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Estate agent's commission
No estate agent shall:
1.1 stipulate for, demand or receive directly or indirectly any remuneration, commission, benefit or gain arising from or connected with any completed, pending or proposed contract of sale or lease which is subject to:
1.1.1 a suspensive condition, until such time as that condition has been fulfilled; or
1.1.2 a resolutive condition, during the time that the transaction may fall away as a result of the operation of the said resolutive condition:
Provided that the aforegoing shall not apply if
(a) good cause exists; and
(b) the party liable for the payment of the remuneration, commission, benefit or gain has expressly consent in a written document executed independently of the contract in question, to such payment at any time, notwithstanding the fact that the said contract is subject to a suspensive or resolutive condition, as the case may be; and
(c) such document contains an explanation of the implications and financial risks for such party of payment; and
(d) such document is signed by such party and the estate agent in question.
1.2 convey to his client or any other party to a completed or proposed transaction in which he acted or acts as an estate agent, that he is precluded by law from charging less than a particular commission or fee, or that such commission or fee is prescribed by law, the board or any institute or association of estate agents or any other body;
1.3 introduce a prospective purchaser or lessee to any immovable property or to the seller or lessor thereof, if he knows, or has reason to believe, that such person has already been introduced to such property or the seller or lessor thereof by another estate agent and that there is a likelihood that his client may have to pay commission to such other, or to more than one, estate agent, should the sale or lease be concluded through his intervention: Provided that the aforegoing shall not apply if the estate agent has informed his client of such likelihood and obtained his written consent to introduce such party to the property or the seller or lessor thereof;
1.4 include, or cause to be included, or accept the benefit of, any clause in a mandate or in a contract of sale or lease of
immovable property, providing for payment to him by the seller or lessor of immovable property, of any remuneration,
commission, benefit or gain arising from or connected with a contract of sale or lease, regardless of the fact whether the
purchaser or lessee is financially able to fulfill his obligations in terms of the said contract:
Provided that the aforegoing shall not apply if
(a) good cause exists; and
(b) the seller or lessor has, prior to his signature of the contract or mandate (as the case may be) consented in writing in a document executed independently of the said mandate and contract, to such payment; and
(c) such document contains an explanation of the implications and financial risks for the seller or lessor of such payment; and
(d) such document is signed by both the estate agent and the seller or lessor;
1.5 include, or cause to be included, or accept the benefit of, any clause in a contract of sale or lease of immovable property negotiated by him, entitling him to deduct from any money entrusted to him in terms of the contract, any remuneration, commission, benefit or gain arising from or connected with such contract: Provided that the aforegoing shall not be so construed so as to prohibit an estate agent from making such deduction when such money is actually paid over by him to the party entitled thereto and such party is in terms of the said contract liable for the payment of such remuneration, commission, benefit or gain.
2.1 At common law an estate agent is entitled to payment of commission on a transaction only once a binding agreement has been concluded. In this context an agreement is binding only if all suspensive conditions have been fulfilled. It is clearly not in the interests of a seller to be placed in a position where he is liable to pay commission whether or not suspensive conditions have been fulfilled, since that would mean that he is liable to pay commission whether or not a sale actually materializes.
Examples of suspensive conditions normally found in agreements of sale, are that the purchaser is to obtain a loan to cover the balance of the purchase price from a financial institution, or that he is to sell his own house, before or on a certain date. If a contract of sale is subject to a resolutive condition the contract is binding on signature thereof by both parties, but terminates upon fulfillment of the resolutive condition. A typical example of a resolutive condition would be a stipulation in an agreement of sale of a proposed sectional title unit that the sale will terminate should the sectional title register not be
opened before or on a certain date. In such case it would obviously not be in the interests of the seller to bind himself to pay commission on signature of the agreement as that sale may eventually fall through.
Clause 2.1 prohibits the inclusion of clauses in sale or lease agreements stipulating that commission is payable on signature of the agreement whether or not a particular suspensive or resolutive condition in the contract has been fulfilled. There may, however, be instances where payment of commission in such circumstances can be justified, for example when there is an extraordinarily long period between the date of signature of the agreement and the date specified for fulfillment of a suspensive condition. If the party responsible for payment of commission agrees to pay commission prior to fulfillment of suspensive conditions, a written document separate from the agreement of sale or lease must be drawn up. Such document must set out the implications and financial risks for the party concerned of such payment. The document must then be signed by such party and the estate agent in question.
2.2 The purpose of this clause is to avoid misrepresentation on the part of an estate agent regarding the amount of commission that he may charge.
There is no prescribed commission tariff for estate agents although the Institute of Estate Agents has a recommended tariff for its members.
