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 expressly provides for commission in 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
Commission terms are contractual. Rule 10.6 requires the conditions under which commission is payable to be explained and set out in writing before signing, and this agreement expressly covers a sale that goes unconditional and then fails on the buyer's finance, so commission is payable.
Why the Other Options Are Wrong
Option B: No, because commission is only ever earned when a sale actually settles
Commission timing is a matter of contract; agreements commonly make it payable once the sale is unconditional, and this one says so expressly.
Option C: Yes, but only if the agent can prove it met every one of its marketing obligations
The clause does not make payment depend on the agent proving its marketing performance; that condition is invented.
Option D: No, because such clauses are always unenforceable under consumer protection law
No statute makes such clauses automatically void; they are enforceable if agreed and explained under Rule 10.6, subject to Rule 9.12.
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 a commission question, check three things: is there a specific clause, was it properly explained in writing before signing, and has the event it describes happened? If so, the clause decides the outcome.
Exam Tip for Agency Practice
Commission is contractual: read what the agency agreement says about when commission becomes payable before applying any general assumption.
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
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?
Sarah is a licensed salesperson working for ABC Real Estate. When showing a property to buyers, who does she primarily represent?
Under the Real Estate Agents Act 2008, what is the primary duty that a real estate agent owes to their client?
Which licence allows a person to carry out real estate agency work for an agent, but only under supervision?
- → Under section 126 of the Real Estate Agents Act 2008, what must happen after the client signs an agency agreement for the agent to be entitled to commission?
- → A licensed agent discovers that their salesperson has been providing advice about tax implications of a property investment without appropriate qualifications. What is the agent's responsibility?
- → 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?
- → What must a real estate agent disclose to a potential purchaser when showing a property?
- → Under a sole agency agreement, when is the vendor still liable to pay commission to the agent?
- → Sarah holds a salesperson's licence and works for ABC Real Estate. When presenting an offer to a vendor, who is legally responsible for ensuring all disclosure obligations are met?
- → A real estate agent discovers that a property has a leaky roof after the agency agreement is signed but before any offers are received. What is the agent's obligation?
- → Which of the following allows an agent to end an agency agreement before its expiry date?
- → Under the Real Estate Agents Act 2008, what is the primary fiduciary duty that a real estate agent owes to their client?
- → What must a licensee do when they become aware of a material defect in a property they are marketing?
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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?