ESTATE AGENT COMMISSION: to pay or not to pay?
Selling a home is one of the biggest financial decisions a person can make and an estate agent, to whom commission will be payable, is usually involved in this process.
A problem that frequently occurs in practice and which is not easy to solve is whether an agent was in fact instrumental in bringing about the sale of the property. According to law and numerous Court cases, an estate agent will be considered to be the effective cause of the transaction when:
- he has introduced a willing and financially able buyer to the seller;
- a binding contract has been concluded between the parties; and
- the transaction takes place at the stipulated price or at a price acceptable to the seller.
When several estate agents are involved in introducing the buyer to the seller it might be difficult for the court to determine which agent was the effective cause. For instance, when estate agent A introduces the buyer to the seller but the buyer later purchases the property through estate agent B after B has persuaded the seller to drop the price. Or estate agent A may have a sole mandate, but estate agent B introduced a willing and able buyer and the seller does sell to this buyer. The seller could then be liable for both estate agents’ commission. A sole mandate usually stipulates that the agent is entitled to commission if the property is sold during the currency of the agreement, even if another agent introduced the buyer.
Commission is earned when all suspensive conditions of the deed of sale have been met. That is when the buyer has, for example, obtained a bond from a financial institution to finance the purchase price and/or sold his existing property before a certain date, which has been a suspensive condition in the deed of sale.
Should the contract be cancelled because of breach by a party, failing to comply with the terms and conditions of the agreement, or should a party repudiate the contract after the fulfilment of the suspensive condition/s, such party in breach of the agreement, will be liable for the agent’s commission as per the agreement.
Commission is payable at date of registration of the transaction and is usually paid by the conveyancing attorney directly to the agent or agency entitled to the commission.
How much commission is an estate agent entitled to? Commission is negotiable. The Estate Agency Affairs Board (EAAB) does not prescribe a fixed or specific amount. The average commission ranges between 5% to 7.5%, (plus VAT) but there are no regulations as to how much commission an estate agent should be paid per sale. The commission should be discussed by the parties when negotiating the mandate.
Parties should know that the relationship between the Seller and the agent, as well as the Purchaser and the agent, is regulated by the Consumer Protection Act (CPA). If a Seller or Purchaser is not satisfied with the services rendered by an agent, he/she can refer the matter to the EAAB as well as the ombudsman in terms of the CPA.