The right of an Estate Agent to earn commission is enshrined in common law. In general, commission is due when the Estate Agent has perform a client’s mandate, regardless of the amount of time or effort it took to perform the mandate.
In South Africa, there is no limit to the amount of commission an Estate Agent can charge. In the upper end of the market, this often results in impressive earnings. These facts, combined with the public perception that an Estate Agent is often seen to do very little in comparison with the handsome rewards received, has encouraged many people to join the Estate Agency industry. At last count there were more than 72,000 Estate Agents registered in South Africa. Although, in practise, not all are actively working as Estate Agents. Many Estate Agents are active only when the property market is buoyant and go dormant when the market slows down. Nevertheless, they are qualified to act as Estate Agents and may resume activity whenever they feel, with the provision that they comply with the requirements of the Estate Agencies Affairs Act.
Giving rise to commission dispute
Before we go on, it should be noted that most property deals go through without dispute. However, this does not mean that of the deals that go through there was no reason for dispute. Simply not knowing is often a cause for valid claims not being made, mostly on the side of the client. For such cases there is nothing one can do in retrospect, since all wrongs committed by Estate Agents are automatically made right upon date of transfer. No need to repent or visit confession, all sins are just magically wiped away.
In most cases commission disputes arise simply as a result of misconception by the public as to their rights and duties when they give an Estate Agent a mandate. However, dispute also arises due to misconception of Estate Agents as to their rights and duties in performing a client’s mandate. Both types of misconception can be easily avoided if Estate Agents spend more time being “frank” about discussing commission before accepting a mandate. In practise, this does not always happen, whether because of forgetfulness, lack of diligence or because of pressure to get the mandate. Discussion surrounding commission is often relegated to a mandate form, placed in front of the client with the expectation of signing. This document merely serves to capture the basic details and rarely elaborates on definition of terms, rights or duties at length.
While it is sound business practise to record in writing the amount of commission and under what circumstances the mandate will be considered fulfilled, some mandates omit small points that are not in the Estate Agency favour or the document itself serves to cover “conditions of absence in agreement” covered by common law. For example, under common law, in the absence of an agreement to the contrary, an Estate Agent is not entitled to commission simply because, over a period of time, there has been a conscientious effort to carry out a clients mandate.
We have noted that certain common law principles govern an Estate Agent’s right to commission and that standard contracts are employed to cover such rights. We have also noted that such documents can fail to explain terms and can even be employed to protect the agent from common law principles that are not in the Estate Agents favor. Our remedy to reducing the potential for conflict is to encourage more open discussion and consultation of commission with clients by Estate Agents.
However, assuming such discussion were to take place, how is a person know whether or not an Estate Agent is due commission when they themselves do not have enough information to ask the right questions during such discussion.
In this section we cover some of the points clients should know, compliance points that are often neglected or forgotten by even the most seasoned and professional of Estate Agents.
The first thing to know is that the Estate Agency Affairs Act and the Code of Conduct both have a direct impact on an Estate Agents right to receive commission. One of the most important stipulations of the act is that an Estate Agent may only receive commissions on transactions concluded during a period for which the Estate Agent is in possession of a valid Fidelity Fund Certificate.
Second thing to know is that Estate Agents who have not complied with the prescribed training requirements are not allowed to receive commission on agreements where they have drafted or completed clauses in a sale or lease agreement.
In addition to these requirements section 8 of the [Code of Conduct] sets forth conditions under an Estate Agent shall not be entitled to commission.
The implications of these three points are often not made clear to clients. Rarely, if ever, is a client furbished with a copy, or presented, an Estate Agents Fidelity Fund Certificate or a copy of the Code of Conduct. Incidentally, the Fidelity Fund Certificate is printed with a business card sized tear-off capable of fitting into a wallet where it can be easily kept like a drivers license and presented when required. There should be no reason why a professional Estate Agent with a valid Fidelity Fund Certificate should not wish to present it.
