Who Pays The Real Estate Agent?

Who Pays The Real Estate Agent?

Posted on November 19th, 2009 Huis-Huis No comments

Don't fight about who pays!

Nobody wants to, but somebody has to – pay the real estate agent, that is. So, exactly who’s responsible for paying the realtor’s commission?

No, this is not a silly question. The average person buys and sells property only once or twice in their lives. So, how would you know without asking?

Why is who pays important?

If everything goes according to plan, and ownership of the property gets transferred, then it probably wouldn’t really matter who pays the agent’s commission. The commission would be paid out of the sales price. The buyer would pay whatever the buyer agreed to pay, and the seller would get whatever the seller agreed to get. The difference would simply be paid out as commission to the agent and nobody would really give a damn who was deemed to have paid it.

BUT if something had to go wrong and the sale got canceled, the question about who pays commission becomes a lot more important to everybody.

If, for instance, the buyer and seller came together and decide to cancel the sale, even though they had a binding (or potentially binding) sales agreement in place, the agent may very well be entitled to claim commission for the canceled sale anyway. And the agent’s claim for commission would be lodged against the person who had agreed to pay it.

At that point, arguing back and forth about who should be liable for paying the realtor, would not be productive at all.

The agent’s client pays

If you employ someone to do work for you, payment is usually implied, now isn’t it? It’s a case of good old tit for tat – remuneration for consideration. So, if you’re the person who employs the real estate agent, or gives the agent a “mandate” to find a suitable purchaser or property, then you’re also the person responsible for paying the commission.

And you guessed it – there’s another BUT approaching: BUT a real estate agent can only represent one (count them: 1) party in a property sale.

If the agent has already been mandated by one party, the agent cannot accept a conflicting mandate from another party in respect to that specific property sale.

For example:
Mr. Buyer asks Ms. Realtor to find him a suitable property to buy. The realtor accepts the buyer’s mandate and start looking for the perfect place.

While browsing through her existing property listings, Ms. Realtor realises that a certain property she listed a few weeks ago would be a perfect fit for her new buyer.

But hold on! When she listed the property, she already accepted a mandate from Mr. Seller. And that means she won’t be able to represent Mr. Buyer’s best interests in accordance to the buyer’s mandate, because she’s already contractually obliged to represent Mr. Seller’s best interests in respect to the sale of the property.

So, (being the good, honest real estate agent she is) she informs Mr. Buyer that she has an existing mandate from the seller and can therefore not represent the buyer as well – BEFORE she introduces him to the property.

Mr. Buyer is now free to mandate (and pay) a different agent to represent his best interests. And Ms. Realtor is free to represent Mr. Seller’s best interests (who will be responsible for paying her commission).

So, the easy answer to the question “Who pays the commission?”, is: If you say you will, or if your actions (appointing an agent to represent you) imply that you will, you pay.

Contracts can change everything

Receiving commission from both the seller and the buyer in a property sale would be “conduct deserving of sanction” according to the EAAB rules for real estate agents, unless the seller and buyer both agree to it in writing. So, the contract can change everything.

Common law says that a more recent agreement between two parties regarding an issue replaces all preceding agreements between those parties in respect to the same issue.

So, if the contract of sale states who is responsible for the commission payment, all other bets are off. That person (or persons) will become responsible for the commission payment as soon as the contract is signed by all the parties – regardless of any previous agreements.

I’m sure you realise that people are funny things: They tend not to READ the stuff they sign before they sign them – even though mom taught them better. So, please, DON’T BE A FUNNY THING! Read and understand who will be liable for commission.

Who pays commission in SA?

In South Africa, real estate agencies traditionally tend to focus exclusively on property sellers as their clients. Buyer mandates are the exception rather than the rule. So, the seller will usually be responsible for paying the agent’s commission – if the sales agreement don’t stipulate anything to the contrary, that is.