results, and on working smarter not harder. We recommend agreeing to a sole mandate for a minimum of 90 days, to ensure a laser focus on the sale of the property. We pride ourselves on being matchmakers, tapping into our extensive Purchaser database - some of whom we have been working with for well over a decade, and to whom we have sold multiple properties - to find the right fit between the property and the Purchaser. We believe in deeply understanding our Purchasers' requirements and introducing them to a small selection of relevant and appropriate properties. This way we take a "sniper" approach, rather than the easier and far less effective "spray and pray" employed by others.

Read our previous article here: https://www.hamiltons.co.za/news/agent-qa-why-sedgefield-is-such-a-popular-choice-when-buying-property-along-the-garden-route/ 

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