A salesperson working under an exclusive agency agreement learns that the property owner has been negotiating directly with a potential buyer who initially viewed the property through the agency. The owner wants to complete this sale without paying commission. What is the correct position?
Correct Answer
B) Commission is payable because the agency introduced the eventual buyer
Under an exclusive agency agreement, commission is typically payable if the agency was the effective cause of the sale, even if the owner completed negotiations directly. Since the agency introduced the buyer to the property, they are entitled to commission despite the owner's direct involvement in closing the deal.
Why This Is the Correct Answer
Option B is correct because under New Zealand agency law, commission is payable when the agent is the 'effective cause' of the sale. Since the agency introduced the buyer to the property, they established the connection that led to the eventual sale. The fact that the owner conducted final negotiations doesn't negate the agent's role as the effective cause. The Real Estate Agents Act 2008 and established case law support this principle, ensuring agents receive fair compensation when their efforts directly result in a sale, regardless of who completes the transaction.
Why the Other Options Are Wrong
Option A: No commission is payable as the owner conducted the final negotiations
This is incorrect because it misunderstands the effective cause principle. The person who conducts final negotiations is irrelevant to commission entitlement. What matters is who was the effective cause of bringing the parties together. Since the agency introduced the buyer, they remain entitled to commission despite the owner's direct involvement in closing negotiations.
Option C: Commission is only payable on a pro-rata basis for work completed
Pro-rata commission payment is not the standard approach for exclusive agency agreements when the agent is the effective cause. The agent is entitled to full commission as agreed in the agency agreement, not a reduced amount based on work completed. The effective cause principle operates on an all-or-nothing basis regarding commission entitlement.
Option D: The matter must be referred to the Real Estate Agents Authority for determination
REAA referral is unnecessary as this is a straightforward application of established agency law principles. The effective cause doctrine is well-established in New Zealand real estate law and doesn't require regulatory determination. The matter can be resolved through standard legal principles governing agency relationships and commission entitlement.
Deep Analysis of This Agency Practice Question
This question tests understanding of the 'effective cause' principle in exclusive agency agreements under New Zealand real estate law. The core issue is whether commission is payable when an agent introduces a buyer but the principal completes the sale directly. Under exclusive agency agreements, the agent earns commission if they are the effective cause of the sale, regardless of who conducts final negotiations. This principle protects agents from principals who might attempt to circumvent commission payments by taking over negotiations after the agent has done the groundwork. The concept is fundamental to agency law and ensures fair compensation for professional services. It also maintains the integrity of exclusive agency relationships by preventing principals from exploiting the agent's work without compensation. This principle applies even when the principal believes they can avoid commission by handling final negotiations themselves.
Background Knowledge for Agency Practice
Exclusive agency agreements grant one agent the sole right to market a property, with commission payable if they are the 'effective cause' of any sale during the agreement period. The effective cause principle means the agent who introduces the eventual buyer to the property is entitled to commission, even if others complete negotiations. This principle is established in New Zealand case law and protects agents from principals attempting to avoid commission by taking over negotiations. The Real Estate Agents Act 2008 governs these relationships, emphasizing fair dealing and professional standards in agency arrangements.
Memory Technique
Remember INTRO: 'If I INTROduced them, I get paid.' Think of a matchmaker who introduces two people - even if they plan their own wedding, the matchmaker still deserves credit for bringing them together. The agent who makes the introduction is the effective cause, regardless of who handles the paperwork later.
When you see questions about commission disputes where someone else completes the sale, ask yourself: 'Who made the INTRO?' The person who introduced the buyer to the property is typically entitled to commission under the effective cause principle.
Exam Tip for Agency Practice
Look for the key phrase 'introduced the buyer' or similar wording. If the agent made the initial introduction that led to the sale, they're usually entitled to commission regardless of who completed negotiations.
Real World Application in Agency Practice
Sarah, a licensed salesperson, shows a property to potential buyers under an exclusive agency agreement. The buyers express interest but don't make an immediate offer. Two weeks later, the property owner bumps into these same buyers at a café and they discuss the property directly. The buyers decide to purchase and negotiate directly with the owner, who thinks he can avoid paying Sarah's commission. However, since Sarah introduced the buyers to the property initially, she remains entitled to full commission as the effective cause of the sale.
Common Mistakes to Avoid on Agency Practice Questions
- •Thinking final negotiator determines commission entitlement
- •Believing direct owner involvement negates agent commission
- •Assuming pro-rata payment applies in effective cause 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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