The when, what and how of estate agent commission

“We’ve put our house in the market and have an estate agent that is helping us sell our property. However, we have also told our friends that we are selling should anyone know of an interested buyer. But what happens if we get a buyer independent from our estate agent? Must we still pay agent’s commission? Could you give guidance here?”

Commission is only payable to an estate agent if they were the effective cause of the sale. This will need to be determined with reference to a number of factors, including the mandate given to the estate agent. 

A mandate is an instruction by the seller to an agent to market and sell a property on the seller’s behalf with the ability to earn a commission upon fulfilment of the mandate. The mandate can be in writing or verbally given and could also be a sole mandate, joint mandate or open mandate. For the estate agent to earn their commission however, the mandate must be fulfilled before they become entitled to any commission. This will typically be when the agent has introduced a willing and able buyer followed by the conclusion of a binding sale agreement. That said, the agent must also be the effective cause of the sale. In plain language – it must be because of the agent’s efforts that the property has been sold.  

Our courts have had regular occasion to consider what the effective cause of a sale entails and have expounded the ‘but-for’ test which essentially means that if ‘but-for’ the actions of the agent the sale would not have happened, it can probably be concluded that the estate agent was the effective cause of the sale. 

Therefore, an estate agent will be considered to be the effective cause of the sale when:

  • They have introduced a willing and financially able buyer to the seller;
  • A binding contract has been concluded between the parties; and
  • The agent was the effective cause of the sale (the ‘but-for’ test is met).

An agent cannot claim any commission for a sale where they were not the effective cause of the sale. This may mean that if a friend refers a buyer to you independently from the estate agent, then in principle the estate agent cannot claim commission as they were not the effective cause of the sale. However, make sure that you are allowed to market your property independently, as there could be restrictions in the mandate you have entered into, providing grounds for a claim of breach of contract by the agent.  

Lastly, it should be remembered that commission is generally only earned when all the suspensive conditions of the offer to purchase have been met and is usually paid on date of registration of the property. For example, when the buyer has obtained a bond to finance the purchase price or sold their existing property. Should the contract be void because the suspensive conditions were not met eg. a bond was not obtained, then no commission will be payable. However, should a valid and unconditional contract be cancelled due to breach of contract, the party in breach may be held liable by the estate agent for payment of the estate agent’s commission. Usually, the deed of sale will also specify the party responsible for payment of the agent’s commission as well as the percentage or amount of commission payable.

September 12, 2021
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