Sarah has a sole agency agreement to sell her property with ABC Realty. During the agency period, she finds a buyer herself and completes the sale without involving ABC Realty. What is ABC Realty's commission entitlement?
Correct Answer
C) No commission as they did not find the buyer
Under a sole agency agreement, the agent only earns commission if they introduce the buyer who ultimately purchases the property. If the vendor finds the buyer themselves, no commission is payable to the agent.
Why This Is the Correct Answer
Option C is correct because under a sole agency agreement, the agent's commission entitlement is contingent upon them introducing the buyer who ultimately purchases the property. Since Sarah found the buyer herself without any involvement from ABC Realty, the agent has not fulfilled the condition required to earn commission. The Real Estate Agents Act 2008 supports this interpretation, as commission must be earned through the agent's direct contribution to securing the sale. The agent's marketing efforts alone do not entitle them to commission if they did not introduce the successful buyer.
Why the Other Options Are Wrong
Option A: Full commission as agreed in the agency agreement
Option A is incorrect because sole agency agreements are performance-based contracts where commission is only earned when the agent introduces the successful buyer. Simply having the listing agreement does not automatically entitle the agent to full commission if they played no role in finding the buyer. This would be the case under an exclusive agency agreement, not a sole agency agreement.
Option B: Half commission due to shared effort
Option B is incorrect because there is no legal basis for splitting commission in a sole agency agreement when the vendor finds their own buyer. Commission entitlement is binary - either the agent introduced the buyer and earns full commission, or they didn't and earn nothing. The concept of 'shared effort' does not apply to sole agency commission structures under New Zealand real estate law.
Option D: Commission only for marketing expenses incurred
Option D is incorrect because marketing expenses are typically considered part of the agent's business costs and are not separately recoverable unless specifically agreed in the agency agreement. Under a sole agency agreement, if no commission is earned due to the agent not introducing the buyer, there is generally no entitlement to recover marketing costs. The agent assumes these risks when entering the agreement.
Deep Analysis of This Agency Practice Question
This question tests understanding of sole agency agreements and commission entitlement under New Zealand real estate law. A sole agency agreement grants the agent exclusive rights to market and sell the property, but crucially, commission is only payable when the agent introduces the successful buyer. This principle protects vendors from paying commission when they secure their own buyer through personal networks or efforts. The distinction between sole agency and exclusive agency is vital - under exclusive agency, commission would be payable regardless of who finds the buyer. This concept reflects the performance-based nature of real estate commission structures and ensures agents must actively contribute to the sale process to earn their fee. Understanding this principle is essential for both agents and vendors to avoid disputes and ensure fair compensation arrangements.
Background Knowledge for Agency Practice
Sole agency agreements in New Zealand grant agents exclusive marketing rights but commission is only payable when the agent introduces the successful buyer. This differs from exclusive agency agreements where commission is payable regardless of who finds the buyer. The Real Estate Agents Act 2008 governs these relationships, emphasizing that commission must be earned through the agent's direct contribution. Key principles include: agents must actively contribute to securing the sale, commission is performance-based, and vendors retain the right to sell privately without commission liability under sole agency arrangements.
Memory Technique
SOLE = 'Seller Only Liable if agent Earns it'. Under sole agency, the seller is only liable for commission if the agent actually earns it by introducing the buyer. Think of it like a salesperson who only gets paid when they make the sale - no sale by them, no commission.
When you see sole agency questions, remember SOLE and ask 'Did the agent introduce the buyer?' If no, then no commission. If yes, then full commission. This helps distinguish from exclusive agency where commission is always payable.
Exam Tip for Agency Practice
For sole agency questions, focus on who introduced the buyer. If the vendor found the buyer themselves, no commission is payable. Only when the agent introduces the successful buyer do they earn commission under sole agency agreements.
Real World Application in Agency Practice
A homeowner lists their property under sole agency with a real estate firm. The agent conducts open homes and marketing campaigns. Meanwhile, the homeowner mentions the sale to a work colleague who expresses interest and eventually purchases the property. Since the homeowner, not the agent, introduced this buyer, no commission is payable to the real estate firm despite their marketing efforts. This protects homeowners from paying commission when leveraging their personal networks while still allowing professional marketing support.
Common Mistakes to Avoid on Agency Practice Questions
- •Confusing sole agency with exclusive agency commission rules
- •Assuming marketing efforts alone entitle agents to commission
- •Thinking commission can be split when vendor finds own buyer
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?
People Also Study
Property Law & Legislation
130 questions
Sale & Purchase Process
130 questions
Professional Conduct & Ethics
110 questions
Property Management
90 questions
Related Study Resources
Previous Question
Sarah, a salesperson, discovers that a property she is marketing has a leaky roof that the vendor has not disclosed. What should she do?
Next Question
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?