Agent commission still payable even sale falls through

In SA property transactions there have been a number of occasions in which the seller and/or the buyer have tried to do the agent out of his commission, says Ulrik Strandvik of Grant Gunston Attorneys and Conveyancers – and in most cases this has been contrary to the law.

“Sometimes,” said Strandvik, “the seller and buyer will sign a sale document but then together agree, for whatever reason, to cancel the arrangement. In these circumstances it can come as a surprise to the seller that the agent who brought them together is still entitled to his or her commission – even though no transfer takes place.

“In legal terms, the agent was the “effective cause” of a sale and so remains entitled to payment. Agents, being alive to the possible pitfalls here, have in most cases included in their standard agreements of sale a clause stating that the agent is entitled to their commission even if the sale is cancelled. The party who is responsible for the cancellation will be the one liable for the commission and if both parties they will be equally liable.”

On occasions, says Strandvik, the seller and buyer (introduced to the seller by an agent), will conspire and wait for the agent’s mandate period to expire before they enter into a “private sale”. The Seller thinks that this does away with having to pay commission and enables the purchaser to offer slightly less for the property. However, Strandvik warns, this does not exonerate the seller from paying commission, even if the subsequent sale takes place many months later.

“The fact is that the buyer was introduced to the seller by the agent, who is therefore the effective cause of the sale. The seller will have to prove that there was some intervening event that caused the sale and not the agent. This is extremely difficult to prove.

“Various means of avoiding commission payments have been tried,” said Strandvik, “ but when the case goes to court, the person who brought the two parties together is in the majority of cases compensated, even if the sale has fallen through.”

The motivation for this type of behaviour, added Strandvik, is often the idea that agents earn substantial fees for little work. This, he said, is a fallacy: relatively high fees are essential because so much time and money is spent working on advertising properties that do not sell or are sold by rival firms.

“One of the reasons why property marketing is a demanding career is that payment is done purely on results not necessarily on the good intentions or hard work put in by the agent. Agents all too often have a good run of sales followed by a lean period later.”