When must I pay an estate agent’s commission?

The estate agent marketed your property well, a willing purchaser was identified, and a contract signed and sent to the attorneys who are now only awaiting approval of the bond by the bank to continue with the transfer. So when must you pay the estate agent his commission?

When you want to sell a house, you will normally instruct an estate agent to do so on your behalf. You will enter into an agreement with the agent called a mandate. Such a mandate will set out the exact scope of the estate agent’s services to be rendered. One will typically also state in such a mandate when, where, and how the agent will receive commission and who will pay such commission and as such it is usually the first port of call in establishing whether or not (and when) an estate agent is entitled to commission. 

As a general rule of our law of contract, an agent is entitled to payment of his/her commission as soon as his/her mandate has been discharged. The situation differs slightly with estate agents but not drastically. The Estate Agency Affairs Act 112 of 1976 (“the Act”), determines that all estate agents must be registered with the Estate Agency Affairs Board (“EAAB”). Upon successful registration with the EAAB, such estate agent will be issued with a fidelity fund certificate. Only then, will the estate agent have any entitlement to commission. Failing to register as such, can bring about criminal sanctions. 

Our courts have confirmed that an estate agent must have a valid fidelity fund certificate as required by the Act in order to be eligible for commission. Having such a certificate offers the client the peace of mind of knowing that the estate agent is qualified, renders his/her service in the best interest of the public and has the necessary safety measures with regards to insurance and security. 

When providing an estate agent with a mandate, there are various options to be considered. The most common is an open mandate, where the client can provide a mandate to multiple estate agencies. A more restrictive approach is the provision of a sole mandate to a specific estate agency. Such a sole mandate then provides the estate agency with the sole right to sell the property on your behalf to the exclusion of other agencies. A dual mandate can also be given, where only two estate agencies are provided with a mandate to sell your property. There are pro’s and con’s to each of the different mandate forms and a decision should be made carefully, possibly with the help of a property specialist. 

With estate agents, the general criterion is that commission is earned by the estate agent whose efforts of whatsoever nature were the effective cause of the sale. 

In Webranchek v LK Jacobs and Co Ltd 1948 (4) SA 674 (A) the court found that it may become ever more likely for situations to arise where it will be impossible to distinguish between the efforts of various agents in determining who it was that was the effective cause of the sale. This can cause confusion as to which agent is entitled to the payment of commission. 

The case of Wakefields Real Estate (Pty) Ltd v Attree 2011 (6) SA 557 (SCA) demonstrates the risk for an inexperienced seller when using more than one estate agent. In this case, a sole mandate was given by the seller of a property to a firm of estate agents. The seller also thought it appropriate to inform other estate agents of the property. Someone made an offer through one of these other estate agents, and such offer was accepted. The question before the court was which of the various agents had been the effective cause of the sale? Our courts found that Wakefields Real Estate had been the effective cause of the sale despite the significant role the other estate agents had played and the seller ended up having to pay commission a second time round. 

Even where the seller and purchaser negotiate with each other at a later stage after they have been introduced by the estate agent, the estate agent will still be entitled to commission if he/she can show that his/her introduction of the purchaser was the effective cause of the sale. 

An estate agent’s commission is thus earned when he/she was the effective cause of the sale, a valid and binding contract is entered into by the seller and purchaser and all suspensive conditions contained in that contract have been met. Neither the Act nor the EAAB’s code of conduct prescribe a fixed or specific amount of commission. One can thus negotiate with the estate agent his/her commission, provided that said commission is determined or determinable in the mandate. Although a mandate may determine otherwise, an estate agent’s commission is normally only paid once ownership of the property has been transferred to the purchaser. 

April 14, 2015

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