Changing real estate agents? Beware of double sales commission risk

In the current sluggish market, a decision to change estate agents could result in more vendors receiving legal letters from previous agents seeking thousands of dollars in commission payments.

Vendors have been warned that they must terminate a contract they have with one agent before signing a contract with another agent – any overlap could result in a double commission claim.

Even if contracts don't overlap, vendors could face a claim if a previous agent they engaged can prove (as stated on the Real Estate Institute of NSW website) that "there is a connection between the actions of the agent and the sale of the property".

This has been highlighted in a case involving a Sydney vendor Joanne Ryan, who offered her 1890s terrace house for sale on Carlisle Street in Leichhardt on two separate occasions using different estate agents for each campaign.

The first campaign was handled by Robert Clarke of Belle Property Annandale, who failed to sell the property (pictured above and below) when it was listed with $1.8 million-plus hopes for May 2012 expressions of interest.

The house had high ornate ceilings, polished floors and marble fireplaces, plus an oasis-like rear garden with swimming pool.

Ryan then appointed a McGrath agent, who sold her home on November 17 at auction, after which she received a letter from Belle Property’s lawyers demanding a commission payment of $31,383.

The legal letter, as reported by the News Ltd, informed Ryan she had an exclusive agency agreement with Belle Property, meaning “you have to pay the agent commission”.

The eventual buyer had viewed the property while the listing was held by Belle, but had not made any previous offers until becoming the successful bidder at November auction at around $1,585,000.

Renovated in 2002, the three-bedroom terrace on a 461 square metres last traded for $512,500 in 1996.

While logic would dictate that vendors should only pay commission once, the REINSW advises estate agents who feel they are legally entitled to commission to always seek payment from the vendor.

“Remember that a commission dispute is between you and the vendor, not between you and Agent 2 or the purchaser – so if you believe you have a valid and substantiated claim, you will need to sue the vendor,” says the REINSW on its 'effective cause of sale' page.

The REINSW also advises its agents to seek legal advice before preparing and lodging a claim and reminds agents that "everyone loses listings now and then".

“It is sometimes better to cut your losses and concentrate on your next listing than pursue a claim for commission that you may never win,” says the REINSW.

According to the REINSW, it all comes down to who was the effective cause of the sale. 

"The concept is quite simple – an agent must be able to show that there is a connection between the actions of the agent and the sale of the property," says the REINSW.

For an agent to be entitled to commission, the REINSW says the following must exist:

• an enforceable contract between the agent and the vendor (e.g. a valid agency agreement);
• an enforceable contract for the sale of land;
• an introduction of the eventual purchaser by the agent;
• a sale; and
• a causal link between the actions of the agent claiming commission and the ultimate sale.

According to REINSW chief executive Tim McKibbin, “effective cause of sale” remains an issue for the industry.

“This is an area that causes us endless grief and it happens more often in a tight market,” he says.