A licensed salesperson working under a sole agency agreement discovers that the vendor has been showing the property privately to potential buyers without informing the agency. The vendor then sells to one of these private buyers. What is the commission situation?
Correct Answer
B) Full commission is payable as per the sole agency agreement
Under a sole agency agreement, the agent has exclusive rights to sell the property and commission is payable regardless of who finds the buyer, including if the vendor sells privately. This is a key difference from a general agency agreement.
Why This Is the Correct Answer
Under a sole agency agreement, the agent has exclusive selling rights for the specified period. The Real Estate Agents Act 2008 and standard industry practice establish that commission is payable regardless of who finds the buyer, including private sales by the vendor. The 'sole' nature means the agent is the only party authorized to sell, creating an entitlement to commission even when the vendor sells directly. This exclusive right distinguishes sole agency from general agency agreements where private sales typically don't attract commission.
Why the Other Options Are Wrong
Option A: No commission is payable as the agent didn't find the buyer
This incorrectly applies general agency principles to a sole agency situation. Under sole agency, commission entitlement doesn't depend on the agent finding the buyer. The exclusive nature of the agreement means commission is payable regardless of the source of the buyer, protecting the agent's investment in marketing and their exclusive selling rights.
Option C: Half commission is payable to acknowledge the vendor's effort
There's no legal basis for partial commission payments in sole agency agreements. The agreement terms specify the full commission rate, and the exclusive nature means either full commission is payable or none at all. Partial payments would undermine the certainty that sole agency agreements are designed to provide to both parties.
Option D: Commission is only payable if the agent can prove they introduced the buyer
This misunderstands sole agency rights. The agent doesn't need to prove they introduced the buyer to earn commission. The exclusive selling rights mean commission is payable for any sale during the agreement period, regardless of buyer source. Requiring proof of introduction would effectively convert the sole agency into a general agency arrangement.
Deep Analysis of This Agency Practice Question
This question tests understanding of sole agency agreements under New Zealand real estate law. A sole agency agreement grants the agent exclusive rights to market and sell the property during the agreement period. The critical principle is that commission entitlement is based on the exclusive nature of the agreement, not on who actually finds the buyer. This protects agents who invest time, money, and effort in marketing properties from vendors who might attempt to circumvent commission payments by selling privately. The distinction between sole agency and general agency agreements is fundamental to real estate practice. Under sole agency, the vendor retains the right to sell privately but must still pay commission, whereas under general agency, private sales typically don't attract commission. This principle ensures agents can confidently invest in marketing knowing their commission is protected, while vendors understand their obligations when entering exclusive arrangements.
Background Knowledge for Agency Practice
Sole agency agreements grant exclusive selling rights to one agent for a specified period. Under the Real Estate Agents Act 2008, these agreements must be in writing and clearly specify terms including commission rates and duration. The key distinction is between sole agency (where the vendor can sell privately but still owes commission) and exclusive agency (where only the agent can sell). General agency agreements allow multiple agents and typically only require commission payment to the agent who finds the buyer. Understanding these differences is crucial for both agents and vendors to know their rights and obligations.
Memory Technique
Remember SOLE = 'Selling rights Only Licensed Entity gets commission'. Think of sole agency like hiring a bodyguard - you pay them whether they actually fight off an attacker or you handle the threat yourself. The protection (exclusive selling rights) costs the same regardless of who does the actual work.
When you see 'sole agency' in exam questions, immediately think 'commission always payable regardless of who finds buyer'. If the question mentions the vendor selling privately under sole agency, the answer will involve full commission being due.
Exam Tip for Agency Practice
Look for the type of agency agreement first. If it's 'sole agency', commission is always payable regardless of who finds the buyer. Don't get distracted by who actually made the sale - focus on the exclusive nature of the agreement.
Real World Application in Agency Practice
An agent signs a 90-day sole agency agreement and spends $5,000 on professional photography, online marketing, and print advertising. After 60 days, the vendor's neighbor expresses interest and the vendor sells directly to them for the asking price. Despite the agent not being involved in the final sale, they're entitled to full commission because their sole agency agreement gave them exclusive selling rights and they fulfilled their marketing obligations during the agreement period.
Common Mistakes to Avoid on Agency Practice Questions
- •Confusing sole agency with general agency commission rules
- •Thinking commission depends on who finds the buyer rather than agreement type
- •Assuming partial commission is legally acceptable in sole agency situations
Related Topics & Key Terms
Key Terms:
More Agency Practice Questions
Under the Real Estate Agents Act 2008, what is the primary fiduciary duty that a real estate agent owes to their client?
What type of agency agreement allows a real estate agent to receive commission even if the property is sold by another agent?
Which licence category is required for a person to sign agency agreements on behalf of a real estate agency?
When must a real estate licensee disclose any personal interest in a property transaction?
Sarah, a licensed salesperson, discovers that a property she is marketing has a significant building defect that the vendor has not disclosed. What should she do?
- → Under a sole agency agreement, in which circumstance would the agent NOT be entitled to commission?
- → A real estate agent receives two offers on a property at the same time. What is their primary obligation?
- → Which of the following situations would create a conflict of interest requiring disclosure by a real estate licensee?
- → A branch manager discovers that one of their salespersons has been providing incomplete information to potential purchasers about a property's title restrictions. What is the branch manager's primary responsibility?
- → An agent has an exclusive agency agreement that expires in two days, but the vendor wants to extend it for another month with a different agent. The original agent claims they introduced a purchaser who is still negotiating. What determines the original agent's entitlement to commission?
- → Under the Real Estate Agents Act 2008, what is the primary duty that a real estate agent owes to their client?
- → Which licence category allows a person to carry out real estate agency work on behalf of a licensed agent?
- → What must be included in every agency agreement under the Real Estate Agents Act 2008?
- → When must a real estate agent disclose that they have a personal interest in a property transaction?
- → Sarah, a licensed salesperson, discovers that her vendor client has not disclosed a known leaky roof issue. What should Sarah do?
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