Property: Don’t Pay Double Commission!
“… in certain circumstances the principal may be liable to pay commission to both agents where it is impossible to distinguish between the efforts of one agent and another in terms of causality or degrees of causation.” (Extract from judgment below)
With many property sellers allowing multiple estate agencies to market their properties in their attempts to sell during what is still (for the moment at least) a buyer’s market, now is perhaps a good time to remind both sellers and buyers of the double commission danger.
Consider this scenario – you mandate an agent who introduces a potential buyer to your property, but no acceptable offer results. Later on you bring another agent in, and this time the same buyer makes an acceptable offer. Which agent must you pay commission to – the agent who originally introduced the buyer to the property, or the agent who eventually closed the deal?
In a nutshell, an agent must be the “effective cause” of the sale to be entitled to commission and our law reports are replete with disputes between sellers and agents over who is and who isn’t the effective cause of a particular sale. As the High Court put it a few years ago: “Our Courts have repeatedly acknowledged how difficult it is, when there are competing estate agents, to determine who the effective cause of the sale that eventuates is.”
The big danger for the seller of course is being held liable to pay full commission to two estate agents. The factual disputes that arose in the High Court case in question illustrate…
R1.6m commission claimed
- A property seller engaged agency A to sell the property, and later signed a sole and exclusive mandate with agency B to sell the property by auction.
- One (unsuccessful) auction later, and after much negotiation and to-ing and fro-ing, the first agency (A) presented an offer from buyer C which the seller accepted.
- Agency B claimed to have been the effective cause of the sale to C and sued the seller for R1.6m in auctioneer’s commission. The seller, at risk of paying (substantial) double commission, resisted vigorously.
- Most of the relevant facts were in dispute, with A and B presenting the Court with substantially different versions of events in virtually every important respect. B’s application was dismissed by the Court on the ground that because of the critical disputes of fact it should have proceeded by way of “action” not “application” – a technical distinction of great interest to the legal fraternity but not relevant here.
- What is highly relevant to sellers, buyers and agents is the ease with which the seller’s decision to engage the services of two agencies led to such bitter disputes of fact and law.
Sellers, Buyers and Agents: How to protect yourself
Sellers: As always, agree to nothing without legal advice, and insist on formal agency mandates. If you give mandates to multiple agencies, ask them each for a list of the prospective buyers they have introduced, and insist on the buyer indemnifying you against multiple commission claims (necessary because you might not know if your buyer has dealt with more than one agency). You may be advised in some cases to have the various agents give you a similar indemnity.
Buyers: Again, agree to nothing without advice! When viewing a property tell the agent if you have viewed it before with another agent and in particular if the offer/sale agreement you are asked to sign contains any warranties/indemnities, make sure it is safe to agree to them.
Agents: Don’t put your hard-earned commission at risk – avoid uncertainty and dispute with clear, properly-drawn mandates. Comply also with the EAAB’s Code of Conduct’s requirements on exposing a client to the risk of double commission.