Real Estate Sales Commission – Introduction not always enough

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Following COVID-19, the housing market in Queensland has boomed and homes are selling perhaps faster than ever. If you are a real estate agent, you may be competing for the sale of the same properties, particularly where you have entered into a non-exclusive agency, or the exclusivity period has expired and your appointment is “open”.

It goes without saying that a real estate agent is entitled to sales commission where they effected the sale of a property. But what happens if another agent effects the sale after you introduced the property to the eventual buyers in the first instance? Section 89 of the Property and Occupations Act 2014 (Qld) provides that an agent may only seek to recover or keep an award for performance of an activity if, indeed, they perform the activity (e.g. sale of a property).

Effective Cause Test

The “Effective Cause Test” (ECT) is a long-standing legal principle which the Courts have used to determine whether an agent is entitled to sales commission, even if they did not effect the sale to buyers, but otherwise played a role in introducing the eventual buyers to the property. The ECT depends on a number of factors:

  • was the agent appointed to sell the property?
  • did the agent introduce the buyer to the property?
  • how far did the agent assist in negotiating the sale of the property?
  • if another agent effected the eventual sale of the property, were the terms negotiated by the second agent significantly different to those previously negotiated by the first agent?

The burden of proof lies with the agent seeking to recover the sales commission and must convince the Court that it was their ongoing efforts that influenced the buyer’s decision to purchase the property. Generally, standard Real Estate Institute of Queensland (REIQ) contracts will include a term which entitles the agent to commission where an exclusive agency ends, and the client sells the property to a buyer that was introduced by the agent. But introduction alone might not satisfy the ECT.

In Rasmussen & Russo Pty Ltd v Gaviglio [1982] Qd R 571 (R&R v Gaviglio), the Court held that R&R did not establish a sufficient causal link between the buyer and seller, despite introducing the buyer to the property. Whilst R&R arranged for an executed contract in relation to the purchase, the contract was rescinded (terminated) because the buyer was unable to obtain finance. Subsequently, another agent was appointed who arranged for the execution of a contract and assisted the buyer in obtaining finance where the buyer could not previously. In that case, R&R were not the effective cause of the sale.

Similarly, in a New South Wales Court of Appeal decision, Outerbridge trading as Century 21 Plateau Lifestyle Real Estate v Hall [2020] NSWCA 205 (Century 21 v Hall), the Court held that where an agent plays a significant casual role in a buyer purchasing a property, it may not be the effective cause of the sale. Being the effective cause of sale required more than a mere introduction of the eventual buyer of the property, and the agent who effectively introduced the buyer to the property must play a role in the negotiations to conclude the sale. In Century 21 v Hall, the agent that effected the sale (Unique Estates) played a crucial role in the sale, in that they “resuscitated” the transaction after the buyer believed the initial engagement and negotiations through Century 21 was at an end. Despite the work of Century 21 in introducing the buyer to the property, the Court decided that it was Unique Estates that subsequently secured the sale that would otherwise not have occurred. 

It is important to understand that each case will be decided on its unique facts and circumstances. If the agent responsible for the eventual sale of the property did not play a role that is more significant that the first agent, both agents may be entitled to sales commission – e.g. the terms negotiated by both agents were similar and did not substantially differ.

If you are a real estate agent and you are not sure whether you are entitled to sales commission for a property which you have an open listing, and the sale was effected by another agent, you should obtain legal advice before engaging in litigation.

Contact our team today to discuss how we can assist you.

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