Umhlanga Realtor

ESTATE AGENT’S COMMISSION: “EFFECTIVE CAUSE” IS NOT ENOUGH

Both property sellers and estate agents need to know the downside of not recording, clearly and in writing, the exact circumstances in which a seller must pay commission to an agent.

The agent’s claim: R500k

To illustrate – in a case recently before the High Court, an agent claimed to have a verbal mandate from the seller of an industrial property to sell it for R5m. The agent believed that if he found a buyer for R5,5m he would be paid the excess R500,000 as commission. He duly found a buyer at R5,5m but the buyer and seller cut him out - they concluded their own sale agreement at R5m with no provision for commission. The agent duly sued the seller for R500,000 commission.

The law ......

The agent was able to convince the Court that he was indeed the effective cause of the sale, but his claim for commission failed because he was able to prove neither the basis of his “entitlement to commission” nor “the manner in which such commission was to be calculated”.

So although you might think it enough for you as an agent to prove that you were the “effective cause” of a sale that is not so. There are still grey areas in our law here, and each case will be different, but as a general rule you are going to have to show that -

1.) You have a mandate from your principal (usually the seller)

2.) You have performed that mandate

3.)You are the “effective cause” of the sale

4.) The commission you claim is set or calculated as agreed.

…..the risks…..

Uncertainty is your enemy here. As an agent, you risk receiving no reward for your hard work. As a seller, you risk paying commission you didn’t budget for (even perhaps double commission if multiple agents have been working on your property).

Estate Agents Audit Requirements - Property24.com The EAAB has made it clear that all estate agents need to adhere to the audit requirements as set out by the EAAB’s legislation.

A fascinating article recently appeared on an American webpage that discussed how much more property veteran estate agents sold. In the report it was stated that experienced agents in that country sell homes for approximately 12% more than their less experienced counterparts.

Although we weren't able to find any South African statistics that highlighted whether or not more experienced agents not only sell more property, but in the process manage to secure a higher selling price, it does stand to reason that those who have been in the industry for longer may be more successful in this regard.

Before agents respond to the negative and attempt to lynch the author of this article, experience plays a role in anyone's success. Like any other sales position, there is an art to selling and although some agents literally hit the ground running and start to sell from the second they knock their first for 'sale board' into the ground, most don't.

Estate agents come in all shapes and sizes. Some are incredibly successful, some sell consistently and are moderately successful and others achieve very little in the way of sales. While buyers and sellers could be forgiven for wondering if all of this really matters and if there is any real benefit in using an agent who outsells other agents in the area on an ongoing basis, this does seem to count. Having an agent who has proved that he has what it takes to get the job done properly can save buyers and sellers a great deal of time and money.

Highly successful agents preform well for a reason. They have a wealth of experience that is generally restricted to the area in which they work. They probably intimately know most of the properties in the area and are usually aware of what has recently been sold and for what price. They also know their stock well and because they listen to the buyers needs, are quickly able to decide which properties may appeal. These agents do not believe in guess work and understand the amount of work that has to go into each and every deal big or small.

Top agents tend to build a portfolio of happy clients - who return to use their services time and time again. The average property investor doesn't necessarily have time to scour webpages for suitable properties and will enlist the help of someone that he not only knows can do the job, but can do it well with the minimum amount of fuss.

Word of mouth is always going to play a huge role when it comes to finding the right agent. Buyers or sellers are usually the first to tell you if they were satisfied with how their agent handled the job. However, people have different expectations and while a certain agent may have satisfied one persons needs, it doesn't mean that he is going to hit it off with every client who has been recommended.

Buyers and sellers should never accept mediocrity. However given the nature of buying and selling property it isn't always possible to switch agents once the initial viewing has occurred. Choosing the right agent before you start looking for a home, or listing a home will go along way in ensuring that all parties are satisfied with the end result.
(Article: Lea Jacobs Property 24)

I've Been Told To Get Rid Of My Pet! - Property24.com A reader says after renting in a complex for a year the body corporate have now told him to get rid of one of his two dogs. An expert advises...

Warning Against High Rental Increases - Property24.com Landlords who think that they can raise residential rentals annually by 10 percent, or even more, are likely to lose good tenants.

ETHICS IN REAL ESTATE – ARE THEY DEAD ?

The SA real estate industry has, over the last few years, been required to raise educational standards. This is a good thing but, sadly it appears that unscrupulous agents continue to choose a path which is both unethical and in contravention of The Estate Agency’s Affairs Board Code of Conduct.
There is a perception amongst professional property practitioners in South Africa that time and again sellers are duped by unprincipled agents who persuade them to list their homes at a figure far in excess of what the market is prepared to pay. It appears that the motive for this dubious practice is self-serving, for by endorsing an exorbitant number, the dishonest agent is more easily able to secure a sole mandate by raising the sellers price expectations. In terms of the Code of Conduct agents are required to act in the best interests of their client at all times. Clearly the act of deliberately misleading the seller is both unethical and in contravention of The Code. The pattern of action appears to be ignored or tacitly condoned by some Estate Agency Principals whose objective appears to be to secure as many sole mandates as possible, without regard to the methods adopted by their agents.
South African homeowners are in dire need of guidance from ethical estate agents who possess the essential qualities of integrity, openness and honesty. When putting their home on the market, sellers should interview at least three representatives of reputable companies before making a decision as to which person and company will be responsible for marketing their home. Critically, the seller’s choice of company and agent should NOT be based solely upon the agent who recommends the highest selling price.
The establishing of an initial market price is absolutely critical and the seller needs to know how best to achieve this. If the asking price is set too high, few or no offers will be forthcoming. Conversely, if the price is set too low, the seller will loose money. Who is responsible for setting the initial price and how will it be determined? The answer is that it is the seller’s prerogative but, the agent has a duty and a responsibility to guide and counsel the homeowner in this respect. Standard practice in the profession is to prepare a written CMA (Comparative Market Analysis) which is presented to the seller as basis for setting initial market price. It is absolutely vital (as stated in a previous post), that this CMA should not just be a written valuation on the agency's letterhead, but needs to be supported by data from a trustworthy and reliable independent third party source, such as the “Lightstone” computer generated, individualized property report.
South Africa’s lending institutions have noted that the home selling process is being re****ed by initial problems in establishing the most appropriate market value at the outset. If the home is valued correctly, it will attract multiple offers which will also lead to a competing bid scenario, thus reducing the time spent on the market.