When can a real estate agent claim a commission?
Entitlement to Commission
The agent must be licensed to carry on business as a real estate agent and must have a written appointment to act as an agent to perform a service for the vendor (the seller). The appointment need not state that commission is neither payable nor the rate at which commission will be charged. It must, however, state the acts the agent must perform to earn the commission.
A standard sale and purchase agreement contains a general authority for an agent to sell the property. By signing the agreement, you appoint and confer an entitlement to commission upon the agent listed in the agreement. An agent becomes entitled to commission as soon as a purchaser enters into a binding, unconditional contract with the vendor, regardless of whether or not the sale is ever completed.
Standard written appointments often contain ‘introduction’ provisions, providing for a commission to the payable where the agents introduces a purchaser to the property. Commission is payable where there has been an ‘introduction’ and subsequent sale, even if the vendor and purchaser opt to conduct and finalise negotiations between themselves. The agent need only bring about the ‘introduction’. Such provisions can also apply after the agency has expired.
However, the ‘introduction’ itself must be the effective cause of the subsequent sale. If the agent’s introduction ceases to be instrumental in any way in bringing about the sale, the agent’s right to commission is lost.
What is the Effective cause?
It can be difficult determine when an agent’s introduction is the ‘effective cause’ of the subsequent sale. This is highlighted by the following case.
In October 2001, J entered into a sole agency agreement with FBRL. During the term of the agency, the agent introduced R and P to the property. R and P’s offer to purchase the property was rejected in December 2001. The sole agency agreement expired a month later.
After the agreement expired J made an improvement to the property and in March 2002 started marketing the property privately. In May 2002 R saw on of J’s advertisements, reinspected the property a month later, and purchased it shortly after.
FBRL learned of the sale and claimed commission on the basis that they had introduced R and P to the property during the term of the agency.
The District Court held that the introduction had a material bearing on the sale even though the agency had ceased five months earlier. On appeal to the High, the earlier decision was set aside. While it was found that the initial introduction was material to the sale, it was not conclusive that the introduction was the effective cause of the sale. Fresh advertising and the further work undertaken at the property could have removed the causal effect of the original introduction.
There are other circumstances where commission may be payable and there are many options when appointing an agent to sell you house. If you intend to sell you property – investigate your rights before you sign on the dotted line.