ESTATE AGENTS, OPEN MANDATES AND THE EFFECTIVE CAUSE

WHEN ISbrokers-home-sales-hold-pen-and-house-model-in-V3NH5TM (002) AN ESTATE AGENT CONSIDERED TO BE THE EFFECTIVE CAUSE AND CAN MORE THAN ONE ESTATE AGENT CLAIM PAYMENT OF COMMISSION?

Owners often do not want to give an estate agent a sole mandate to sell his or her property, thinking the more agents involved, the quicker the property will sell and possibly a better sale price will be achieved.

In the Supreme Court of Appeal case of Wakefields Real Estate v Attree & 2 others (666/10) [2011] ZASCA 160 the court had to decide whether an estate agent who introduces a purchaser to a property, where the sale was concluded through another agent, was the effective cause of the sale and as a result, entitled to payment of estate agent commission.

Whilst it seems to be the view of many estate agents and industry experts that the effective cause of a property sale will mostly be the agent who presents the seller with the accepted offer to purchase, the Supreme Court of Appeal unfortunately had a different view.

The court found that, in this case, the introduction of the property to the purchased by the first estate agent was instrumental in the purchasers knowing about the property, thus being the effective cause of the sale since the purchasers would have purchased the property had their finances permitted at the time. When their finances improved, some nine months later, they purchased the property through another estate agent. Accordingly, it was found that the efforts of the second estate agent, albeit that they purchased the property for a lower price, was unimportant in the purchaser’s decision to purchase the property. The court held that:

“It is notoriously difficult, when there are competing estate agents, to determine who is the effective cause of the sale that eventuates. It may be that more than one agent is entitled to commission.”

The court went further to state that the seller only has himself to blame for his predicament; for he should have protected himself against that risk. The seller was ordered to also pay estate agent commission to the first agent in the amount of R232,560 plus interest thereon at a rate of 15,5% per annum calculated from 2005. Certainly, a costly mistake on the seller’s part.

It is important to point out that the High Court initially decided in this matter that the introduction of the purchaser to the property by the estate agent was not the effective cause, but that the efforts of the second agent was in fact the effective cause of the sale, which decision and reasoning was ultimately overturned by the Supreme Court of Appeal.

Considering the different approaches by the courts, it goes without saying that every case must be considered on its own facts and merits, as this seemingly clear-cut matter is indeed much more complex than one expects.

There is nothing wrong with having an open mandate, it should just be in writing to avoid arguments later when commission is being claimed by multiple estate agents.

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