Effective Cause – who earns estate agent commission?

An estate agent can be an invaluable asset in helping you secure a quick and lucrative sale, but in cases where more than one agent might be marketing your property, how do you know who you owe commission to when a sale is concluded?

January 31, 2020

What is real estate agent commission?

Estate agent commission is a fee that is due to the agent in exchange for the successful brokerage of a property sale. A seller is liable to pay the agreed estate agent commission, typically calculated as a percentage of the sale price, once the transfer has been concluded.

In most cases, it is easy to identify the agent who was responsible for the successful transaction, however, there are situations where it can get more confusing. For example, where there is a dual or open mandate, an agent may bring a prospective buyer to the property but this individual needs some time to think about it. Later, the buyer visits again through another agent and then decides to buy the property. Alternatively, in a situation where an agent has a mandate to sell a property, a buyer may see the ‘FOR SALE’ sign outside a property and contacts the owner directly.

While the final negotiation or agreement to the sale did not include the original estate agent, that agent may remain entitled to the commission as they were the effective cause of the sale, i.e. they were the link between the buyer and seller, and caused the introduction between the two parties.

How do you determine effective cause?

Effective cause is determined by looking at the following:

  1. Which agent made the initial introduction? The agent who brokered the initial introduction would typically be considered to be the effective cause of a successful sale
  2. What were the intervening factors?  It is possible for other factors to have played a more important role in the successful sale than the initial introduction. If it can be shown that intervening factors were so pivotal to the buyer’s decision to purchase the property that they outweigh the initial introduction, then the agent responsible for these factors would be entitled to the commission.
  3. Weighing up of the efforts of each estate agent
  4. Which agent had results?

These factors will be taken into account if a dispute arises.

How to avoid estate agent commission disputes

It is important for the seller to be clear from the outset who they are instructing to market and sell their property. A mandate agreement, whether sole or joint, should be signed so that all parties are aware of expectations, and sellers should avoid informally instructing additional estate agents. Sellers should also avoid dealing directly with prospective buyers.

Failing to do this can result in a seller being liable to more than one estate agent for commission fees, as was held in the Attree case where the court took into consideration the agent who made the initial introduction and the efforts of each of the agents individually.

In the Jacobs case, the court highlighted the difficulty in determining the efforts of one agent versus another and therefore the importance of the seller protecting themselves from the risk of paying double commission twice.

In the Aida Real Estate case, the purchaser concluded the deal directly with the seller after the agent’s wisdom and business acumen had brought the seller and the purchaser together. The court held that the agent was entitled to commission because if the agent was not there, the deal would not have been concluded at all.

Frequently agents will agree upfront to share the commission if they are given a joint mandate, and this can be an effective strategy for avoiding any disputes relating to effective cause or the unfortunate situation of a seller being liable for double commission.

Written by Wessel de Kock

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