The Code does not prohibit an estate agent from advertising his commission rate. It is not, however, permissible to advertise that the estate agent guarantees to undercut any other estate agentís rate or that his tariff is lower than that of his competitors. To do so would be misleading since an estate agentís commission is usually linked to the services offered by him.
2.3 The purpose of this clause is to avoid double commission disputes. The following is a common example:
A seller gives a mandate to market his property to both estate agent A and estate agent B. Estate agent A introduces a prospective purchaser to the property who, although very keen on buying the property, wishes to view other properties first. A week later estate agent B takes the same purchaser to the sellerís property and closes the transaction because the purchaser has by then made up his mind. The sale agreement provides that the seller is to pay commission to estate agent B. However, estate agent A contends that he was the effective cause of the sale and that the seller is also liable to pay him commission. The estate agents cannot reach agreement on the sharing of commission and the seller now finds himself in the middle of a commission dispute. Legally he might well be liable to both agents for the payment of commission.
The application of clause 2.3 requires the following conduct of an estate agent:
1. Agent 2 must ask a prospective buyer whether or not he has seen the house through another agent. If the answer is no and the agent has no reason to believe otherwise, he may introduce the purchaser to the property. If a sale follows, agent 2 should for his own protection record in the sale agreement that the purchaser has not been introduced to the property by another agent.
2. If the buyer has seen the property through another agent, agent 2 may take the intending buyer through the house and show him the property. He may not, however, close a sale entitling him to payment of commission, unless:
(a) he (or the buyer) has given a suitable indemnity against payment of double commission by the seller, and this has been accepted by the seller; OR
(b) a commission split with the other agent has been negotiated; OR
(c) agent 2 has assessed the likelihood of a double commission dispute and arrived at a decision whether or not such dispute is likely. Two possibilities now arise:
(i) If a commission dispute is likely, agent 2 must disclose this to the seller and obtain his written consent to proceed with negotiations. Such consent can be contained in any document, including the sale document itself. Normally a seller will not give his consent unless he is given an indemnity against payment of two commissions but it may well be that he is happy to proceed without either such an indemnity or confirmation of a commission split.
(ii) If agent 2 considers that there is no likelihood of a double commission dispute, he may proceed to introduce the intending purchaser to the property, having asked him whether he would object to the inclusion of a clause stating that agent 2 is the effective cause of sale. If the buyer objects, agent 2 must reconsider his position and reassess the likelihood of a double commission dispute. To avoid problems, he should then follow the procedure of either (a), (b) or (c) (i) above.
(iii) If a dispute is likely, but the result contemplated in (a), (b) or (c) (i) above cannot be achieved, the agent must abandon negotiations with that prospective purchaser in respect of the property in question, and not make any claim against the seller for payment of commission should the buyer eventually buy the property through the other agent.
In assessing the possibility of a double commission dispute, an agent should consider whether another agent might be able to prove that he was the effective cause of sale. To assist an estate agent in determining ďeffective causeĒ, the following guidelines are furnished:
* When was the purchaser first introduced to the property by the first estate agent? If fairly recent, the likelihood of a double commission dispute increases.
* Why the purchaser has not already bought the property through the first estate agent? The answer hereto together with the elapse of time will provide a good indication of who the effective cause of sale was if agent 2 concludes the sale.
* Did the first estate agent provide the purchaser with all relevant and crucial particulars concerning the property? If not, the case for agent 2 is strengthened.
* Does the first estate agent still maintain regular contact with the prospective purchaser and is he still interested in taking the prospective purchaser through the property? Again, if not, it could possibly be inferred that the other agent has realized that his sales effort has made little impression on the prospective buyer.
The suggested wording of a suitable indemnity clause, whether given either by the closing agent or the buyer, is as follows, although it should be noted that in the example clause below it is the closing agent who indemnifies the seller:
1. The estate agent contends that he was the effective cause of the sale of the property to the purchaser and hereby indemnifies the seller and holds him harmless against any claims that may be made against the seller by any other estate agent for commission based on effective cause and/or damages for breach of contract relating to the payment of commission. In this regard, the seller undertakes:
1.1 to notify the estate agent of any such claim within a reasonable time after the seller becomes aware thereof in order to enable the estate agent to take steps to contest such claim; and
1.2 to render (at the estate agentís expense) reasonable assistance to the estate agent in contesting such claim.
2. The estate agent shall be entitled to contest the claim concerned in the name of the seller and to control the proceedings in regard thereto (including, but without limitation, the appointment of attorneys and counsel) provided that the estate agent indemnifies the seller and holds him harmless against the payment of any and all costs that may be incurred in relation to such proceedings, whether on the scale as between party and party, attorney and client, attorney and own client or otherwise.
