Agency claims commission for private sale

Bonnie asked:

I would like to enquire about commission claims.

We signed a private sales contract in March. We did not have a mandate with any real estate agency, but an agency did host a few showhouses for us.

One Friday, two sisters approached us, after we placed an advertisement in the newspaper. The one woman informed us that she works for a major South African bank, and that she used to work for a real estate agency, where she also heard about our property.

They asked to view the house and immediately made an offer to purchase, after the buyer' prospective husband also came to view the property and was satisfied.

Now, after getting the contract drawn up and signed, and everything else organised and sorted, when the mortgage bonds are about to be registered and the property transferred, we receive a letter from the showhouse agency in which they claim commission from us!

They claim that the purchasers saw the property at one of the showhouses. And they want their commission from us.

We feel that this is unfair.

Should I have contacted every real estate agent and enquired if these people maybe saw the house through them, after the contract was signed?

I feel that we would never have sold the property for that price if we had known that the purchasers saw the house through a real estate agent and that we were going to have to pay commission to a real estate agency.

I did not have a mandate with the agency. I signed nothing on paper, unless I did not know about it.

Can you maybe tell me what my rights are? Or should I see a lawyer? Or should I wait for the real estate agency to sue me, and then state my case in court?

We sold the property for a whole lot less than what the real estate agency had it listed.

What are we to do? Can you give me some advice?

Thank you.

Dear Bonnie

I am sorry to hear about the confusion that you are experiencing. I do hope that you can sort things out very soon, and without too much suffering.

I have to point out that, if you gave a real estate agent permission to market your property, a mandate was conferred. A real estate agent might, for instance, ask: "Would you mind if I try and find you a suitable buyer?"

Now, if you confirm that the agent can go ahead and try to find a purchaser for your home, you have given that real estate agent a mandate to market the property. This would be an "open" mandate.

An open mandate can be an oral or written marketing instruction. The open mandate is not exclusive, and you are therefore allowed to give other real estate agents a similar mandate, or even sell the property privately.

The fact that you gave multiple real estate agencies permission to list, advertise and show your property means, by definition, that you gave those agencies open mandates. The correct statement would be "We did not give anyone a sole or exclusive mandate", rather than "We gave no mandate".

If the agency that claims commission can prove that they introduced the purchasers to your property, you may be liable to pay them. But the requirement for earning a commission for the sale of your house is not simply a matter of introducing the purchasers to the property. The agency can only claim commission if they were the "effective cause" of the sale.

Proving "effective cause" can sometimes be a difficult thing for the real estate agency. If the agent did not, for instance, reply to enquiries about your property by the purchasers he/she introduced to the property, it would be hard to prove that the agent was the effective cause of the sale.

On the other hand, if the purchasers were introduced to the property, but then decided to "save" the real estate commission by dealing with you (the owner) directly, the agent would not have had a chance to perform the duties that would have made sure that he/she was the effective cause of the sale, except for introducing the purchasers. In such a case, the agency might very well be awarded the full commission!

From your email, it sounds as if this is exactly what happened to you.

The fact that you sold the property for less than the real estate agency's marketing price is irrelevant to the commission claim.

And yes, when you decide to give multiple open mandates to various agencies, you have a responsibility to find out who they introduce to the property. The agents should also have informed you about people they introduce to the property, but the fact that they might have neglected to inform you does not cancel out the fact that the purchasers were introduced by an agent.

I suggest that you speak to your transferring attorney (if you were the one who appointed the conveyancer), or another real estate attorney who will be representing YOU. The few hundred rand attorney's fee is just a drop of what you stand to loose if you are held liable for commission, so this is not the time to be stingy. (And do not communicate with the real estate agency, the purchasers or their attorneys about the commission dispute untill you have gathered some legal advice!)

Do not wait for the agency to sue you for the commission. This would just heap other expenses on top of the amount that could be awarded by a judge.

For future reference, decide whether you want to employ an estate agent, or not, right from the start. Either sell the property yourself, or appoint an exclusive real estate agency with a good reputation. Changing your mind in the middle of the marketing process is never a good idea.

Possibly paying commission when you did not plan on it is bad enough, but when handing out open mandates to many different agencies who do not co-operate, you can easily get into a situation where you become liable for DOUBLE commission! (For you, the worst case cenario would be that the agency who informed the one "sussie" about your property also put in a claim for commission.)

As I am sure you gathered from my response, I fear that this might turn out to be either a drawn out affair, or alternatively an unpleasant outcome for you.

I would appreciate it if you could let me know about the outcome of your commission dispute.

I wish I could tell you that the agency is just blowing smoke, but alas, I cannot...

PS: Remember that you could still negotiate a lower commission rate with the real estate agency. But ONLY attempt this AFTER speaking with your attorney! Or better still, let the attorney handle the negotiations and the settlement.