• Commission is usually paid by the seller except in auction agreements where commission is usually paid by the purchaser.
  • If commisison is paid by the purchaser, it is added to the purchase price in the calculation of the transfer duty payable.
  • The commission clause must clearly provide when the commission is both
    • earned and
    • payable.
  • Most standard form agreements provide that the commission is earned when the suspensive conditions are fulfilled.
  • It is true that by this time the agents have met the challenge of introducing the buyer and seller, and will have spent time and money on marketing the property and having the agreement signed.
  • Some buyers and sellers argue that unless the sale results in a transfer, the commission is not yet earned or payable, and therefore commission should be both earned and payable on transfer.  In that case, if the agreement is cancelled for any reason, the commission is not earned and cannot be claimed.
  • This is something that should be discussed between the parties and the agents to avoid misunderstanding before the agreement is signed, and the agreement of sale must set out what is agreed.
  • If, for example, the purchaser breaches the agreement and the contract is cancelled, who will keep the deposit?  In this case, the breach clause usually provides that the deposit will be forfeited by the purchaser.   Does the agent take their full commission from the forfeited deposit, or will the agent and the seller split this forfeited amount, and in what proportion?  More on the breach clause under its separate heading.
  • How much commission should be paid?  Commission can range from 1% for very high value commercial properties to 10% or more for commission at auctions, depending on the mandate , the value of the property, the amoutn of work and expense undertaken by the agent and the amount achieved.
  • Commission also takes into account the value of the property sold and the work done, so where agents achieve 7% plus VAT in lower value areas, they may achieve only 3% plus VAT in the higher value areas or for farms or commercial properties.
  • Commission can be negotiated on a sliding scale based on the value of the offer the agent manages to bring to the seller.
  • This discussion is best had during the process of agreeing a mandate between the seller and the agent, but can be reopened based on the value of the offer brought to the table.
  • Generally,  where an agent is appointed and has done the work of marketing and advertising, and is the effective cause of the sale, commission is earned.
  • Don’t forget that the commission clauses usually provide for commission as a percentage “plus VAT”.  Many sellers forget to include the VAT in their calculation of the amount payable as commission.