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AGENT’S COMMISSION AND THE EFFECTIVE CAUSE OF THE SALE

Apr 1, 2025

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Introduction

Once you have decided to sell your property, the first step is likely choosing which real estate agent you would like to use and the type of mandate you intend granting to your agent. You could choose between a sole mandate, where you give one agent the exclusive right to sell your property for a specific period, or you could give an open mandate, where you give two or more agents the right to sell your home for a specific period. If you elect to grant an open mandate, there is always the risk of a commission dispute arising between agents. The principle of “effective cause” plays a crucial role in resolving such disputes. A recent case, City and Atlantic Real Estate CC t/a RE/MAX Living v Smith and Others ([2024] ZAWCHC 426), provides valuable insight into how our courts assess this principle.

Case Overview

In this case, the Sellers appointed RE/MAX Living and Kapstadt International Properties CC under a joint mandate to market and sell their property. The agreement stipulated that the agency that introduced a purchaser and was the effective cause of the sale would earn a commission of 3.5% plus VAT. The joint mandate was set to expire on 30 April 2022.

During the mandate period, RE/MAX introduced a purchaser, Mr Pears, to the property. Pears attended multiple viewings and eventually made an offer to purchase however it was not accepted as it fell short of the purchase price. Pears was then advised that an American couple, introduced to the Seller’s by Kapstapt, had made a higher offer which was accepted by the Sellers. This sale however fell through as the American purchasers were unable to fulfil their obligations. The Sellers then decided to appoint Kapstadt as their sole agent. In February 2023, Pears, now dealing with Kapstadt, submitted an offer which the Sellers accepted.

RE/MAX then launched a commission claim against the Sellers alleging that they were entitled to the commission from the sale because they were the effective cause of the sale. In determining whether RE/MAX was entitled to the commission, the court analysed the following factors:

  • RE/MAX’s role in introducing the purchaser and facilitating multiple viewings during the joint mandate period;
  • The purchaser’s ongoing interest in the property after the mandate ended, and
  • Kapstadt’s involvement, which was essentially limited to finalising the sale.

The court found that since Pears’ interest was initially cultivated by RE/MAX during their mandate period, and there was a direct causal link between their efforts and the final transaction, RE/MAX’s actions were the predominant factor leading to the sale and the court ordered the Seller to pay the commission to RE/MAX.

Conclusion

The principle of effective cause is central in disputes over agent’s commission. In determining effective cause, the court will assess whether the agent introduced the purchaser to the property during their mandate period and whether there is a causal connection between the introduction and the ultimate conclusion of the sale. Therefore, even if a sale is finalised after an agent’s mandate expires, their efforts can still entitle them to commission if they played a decisive role in securing the purchaser. Property professionals and sellers should ensure that they conclude clear mandate agreements and keep thorough documentation on purchasers that were introduced to the property and their dealings with them to avoid disputes and safeguard their respective interests.

It is important to note that that the circumstances surrounding each individual claim or potential claim for commission will be unique. It is therefore vital to consult with legal professionals for specific advice and guidance on the application of the terms of a mandate in each instance.

 

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Yours in Conveyancing
Daniel Hodgeson

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