by Leanne Williams
The buying and selling of a property can be an intimidating and complex process. The sale process involves specialised skill and knowledge and therefore it is customary to make use of different professionals who can ensure a smooth and successful transaction. These professionals include, but are not limited to, real estate agents and conveyancing attorneys.
The sale process normally commences with the seller approaching a real estate agent to assist with finding a buyer for the seller’s property. In the competitive real estate industry and the present uncertain financial climate, the seller may choose to approach more than one real estate agent to widen the net and ensure a successful sale as soon as possible.
In situations where more than one real estate agent has been granted a mandate, it can become tricky to determine who is entitled to the commission. The concept of “effective cause” is therefore important as it is the threshold test to secure and ensure commission is earned and payable.
What is “effective cause”?
“Effective cause” is the causal link which persuades the buyer to purchase the property. Put differently, it means that through the efforts of the real estate agent a successful sale of the property was concluded and the real estate agent is therefore entitled to the commission.
Why is it important?
The importance of establishing the effective cause of a sale can be illustrated by way of an example in case law.
A real estate agent “W” introduced a purchaser “H” to a house. The house was subsequently sold to “H”. However, a different real estate agent “D” who knew that “H” was interested in the house had contacted “H” when she heard that the seller was willing to reduce the price.
Not only does this example illustrate that a real estate agent’s commission is not guaranteed, but it also leaves the seller open to the possibility of having to pay more than one real estate agent.
What qualifies as the effective cause?
The general rule can be described as “first come first served”. Or better yet, whoever introduces the purchaser to the property is usually the “effective cause” of the successful sale.
However, there are exceptions to the general rule. In practice these exceptions are often referred to as “intervening causes”. In Basil Elk Estates (Pty) Ltd v Curzon the court concluded that the first introduction by the real estate agent had been outweighed by “intervening factors”. Numerous personal factors prevented the prospective purchaser from initially concluding a sale agreement. Nine months later personal circumstances changed and the purchaser secured the necessary money and terminated his current lease. The purchaser then bought the property through a different real estate agent. The court concluded that the intervening factors were such as to make the initial introduction unimportant.
Each set of facts should be determined on its own merits. The passing of a period of time does not necessarily result in an “intervening factor”.
What can I do to protect myself?
If you are the seller:
- Have the mandate checked by an attorney before you sign it.
- If the mandate is an exclusive one ensure that you do not countenance offers from other real estate agents until you are satisfied that the mandate has expired.
- Request a list of all persons who are introduced to the property during the mandate period and, if not an exclusive mandate, by which real estate agent(s) they were introduced.
- Read the fine print in the mandate document. In many cases a prospective purchaser who is introduced during the mandate period but fails to submit a suitable offer, may be a future purchaser which could result in two sets of commission being paid.
If you are the real estate agent:
- Ensure that all the statutory requirements as required by the Estate Agency Affairs Act have been met.
- Ensure that the mandate is in writing.
- Ensure that the mandate is comprehensive and includes the finer details, specifically the details pertaining to the commission payable.
For more information regarding property matters, please contact:
Robert Ferrandi | Partner
Areas of Expertise: Property Law & Conveyancing
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)