So, you decide to sell your property and contact an estate agent (agent A) to assist you with finding a willing purchaser to buy your property at your asking price (or a negotiable price).
Agent A is enthusiastic and requests that you sign a mandate so that he may proceed to market your property; and of course, to secure his or her commission.
Weeks go by and finally, agent A introduces a willing purchaser to your property. Everything is going smoothly; however, due to financial commitments, the willing purchaser is unable to purchase the property at that stage.
You feel frustrated, and you contact another estate agent (agent B) and request them to assist you.
Agent B is also very willing to assist and markets your property. Agent B is then contacted by the purchaser who was introduced to the property by agent A – as they now have the funds available to purchase.
Agent B requests that the purchaser sign an offer to purchase, which you accept – securing agent B’s commission. The conveyancing process is concluded, and your property is successfully transferred to the purchaser.
Two months after the transfer, you receive a call from agent A demanding their commission. You tell them to get lost as you have already paid agent B commission for the sale.
Agent A then informs you that they were the effective cause of sale, that you have signed a mandate and that they will take legal action if you refuse to pay.
You are confused, agent B secured the deal, and therefore only agent B is entitled to the commission, right?
What is a Mandate?
A mandate is an authority given to a person to perform a specific act.
In the case of a sale of property, a mandate means that authority is given by the seller, to an estate agent, to market their property to potential purchasers. And if the agent finds a willing purchaser and they purchase the property, the agent is entitled to a commission for the performance of his obligations in terms of the mandate (regardless of who closed the deal).
Effective Cause of Sale Explained
For an agent to be entitled to the commission, he or she first needs to have a valid fidelity fund certificate; secondly, he or she needs to have a mandate and thirdly he or she needs to be the effective cause of the sale.
This means that the agent must have introduced a willing prospective purchaser to a property and as a direct cause of that introduction, the purchaser bought the property and a transfer occurred.
However, to conclude whether an agent is the effective cause of sale or not is not easily determined and will depend on the facts of each case.
There are intervening factors that may also contribute to the purchaser eventually buying the property; but, if the introduction by the agent is the overriding factor, then the agent is inevitably the effective cause of sale.
In many instances, sellers instruct numerous agents to market their properties – this can be quite risky. If two or more agents are involved in the sale of the same property and have signed mandates, and two or more of the agents contact the same purchaser who ultimately purchases the property, the seller may be liable for a double commission.
One of the agents may be entitled to a commission because they were the effective cause of the sale and had a mandate, and the other because they concluded the deal (securing their commission in the offer to purchase signed by the seller and the purchaser).
So, what is the solution? In short, an exclusive mandate.
What is an Exclusive Mandate?
An exclusive mandate is an express authority given exclusively to a single estate agency (agent) to market a property and find a willing purchaser for the property. This means that no other agencies may market the property and if they do have an interested buyer, they would have to work through the agency that holds the exclusive mandate.
By granting an exclusive mandate, you as the seller can be confident that you will avoid paying a double commission.
Now that you understand the above concepts, you would agree that the seller in the scenario above would in all likelihood be liable for a double commission. Therefore, if you are selling your property, it is imperative that you understand the importance of an exclusive mandate, to avoid paying more than one commission.
But what happens if I am not happy with the services rendered by the agency who holds an exclusive mandate?
The Consumer Protection Act provides some reassurance to sellers. By law, you are entitled to terminate such a mandate by giving 20 business days’ notice of termination. After which you may instruct any other agent of your choice.
If there is a failure to perform on the mandate, for example, to carry out the marketing activities stipulated in the exclusive mandate agreement, you may also cancel by placing the agency on terms to perform, failing which cancellation is permitted.