Disputes surrounding effective cause of sale are becoming more common as the real estate market continues to correct and properties sit on the market longer. To unwrap this complex, and often controversial issue, we spoke to two industry experts – Sarah Bester, General Manager at Ray White Double Bay, and Greg Jemmeson, Principal at Jemmeson & Fisher Solicitors – to determine what is effective cause of sale and how to make a successful claim on commission.
REINSW: What is effective cause of sale?
Greg Jemmeson: The courts have been looking at this area for many years and we now have a good understanding of effective cause of sale – or, in other words, who’s responsible for selling a property.
It means more than merely being a cause of the sale. The question is whether the actions of the agent really brought about the relationship of buyer and seller.
To do this, the courts may look at all the facts surrounding an agent introducing a buyer to a property. Did the actions of the agent bring about the relationship of buyer and seller? Did they do all things necessary to exchange contracts and conclude the sale? Was the successful buyer ready, willing and able to purchase?
Sarah Bester: It’s also helpful to outline what isn’t an effective cause of sale.
It’s not enough to provide your client with a long list of who inspected the property and responded to enquiries, and then say, “If these people proceed to buy the property I’m entitled to my commission.” At a bare minimum, you need to have received an offer in writing and provided a contract.
REI: In what situations may disputes arise?
GJ: In the current market, the most common situation is where a new agent takes over from a previous agent and subsequently sells the property. A breakdown in negotiations or where the vendor proceeds to sell the property themselves after the end of an agency agreement, can also both be problematic. Similarly, contentious situations arise where an agent is selling large blocks of land for development and the nature of the contract changes.
"It’s imperative to keep meticulous records. When you have a conversation with your vendor, go back to them to confirm what was discussed in writing and ask them to come back to you with a written response." – Sarah Bester
REI: What are some examples of where an agent has been successful in proving effective cause of sale?
GJ: There have been a number of interesting cases that help to demonstrate where an agent has been successful.
One involved an agent who worked with a buyer until contracts were exchanged. The sale then fell over because the buyer was unable to obtain finance. A second agent then dealt with the same buyer, introduced them to a finance provider, entered into a contract and proceeded to settlement. The first agent made a claim, which was rejected on the grounds that finance was a critical component of the sale. With the first agent, the buyer wasn’t ready, willing and able.
There are also cases where an agent really doesn’t have to do anything to prove effective cause of sale. For example, a few years ago an agent put a signboard up outside a rural property. Someone drove past and noticed the sign, but didn’t have time to make any enquiries. Several months later when the house had been taken off the market, the same person drove past again, stopped, knocked on the front door and asked if the property was still for sale. They then did a private deal. The NSW Civil & Administrative Tribunal ruled that the agent was the effective cause of sale because if it wasn’t for the agent’s signboard, the buyer would never have known it was for sale.
At the other end of the scale, a huge amount of work can go into successful claims. As an example, if you have had a property for three months, walked over 100 people through, dealt with a difficult vendor, had a number of serious offers, secured one at $1.2 million, and it then goes to a second agent who sells it to the same buyer for $1.2 million two weeks later, you are likely to have a strong case.
REI: So what’s the secret to a successful claim?
SB: In all areas of practice, it’s imperative to keep meticulous records. A solicitor will then be able to review your documentation and give you a clear legal opinion as to whether or not you have a claim. Simply keeping notes of conversations isn’t good enough, as there’s no “he said, she said” when it comes to effective cause of sale. Keep all notes, copies of offers made and copies of responses. When you have a conversation with your vendor, go back to them to confirm what was discussed in writing and ask them to come back to you with a written response.
GJ: Proving effective cause of sale in court is based on the facts, so you need to be able to prove intent to buy. The more evidence you have of contact with a prospective buyer asking relevant questions, the better. Do you have finance? Do you require a pest and building inspection report? Do you need more details? These emails need to show a buyer has a strong interest in the property and is not losing trust. It may be onerous, but as Sarah said, meticulous record keeping is essential.
And, if you’re the outgoing agent, make it common practice to write to the vendors or newly appointed agent wishing them all the best – but also list the one or two serious buyers who made strong offers and took a contract. If the vendor subsequently sells the property to these people, this is strong evidence and sets you up for a good claim. If you put the vendor on notice in this way, they can then discuss how best to handle the situation with both the incoming and outgoing agents should either of those buyers purchase the property. By negotiating, you may remove the need for lawyers, which is fantastic for everyone.
"The courts look at all the facts surrounding an agent introducing a buyer to a property. Did the actions of the agent bring about the relationship of buyer and seller? Did they do all things necessary to exchange contracts and conclude the sale? Was the successful buyer ready, willing and able to purchase?" – Greg Jemmeson
REI: How does an agent make a claim if they believe they have good grounds?
GJ: The first thing to do is to seek legal advice. A solicitor can often make an accurate assessment within five to 10 minutes and simply say, “Let it go. Move on. Build a bridge.” Or alternatively may say, “Yes, there’s something here so please send us these documents.”
Legally, you don’t have a claim until the property settles. If you’re the first agent and there’s a second agent involved, you need to draft and send a letter to their solicitor notifying them that you are making a claim. Often this is enough to start negotiations between both parties and the issue is resolved maturely. If, however, this letter is ignored, you’ll then need to start legal proceedings with the assistance of a lawyer.
SB: One final thing I’d like to add is, that from an agency point of view, we always show willingness to negotiate with the other party before initiating legal proceedings. This is a professional approach to business. There are always going to be disputes around effective cause of sale. But if you’ve got good relationships with your fellow local agents, you should be able to come to an arrangement that works for everyone.