How to sell a home – Why you (almost) can’t escape estate agent commission
Selling your home is as exciting as it is stressful. Do you appoint an estate agent or try going solo? Whose offer do you accept if you get multiple offers to purchase? What regulations do you have to comply with before your home can be transferred?
6 Insurance, mandates and commission
The short-term insurance of your property and your bond are inseparable. Your bank will cancel the insurance on the transfer of the property and the subsequent cancellation of your bond. Do not cancel the short-term insurance before registration as your property will then not be insured against damages arising in the period from cancellation of the insurance to the registration of the property. If the purchaser occupies the property before registration, your exposure to risk can be high and insurance is therefore essential.
Many sellers are of the opinion that estate agents’ claims for commission arise from the deed of sale they signed. Although the clause with regard to the agent’s commission in the deed of sale, together with a possible agent’s commission addendum, regulates agents’ commission, the agent will still have a claim for commission even if the deed of sale does not contain a stipulation to this effect. This will be the case as the estate agent’s claim for commission is regulated by the common law principles of a so-called contract of mandate. In the industry, this contract of mandate will usually be contained partly or fully in the so-called mandate form, which the seller signs when he/she appoints the estate agent to market and sell the property.
According to the common-law principles, there are no formal requirements for a contract of mandate, and therefore a seller may verbally grant a mandate to an agent. It obviously is bad business practice to enter into verbal agreements as this may present evidentiary problems for both the agent and the seller in proving the existence and ambit of the mandate. The common-law principles discussed above have been amended in the Code of Ethics of Estate Agents by stipulating that a sole mandate and an exclusive mandate (see below) must be in writing and must be signed by the seller. In practice, there are four types of mandate. We will not discuss the advantages and disadvantages of the various types of mandate as they are, for purposes hereof not relevant.
Open mandate – In the case of an open mandate several agencies are authorised by the seller to market the property. The agent who is the effective cause of the sale will be entitled to commission.
Dual mandate – In this case, the seller authorises a limited number of agencies (two or three) to sell the property. The agency who is the effective cause of the transaction will be entitled to commission.
Sole mandate – In the case of a sole mandate, the relevant agency and the seller agrees that the agency has the right to market the property to the exclusion of all other agencies. Due to the restrictive nature of a sole mandate, it usually is granted for a limited time only. Should the property be sold by another agency during this period, the seller will remain liable for paying commission to the sole mandatory.
Exclusive mandate – This type of mandate dictates that the property will be sold by the relevant agency only and exclusively within the time allowed. The seller therefore renounces the right to sell the property himself during the exclusive mandate period.
Finally, you should keep in mind that the Code of Ethics for Estate Agents contains further requirements, apart from the requirements that sole (and exclusive) mandates should be in writing and signed, for example that the mandate should include a marketing plan.
The relationship between agent and seller will also be affected by the Consumer Protection Act and the various mandates should therefore comply with the act, for example, the requirement that the mandate should be drafted in plain language.
It is advisable to have your mandate scrutinised as it regulates the legal relationship between you and the agent.
Needless to say you expect the estate agency to market your property, and to be effective and professional. Keep in mind that the commission is their livelihood and is an incentive to do their best for you.
The issue of commission can become an issue between agents and sellers if not managed correctly. This issue has been fodder for many legal disputes between agencies and sellers. Kindly take note of the following.
Commission in the case of a sole mandate
If you have given a sole mandate to a specific agency to market your property you should refrain from marketing and/or selling the property yourself or through another estate agent.
An estate agent who has been given a sole mandate dedicates his attention, time and resources to marketing and selling your property. This results in substantial expenses on the part of the agency. Various other opportunities are also lost to the agent as a result of the intensified attempt and input to market and sell your property. You will remain contractually liable for the payment of commission to the agency that holds the sole mandate if you or another estate agent sell the property during the duration of the mandate. Even if you sell the property after the sole mandate has lapsed to a person who was introduced to the property during the sole mandate period, you can be held liable for the commission.
It is possible that more than one estate agent introduced the same purchaser to your property. As a general rule the agent who is the effective cause of the sale is entitled to agent’s commission. Although it is usually the case, it is not necessarily always the agent who originally introduced the purchaser to your property who can be regarded as the effective cause. It is also not necessarily the agent who ultimately presented an offer to purchase to you.
It is not always clear which agent was indeed the effective cause because both of them could have played a substantial role in convincing the purchaser to make an offer. Recently the Court of Appeal confirmed the legal principle that the seller may even be held liable for the payment of double commission.
Where a second or further agent introduces a purchaser who has already been introduced to your property, you should reveal this information to the second agent. However, you will not necessarily have knowledge of all the potential purchasers the agents introduce to your property. It is therefore advisable to request a list of names of all the people who were introduced to your property by the agents to enable you to verify if any specific purchaser was previously introduced by another agency before accepting an offer to purchase.
Private sale – Commission claim
Purchasers may contact you directly to purchase the property, whilst you are unaware that the purchaser was actually introduced by an agent. The purchaser may deliberately withhold this information from you in an attempt to avoid paying commission.
When the agency later discovers that the property was sold privately to a purchaser which they introduced to your property, and they most probably will, they can claim commission from you in certain circumstances.
In the case of a private transaction it is therefore advisable to include a clause in the deed of sale in which the purchaser verifies that he was not introduced to your property by any estate agent and furthermore that he indemnifies you against any possible commission claims.
There is a tendency among certain individuals to send family members or business associates to view the properties they are interested in through an estate agent. Thereafter the real purchaser makes a sudden appearance and makes an offer directly to the seller without the collaboration of the estate agent with the clear intention of evading the payment of commission.
Not only is this practice unethical, but you can also still be held liable for the estate agents’ commission in certain circumstances.
Next time: Ensure the building plans are accurate; how the CPA affects your sale; and who is FICA and POPI?