When might a purchaser be liable to pay double sales commission?
Insight: A purchaser may have to pay double sales commission, in circumstances where they have dealt with more than one of the vendor’s agents.
With record house prices in regional New South Wales creating a sense of urgency amongst many, purchasers are under great pressure to exchange contracts quickly. While the temptation may be to rush in and secure a property, purchasers should pay close attention to their dealings with vendor agents – otherwise they may find themselves liable to pay double sales commission.
The usual scenario
Many vendors sign “agency agreements” with multiple agents, in the hope of: (a) obtaining greater exposure in the market; and more importantly, (b) receiving a higher sale price for their property.
Under an agency agreement, the vendor agrees to pay commission to their agent, provided the agent “effectively introduces” the ultimate buyer to their property.
At the same time, most contracts between purchasers and vendors for the sale of land in New South Wales feature a clause under which: - (a) the purchaser promises they were not introduced to the property by an agent other than the one named on the contract (in legal terms, a “covenant”); and, (b) the purchaser agrees to pay any amount owing by the vendor to another agent, resulting from the purchaser’s breach of the above covenant (in legal terms, an “indemnity”).
The likely outcome
When the purchaser has been in contact with more than one of the vendor’s agents, it is common for both agents to raise an invoice addressed to the vendor (in accordance with the terms of the agency agreements).
If the vendor’s agents cannot amicably resolve between them who “effectively introduced” the buyer to the property, the vendor may be liable to pay both invoices.
Where an indemnity has been given, the vendor’s liability will pass to the purchaser.
What amounts to an effective introduction?
In circumstances where more than one agent has been engaged by the vendor, an introduction of a purchaser to the property will, without more, generally not be enough to entitle any of the agents to a commission. The vendor’s agent (or agents) must instead be an effective cause of the sale. In other words, the efforts of the vendor’s agent (or agents) must continue to influence the purchaser to ultimately buy the property.
If a dispute arises as to whether the purchaser was effectively introduced by a particular agent, all the circumstances surrounding the sale of property will be considered by the courts.
An intervening act will usually preclude the original vendor’s agent from being entitled to a commission – as their efforts can no longer be considered an effective cause of the sale. An example of an intervening act is: a subsequent vendor’s agent clarifies the sale price with the vendor; which brings about a higher offer from the purchaser; with the higher offer ultimately accepted by the vendor. In contemplating this set of facts, the actions of the subsequent vendor’s agent are the driving force behind the eventual sale of the property.
Key take aways
If you’re a purchaser, be clear with your enquiries of the vendor’s agent/s. Alternatively, you may attempt to negotiate for the removal of the indemnity clause from the contract of sale.
If you’re a vendor, be sure to include an indemnity clause in your contract of sale. Otherwise, you may find yourself paying multiple agent commissions (when you could avoid payment altogether).
If you’re a real estate agent, know that your commission is not guaranteed. Enquiries, inspections, and unfinalised negotiations may not be enough to constitute an effective introduction.