How To Pay Two Commissions In One Sale

Published 16 September 08 02:33 PM | Peter Mericka 

OPINION
by Tim O'Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

There is an old joke about Lady Cul de Sac.  She did not want the title, but there was no way out.

Julie James (not her real name) did not want to complete the contract she signed to sell her investment property after she received a significantly better offer from another party.   When her buyer sued for specific performance there was no way out.  Julie had to settle.

Then two estate agents claimed commissions on this sale.  Only one agent (let’s call him “Alex”) actually sold Julie’s two-story commercial building.  Trouble was, Julie had earlier engaged the other agent (let’s call him “Harold”) under an “exclusive” agreement.  This meant that Harold was legally (but hardly morally) entitled to commission on any sale during the term of his engagement – whether he made the sale or not.

Harold’s agency was on foot on 24th May when Alex and Julie, unbeknownst to Harold, met at the property.  Julie told Alex she was considering a purchase offer through Harold, but asked Alex if he could do better for her.  Alex quickly approached a developer before arranging a meeting between himself, the developer and Julie on 27th May.  A deal was soon done, with formal documents to be signed shortly.

Meanwhile Harold’s agency would continue until 26th June.  Because Julie mistakenly thought this ran out on 1st June, she signed a “sole agency” agreement on 2nd June with Alex then, immediately afterwards, a sale contract with the developer.  After the sale settled on 20th June, Julie had to pay Harold’s commission.  When she refused to pay Alex’s commission, he sued.

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Filed under: Commission, exclusive sale authority, specific performance

Comments

# Courage of my Convictions said on September 21, 2008 3:40 PM:

 "Julie told Alex she was considering a purchase offer through Harold, but asked Alex if he could do better for her.  Alex quickly approached a developer before arranging a meeting between himself, the developer and Julie on 27th May.  A deal was soon done, with formal documents to be signed shortly. "

It seems to me that "Julie" was not operating in good faith with the agreement she signed with "Harold".  My mother used to say 'Birds of a feather flock together' "Alex" in his failure to inform Julie of her obligations was her Karma.

# Peter Mericka said on September 21, 2008 6:46 PM:

Hi Courage of my Convictions,

Your take on the situation underlines the fact that the estate agent has a stake in the outcome of a consumer's attempt to sell his or her property.

The estate agent acts like a parasite, attaching itself to the host vendor so that the interests of the parasite and those of the host become the same.  If the host attempts to do something that may benefit the host, to the detriment of the parasite, the parasite releases its poison.

When estate agents abandon the parasite/host model, in which the estate agent becomes "entitled" to a commission through the operation of a contract, rather than on the basis of service provided, everyone will be better off.

In the present example the estate agent would be able to seek payment for the work performed to the time he was ditched by the vendor, while the vendor would pay only for services rendered.  A much fairer situation, surely.

# Tim O'Dwyer said on September 21, 2008 10:39 PM:

I agree with you, Courage of my Convictions, and also with my learned colleague, Maddog.

Frankly Julie got what she deserved for doing the dirty on her existing agent, Harold, who was clearly less than morally entitled to commission on a sale he did not make.

Alex was, at the same time, an unjustly enriched grub.

Both agents benefited from the statute and judge-made law on real estate commissions which remains an unfair ass.

# Courage of my Convictions said on September 22, 2008 12:08 PM:

"When estate agents abandon the parasite/host model, in which the estate agent becomes "entitled" to a commission through the operation of a contract, rather than on the basis of service provided, everyone will be better off."

Absolutely!  I passionately believe that a real estate (re)evolution is long over due.  What I particularly took from Julie's story and for that, many others on the site is that there is an entrenched social conditioning of mistrust, fear and greed.  In any other facet of her life I would bet pounds to peanuts that Julie is a loyal, honest and generous person.  But the hundreds of thousands of dollars involved in RE and the social mores surrounding the duplicitousness of agents results in good people behaving in a 'Golem'like way.

And yes Tim the law is indeed an ass, but unfortunately it is our ass and it's failings are a horrifying symptom of our disease.

# Peter Mericka said on September 22, 2008 1:01 PM:

Yes, it also clearly infects consumers, many of whome take the attitude of "it takes a thief to catch a thief".  The use of estate agents as "buyer advocates" is one example.  And the dubious services of those estate agents and internet sites that pretend to shop around for the "best" estate agent (when in fact the only estate agents that get a look in are those who are prepared to give the spotter a piece of the action) are a further exteme.

To cap it all off we have the commission factoring businesses than tell estate agents that they will pay them an advance on the commission before the ink is even dry on the contract.

The whole industry needs a good dose of worm, tick, flea and general anti-parasite treatment.