The act goes one step further. In addition to an individual Estate Agent having to hold a valid Fidelity Fund Certificate, the Agency Company, all participating directors and any person promoting or canvasing immovable property are also required to hold a valid Fidelity Fund Certificates. In the event that an Agency does not have valid Fidelity Fund Certificate, or any of the Estate Agents or employees of the Agency, all people employed with such agency are not entitled to claim commission.
In an industry with more than 72,000 agents, the public can easily be convinced to mandate the services of non-valid Estate Agents. Such persons, while operating illegally are not bound to operate under the Estate Agency Affairs Act or the Code of Conduct. As a result the Estate Agency Affairs Board, the organisation responsible for protecting the consumer, can only bring a criminal case against such persons and has no power to sanction any conduct. Whereas, if the Estate Agent is operating with a valid Fidelity Fund Certificate, failure to comply with requirements constitutes conduct deserving of sanction that may see the Estate Agents license to operate revoked.
Performance of the mandate
Terms of mandate differ, but in general terms a mandate is seen to be fulfilled when:
- A buyer is introduced to the seller who is both legally and financially able to buy the property.
- A binding contract of sale is concluded. It is worth noting that a contract with suspensive conditions is not binding until such time as such conditions have been met.
- A transaction and its terms are substantially in accordance with the clients mandate.
Point 3 is interesting. The word “substantially” gives rise to a special twist. Since it means that, unless a client makes express note that commission will only be paid when the contract is concluded on “exact terms stipulated”, an agent is not required to execute a mandate to the exact letter. For example, if the client wants 500, 000 for a property and the highest offer attainable is 450, 000, the client cannot refuse to pay the full commission agreed.
A further twist of this case can evolve where an introduced buyer does not enter into a sale, but instead enters into a lease agreement. In this case, despite a lease agreement being in place, the Estate Agent is not deemed to have substantively completed the mandate and is not due commission as a different transaction to that which was mandated has resulted.
In practice we see this problem occurring all the time. An Estate Agent concludes a contract of sale at a price less that what the buyer was prepared to accept. Then the seller wishes to negotiate the commission down.
Many people are under the impression that all they need do to qualify for commission is introduce a buyer and seller from wish a contract of sale is concluded. This is possibly one of the most common misconceptions shared by both Estate Agents and clients alike.
In fact an Estate Agent is required to do the above and be capable of demonstrating that he or she was the effective cause of the resulting transaction, north withstanding other factors. In reality many factors must be considered in order to demonstrate effective cause, including:
- How much effort did an agent put in. Simply giving a buyer and seller each others telephone numbers is not enough.
- The time between introduction and sale. If buyer and seller conclude a sale shortly after introduction, the argument that the Estate Agent was the effective cause is strong. However, if the sale agreement took place after a considerable period of time, the argument would be more difficult to prove.
- The extent of consultation provided by the estate agent. If through an Estate Agents consultation one or more obstacles to conclusion of the sale where removed, then the effective cause is in favor of the Estate Agent. However, if the obstacles were removed without the help of the Estate Agent, then the effective cause is most probable to lay with the buyer and seller.
- Frequency of interaction. How often did the Estate Agent communicate with the buyer and did the agent cease negotiations with the buyer at any point in time.
This article has briefly highlight a few of the main points concerning the rights and duties of Estate Agents and clients using their services. While some may see the information provided as a means to try avoid paying Estate Agents commission, the ability to do so legally is not easy. However, clients that feel they have genuinely not been served by an Estate Agent are not without recourse, if they have the information pertaining to their rights and duties as clients.
Having said this, it should be noted that Estate Agents are not paid for good intentions or hard work, only for bottom-line results. As a result it is not possible to measure an Estate Agents performance by the amount of work they put into a deal. Many Estate Agents do put a tremendous amount of work into their deals and take great pride in adhering to professional conduct. By the same token, an Estate Agent can earn considerable amounts of commission for relatively little work, but in this case runs the risk of getting nothing whatsoever if the mandate is neglected.
In closing it could be argued that the expectations and needs of clients would be better served if clients were better informed about both their own rights and duties and those of Estate Agents. However, in order for service levels to be improved, clients must also be willing to enforce their rights and not accept invalid Estate Agents or negligent service.