An agency agreement contains a clause stating that commission is payable even if the sale falls through due to the buyer's inability to obtain finance. The sale proceeds to unconditional status but subsequently fails due to the buyer's finance decline. Is commission payable?
Correct Answer
A) Yes, because the agreement specifically covers this situation
If the agency agreement specifically provides for commission to be payable even when sales fail due to buyer finance issues, and this was properly disclosed and agreed to, then commission would be payable. However, such clauses must be clearly explained and prominent in the agreement.
Why This Is the Correct Answer
Option A is correct because the agency agreement specifically contains a clause covering this exact situation - commission payable even when sales fail due to buyer finance issues. Under New Zealand contract law and the Real Estate Agents Act 2008, parties can agree to such terms provided they are clearly disclosed, properly explained, and prominently featured in the agreement. Since the clause was included and the specific triggering event (finance decline after unconditional status) occurred, the commission becomes payable according to the agreed contractual terms.
Why the Other Options Are Wrong
Option B: No, because no sale has actually completed
This is incorrect because it focuses on sale completion rather than the contractual agreement. The parties specifically agreed that commission would be payable even without completion in finance decline scenarios. The existence of a valid contract clause overrides the general principle that commission is only payable upon successful completion. The agreement created a different standard for this specific circumstance.
Option C: Yes, but only if the agent can prove they fulfilled all obligations
This is wrong because it adds an unnecessary condition not specified in the scenario. While agent performance of obligations is generally required, the question states the agreement specifically covers this situation. The clause's existence and the triggering event (finance decline) are sufficient for commission entitlement, without needing additional proof of obligation fulfillment beyond what's already established.
Option D: No, because such clauses are unenforceable under consumer protection law
This is incorrect because such clauses are not automatically unenforceable under consumer protection law. While the Real Estate Agents Act 2008 requires fair dealing and proper disclosure, specific commission clauses can be valid if they are clearly explained, prominently displayed, and fairly negotiated. Consumer protection doesn't prohibit such agreements but ensures they are transparent and understood by all parties.
Deep Analysis of This Agency Practice Question
This question examines the enforceability of specific commission clauses in agency agreements under New Zealand real estate law. The scenario involves a sale that reached unconditional status but failed due to buyer finance decline, with the agency agreement containing a clause making commission payable even in such circumstances. The key principle is that parties can contractually agree to commission terms that deviate from standard practice, provided these terms are clearly disclosed, properly explained, and prominently displayed in the agreement. This reflects the contractual freedom principle while balancing consumer protection requirements. The Real Estate Agents Act 2008 requires transparency in agency agreements, and such clauses must be fair and reasonable. This situation demonstrates how specific contractual provisions can override general assumptions about when commission becomes payable, emphasizing the importance of careful contract drafting and client understanding.
Background Knowledge for Agency Practice
Agency agreements in New Zealand real estate are governed by the Real Estate Agents Act 2008, which requires transparency and fair dealing. Commission clauses can specify when payment becomes due, including scenarios where sales fail for specific reasons. These clauses must be clearly disclosed, properly explained, and prominently displayed. The Act balances contractual freedom with consumer protection, allowing parties to agree to terms that deviate from standard practice provided they meet disclosure requirements. Key concepts include unconditional status (when all conditions are satisfied), finance clauses, and the distinction between contractual entitlement versus completion-based commission.
Memory Technique
C-Clause exists, O-Openly disclosed, N-Negotiated fairly, T-Triggering event occurred, R-Reasonable terms, A-Agreement honored, C-Commission payable, T-Terms control outcome. Remember: 'When the CONTRACT is clear, the commission appears!'
When facing commission questions, check if there's a specific clause (C), whether it was properly disclosed (O), and if the triggering event occurred (T). If all CONTRACT elements are present, the clause controls the outcome regardless of sale completion.
Exam Tip for Agency Practice
Look for specific clauses in agency agreements first. If a clause directly addresses the scenario and was properly disclosed, it typically overrides general commission rules. Focus on what the parties actually agreed to, not general assumptions about commission entitlement.
Real World Application in Agency Practice
A real estate agent lists a $800,000 property with an agency agreement containing a clause stating commission is payable if the sale fails due to buyer finance decline after going unconditional. The property sells, all conditions are satisfied making it unconditional, but the buyer's bank subsequently declines their loan application. Despite no settlement occurring, the agent is entitled to commission because the specific clause in the agreement covers this exact situation, provided the clause was properly explained and prominently displayed during the agreement signing.
Common Mistakes to Avoid on Agency Practice Questions
- •Assuming commission is only payable upon successful completion
- •Ignoring specific contractual clauses in favor of general rules
- •Confusing unconditional status with settlement completion
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?
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- → 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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An agency agreement contains a clause stating that the agent's commission is payable even if the property is sold by the vendor directly to a buyer introduced by the agent during the agency period, but the sale settles after the agency expires. Is this clause enforceable?