3. In the event of the seller notifying the estate agent of the claim as aforesaid, and the estate agent failing to confirm in writing to the seller within 10 days thereafter that he will contest the claim as in 2 hereof, the seller may in his discretion either -
3.1 contest the claim himself; or
3.2 accept that the estate agent has conceded the claim and settle the claim forthwith.
4. Should the seller -
4.1 contest the claim pursuant to 3.1 and judgment is eventually obtained against him, the estate agent shall be liable to pay or refund the seller the amount of the judgment debt, on demand;
4.2 settle the claim pursuant to 3.2, the estate agent shall be liable to refund to the seller, on demand, the settlement figure together with all costs incurred by the seller in relation to such settlement, whether on the scale as between party and party, attorney and client, attorney and own client or otherwise.
The above clause is provided merely as an example and estate agents are at liberty, in consultation with their legal advisers, to draft their own indemnity clauses, provided, however, that the principles embodied in the above clause are not overlooked.
2.4 A common law requirement for the earning of commission on a sale is that an estate agent must introduce a purchaser who is legally and financially able to implement the transaction. A commission clause in a sale agreement providing that the seller is to pay commission whether or not the purchaser is financially able to implement the sale is obviously not in the sellerís interest and the inclusion of such a clause is prohibited by clause 8.4 of the code of conduct. In the unlikely event that a seller is willing to pay the commission whether or not the purchaser is financially able to fulfill his contractual obligations, a separate document must be prepared. This document must contain an explanation of the implication and financial risks for the seller arising from such payment and must be signed by both the estate agent and the seller.
Agreements of sale concluded subject to the condition that the purchaser is to obtain a loan on or before a certain date, often provide that should the purchaser fail to apply for the loan or provide false information in his application solely to avoid fulfillment of the suspensive condition, he (the purchaser) will become liable for payment of commission. The inclusion of such a clause is not prohibited by clause.
2.5 This clause prohibits an estate agent from including provisions in agreements, which entitle him to deduct his commission from deposits held by him in trust. Such a deduction can only be made when the deposit is actually paid over by the estate agent to the party entitled thereto and provided that such party is in terms of the relevant agreement responsible for the payment of commission. For example, in the case of a sale where the seller is liable to pay commission, the estate agent may not deduct his commission from the purchaserís deposit held by the estate agent in trust. The commission may, however, be deducted when the deposit is paid over to the seller or his representative. (If the agreement of sale authorizes the conveyancer appointed by the seller to receive the purchase price on behalf of the seller, the conveyancer acts as the sellerís representative; accordingly the estate agent will be entitled to deduct the commission when handing over the deposit to the conveyancer).
Clause 2.5 must be read in conjunction with clause 9.4 of the code which is dealt with below. The latter clause regulates the inclusion of a clause in a sale providing for the payment of a deposit to the seller prior to registration of transfer of the property in the purchaserís name. Clauses 8.5 and 9.4 read together mean that, as a general rule, an estate agent may only pay out a deposit to a seller (or his representative) on registration of transfer of the property sold and only then may the estate agent deduct his commission from the deposit. Clause 9.4 does, however, provide that if good cause exists the
purchaser can consent to payment of the deposit to the seller prior to registration of transfer, in which event such consent must be embodied in a separate document containing an explanation of the implications and financial risks of such payment for the purchaser. The seller, the purchaser and the estate agent in question must sign the relevant document.
Once the document has been signed, the estate agent is entitled to pay the deposit to the seller prior to registration of transfer and may then deduct his commission from such payment.
The Code does not prohibit an estate agent who has performed his mandate from demanding immediate payment of commission from the party responsible for such payment. This can be done at any stage after fulfillment of the mandate, even before registration of transfer. Moreover, although commission is usually payable by a seller the Code does not prohibit the inclusion of a clause in an agreement of sale providing that commission is payable by the purchaser. It does however prohibit an estate agent from deducting his commission from the purchaserís deposit held in trust by him.
If this provision of the Code contravened where an agreement of sale provides:
(i) that the agent must pay the stipulated deposit over to an attorney;
(ii) the attorney is in turn instructed by the parties to deduct the estate agent's commission from the deposit and to pay such commission to the estate agent after fulfillment of all suspensive conditions (i.e. prior to registration of transfer).
While the inclusion of such a clause is not specifically prohibited by the Code an estate agent must remember that he is obliged in terms of clause 6.2.1 of the Code to explain to the purchaser, prior to him signing the agreement, the meaning and consequences of the clause. If the estate agent is unable to explain the clause, he must refer the purchaser to a person who can do so. The purchaser's attention must be specifically drawn to the implications of the relevant instruction contained in the agreement of sale. It must be explained to the purchaser that if he cancels the agreement of sale as a result of the non-performance by the seller of his obligations, the purchaser will not be entitled to a full refund of the deposit entrusted to the attorney but only to a refund after the deduction of the agents commission.