Sellers should be aware that when they opt for an open mandate they open themselves to possible liability for double commission, as the presence of several agents can lead to confusion about which agent introduced the buyer in the first instance.
However, even with a sole mandate in place, the possibility of paying double commission still exists if a sole mandate with an another agency existed previously, says Mike Greeff, chief executive of Greeff Properties, an affiliate of Christie’s International Real Estate.
Double commission is payable even with a sole mandate in place, since when one sole mandate expires, and another is awarded to a new agent, there could be a period during which the previous agent is still eligible for commission if the property is sold to someone introduced by the first agent during the period covered by the previous sole mandate.
“Legal precedent indicates that the when effective cause of a sale can be shown, in other words if one agency can prove that its agent introduced the buyer to a property, the court tends to find in favour of the initial agent receiving due commission,” says Greeff.
In a commission dispute that reached the Supreme Court of Appeal in Bloemfontein, the Judge of Appeal ruled that the sellers, a Mr and Mrs Attree, were liable for commission to more than one agent and added that the situation was “of their own making.”
The Attree’s house in Durban North was sold to a Mr and Mrs Howard, who were introduced to the house by an agent from Wakefield’s Real Estate. Mrs Howard “loved” the house, but said it was too expensive. She returned later with her husband and spent some time at the house. Subsequently another agent became involved and persuaded the Attrees to lower their price.
The Howards then bought the house. Wakefields claimed commission on the basis that it had been the effective cause of the sale in introducing the Howards to the property. The seller had already paid commission to another agency and that agency had in turn paid a share of commission to yet another agency which had a sole mandate at the time of the sale.[clickToTweet tweet=”Sellers were liable for commission to more than 1 agent & the judge added that this was of their own making.” quote=”Sellers were liable for commission to more than 1 agent & the judge added that this was of their own making.”]
The judge found that Wakefields’ introduction of the buyer was the effective cause of sale.
“The courts tend to be of the opinion that while it can be difficult to distinguish between the efforts of one agent and another in terms of initial causality, the seller may owe commission to both agents and legal precedent has stated that they have only themselves to blame for this predicament, for they should protect themselves against that risk,” says Greeff.
“A sole mandate is fundamentally designed to protect seller and agent as only one agent is mandated to deal with the property and commission is only payable in terms of the mandate, without agents having to prove effective cause,” says Greeff.
A sole mandate’s strength of security for both sellers and agents lies in the fact that it is a legally binding document comprising a set of legal controls backed by the Estate Agency Affairs Board (EAAB) Code of Conduct.
“By comparison, there may be some aspects to an open mandate that are vague, leading to the probability of questions as to which agency was in fact the effective cause of the sale. It is advisable to always have a clear, written contract in place to protect all the parties concerned.”
Greeff says that honest and open communication between agent and seller is vital, and agent and seller should go through the sole mandate together so that all the clauses are acknowledged and understood.
“Sellers might argue that several agents mean more potential buyers. In my experience, when a property has appeared week after week in the local newspaper under every estate agency’s banner, and if numerous ‘for sale’ signs, bearing the names of various estate agents are littering the pavement, the common perception will be that there is something wrong with the property since nobody appears to want to buy it,” says Greeff.
Greeff suggests that sellers make use of the following checklist before they sign a sole mandate: Besides the stipulated time period, the sole mandate should comprise: The price of the property, the rate of brokerage, the terms of the mandate with regard to exclusive marketing and selling rights, the obligations of the agents in regard to marketing and advertising and the obligation of the seller during and after the expiry of the sole mandate with regard to buyers introduced while the mandate is current.
This article “Beware of Paying Double Commission” was issued by Greeff Properties.