Estate Agents Commission Explained
Selling a home is one of the biggest financial decisions a person can make and an estate agent, to whom commission will be payable, is usually involved in this process.
A problem that frequently occurs in practice and which is not easy to solve is whether an agent was in fact instrumental in bringing about the sale of the property. It could happen that an agent introduces a prospective buyer, that negotiations for the sale do not succeed and that another agent succeeds in concluding the agreement. It is common practice for more than one agent to be instructed to find a purchaser. It could even happen that a seller is held responsible for paying commission to two agents.
An estate agent is not an agent in the strict sense of the word. His "mandate" is normally to find a suitable purchaser for the seller’s property and not to sell on behalf of the seller. This is, however, not a contract in the usual sense where parties undertake reciprocal obligations. In fact, the agent is not obliged to perform his mandate. An estate agent will only be entitled to commission if he has a mandate from the seller; without the mandate he is not entitled to commission, even though he might have been the effective cause of the transaction.
An estate agent will be considered to be the effective cause of the transaction when:
- he has introduced a willing and financially able buyer to the seller;
- a binding contract has been concluded between the parties; and
- the transaction takes place at the stipulated price or at a price acceptable to the seller.
When several estate agents are involved in introducing the buyer to the seller it might be difficult for the court to determine which agent was the effective cause. For instance, when estate agent A introduces the buyer to the seller but the buyer later purchases the property through estate agent B after B has persuaded the seller to drop the price. Or estate agent A may have a sole mandate, but estate agent B introduced a willing and able buyer. The seller could then be liable for both estate agents’ commission. A sole mandate usually stipulates that the agent is entitled to commission if the property is sold during the currency of the agreement, even if another agent introduced the buyer.
In another matter a prospective buyer was introduced and the house was inspected. The price was considered too high. A few months later the purchaser noticed that the house was still in the market. He then bought the property without intervention from the agent at a slightly lower price than the earlier rejected price. The estate agent was held to be entitled to his commission.
How much commission is an estate agent entitled to? The average commission ranges up to 7.5%, but there are no regulations as to how much commission an estate agent should be paid per sale. The commission should be discussed by the parties when negotiating the mandate.
Sole mandates that are given to estate agents are regulated by the Consumer Protection Act. The duration of the agreement may not exceed 24 months. The seller has the right to cancel the agreement by giving 20 business days’ notice in writing. If the mandate is not terminated by the seller on the expiry date it will automatically continue on a month-to-month basis.
Seller, be wary of these pitfalls when selling your property – they could be very costly.
Source: Heyns and Partners Inc.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)