Avoid ‘double-commission’ disputes
MAIN IMAGE: Gerhard Kotzé, managing director RealNet estate agency group; Robert Krautkramer, director Miltons Matsemela
Sometimes property buyers turn to estate agents directly and pay them to scout for suitable properties on their behalf – which is fine if estate agents and sellers can avoid disputes over ‘double commission’ claims.
Multinet recently reported seeing double digit house price growth in the lower end of the market as well as stock shortages in certain areas and price brackets. Evidently there are still many home buyers eager to benefit from the current low interest rate and favourable home lending environment.
According to Gerhard Kotzé, managing director of the RealNet estate agency group, in some instances this has led to an increase in cases where hopeful buyers and investors engage estate agents directly to look for suitable properties on their behalf.
“And while there’s nothing wrong with that, home-owners and sellers do need to understand that any agent who introduces a buyer in these circumstances is actually working for that buyer,” says Kotze. The agent’s primary responsibility will thus be to act in the interests of the buyer – and that could include negotiating to secure the property at the best possible price.
In addition, home sellers who have already given a mandate to a different agent to market their property should be wary of accepting an offer from an agent who scouted their home on behalf of a buyer, as this could quite easily give rise to a “double commission” claim. The reason for that is that the agent who introduced the buyer is likely to claim that they were the ‘effective cause’ of the sale and thus entitled to a commission. However, if the sellers agree to this, the original agent with the mandate could then launch a claim against them for breach of contract – and damages equal to the amount of the commission already paid.
According to Robert Krautkramer, director of Miltons Matsemela conveyancers, it is not very common to see prospective buyers granting mandates to agents to help find a property. But there is nothing wrong with a buyer granting an agent a mandate which states that if the agent introduces the buyer to a property within a certain time and it results in a sale, that the buyer then must pay the agent commission.
How to avoid ‘double commission’
Read the fine print: Krautkramer advises that where a buyer wants to view a property but tells agent X that he has already granted agent Y a mandate to find him a home, agent X needs to check the terms of that mandate to see whether the buyer could be exposed to a double commission claim. “Such a mandate can be either an open mandate or a sole mandate, in which event the buyer is obliged to use that agent only, or, if he works through another agent and buys a property, he remains contractually bound to pay the first agent,” Krautkramer explains.
But just as with any seller’s mandate, there may be a clause in the buyer’s mandate which restricts the buyer from making use of any other agent’s services for a fixed period and should the buyer buy a property through another agent during that time, he/she may find him/herself in a position where he/she must now pay two agents – just as with any other sole (selling) mandate.
“As such if you are made aware, that a potential buyer wants to use your services (at a fee) to source a property, but has already granted a mandate to another agent, first check and make sure whether it is a sole mandate or not, and what the terms are, else you may expose the buyer to a double commission claim,” he says.
Multiple mandates: Sellers that grant multiple mandates should be aware that this can lead to disputes over commission and end up with them having to pay twice for the same service says Kotze. For example, a prospective buyer views the property through one agent and then, at a later stage, decides to purchase but makes an offer through a different agent who also has a mandate. Both agents might feel that they were the ‘effective cause’ of the sale and entitled to the commission. To avoid a ‘double commission’ situation, sellers will need to secure indemnity against legal action and, ideally, an agreement for the agents to split the commission – before the offer to purchase is accepted.
However, it may be that the seller is aware that the buyers have engaged with more than one agent. To avoid this Kotze suggest that sellers make sure that any offer to purchase made in a multiple mandate situation contains a clause in which the buyers warrant that they did not view the property through any other agent and indemnify the seller against any claim by another agency.
Sellers should therefore make sure that the mandate document accurately reflects what was discussed about the marketing of their property. They also need to look out for a clause that stipulates that the agency will still be entitled to commission if the property is sold to anyone who viewed it during the mandate period, even if that sale takes place after the mandate has expired.
“This is very common and there is nothing wrong with it, but to make life easier and lower their risk of a ‘double commission’ claim, the seller should then add a condition that the agency must provide them with a list of all the people who view the property during their mandate period. If the agency don’t achieve a sale during this period and the seller only gets an offer to purchase at a later stage, it will then be easy to check the buyers’ names against this list.
To return to the scenario where buyers contract estate agents to scout for suitable properties on their behalf and they approach a seller who has already mandated another estate agent to market their property. Kotze’s advice is that the sellers tell their original agent about the offer brought by another agent and ask for a written indemnity against any later legal claims for damages before they accept the offer from the second agent. “Hopefully, the agents will also reach an agreement to share the commission,” he adds.