The most asked question of Leverage Australia is about the concept of “effective cause of sale”. This is a problem which has emerged in the “exclusive agency agreement” period. This problem is not an issue in jurisdiction around the world where a multi listing service exists.
Many blame the Office of Fair Trading for the concept of “effective cause of sale”. Although I enjoy blaming the Office of Fair Trading for anything, they cannot be credited for this blight on the industry. It is a problem which has been created by the standard real estate industry “exclusive agency agreement”. The problem emerged because under the concept of exclusivity, an agency only has a period of time in which to sell the property. Once listed, an agency will show the property to a number of prospective buyers. If it is a market where property does not move quickly, like the present, another agent will be given the opportunity to sell the property. From 2006 to 2008, it became better to be the second agent due to the property being marketed by the first agent. The person who looks at it with the first agent then looks again with the second agent, and consequently buys the property. The problem was, who actually did the work to secure the sale.
We have been unable to identify who started the concept, however it appears that the Real Estate Institute agency agreement stated that an agent was entitled to a fee where they were “the effective cause of sale”. This has become a trend in all agency agreements across the property sector. If you want to know how deep the history is in relation to this problem, one of the first Supreme Court cases was the case of Adams in 1977.
We ask continuously: what is the effective cause of sale? One of the leading cases in the area is aptly named Moneywood.
Essentially, what the cases state, is that there must be a substantive link between what the agent is engaged to do and what actually occurs. In relation to sales, the standard agency agreement states that the agent is appointed to “sell” the property. Hence, there must be causal link between the agent’s actions and the subsequent sale. It is clear in the Moneywood case that mere introduction is not enough. In only introducing a purchaser and nothing more, an agent has simply acted as a “home host,” not a negotiating agent. Therefore, if the circumstances of the ultimate transaction can be linked to the steps taken by the first agent, the intervention of the second agent won’t matter.
Ironically, it is not about the final price. In the Moneywood case, the agent secured the property under an option at a particular price. After the exchange of the contract, circumstances arose whereby the contract was changed and the price was altered. The courts deemed that this did not alter the fact that the agent’s work brought about the sale.
It is, however, a difficult concept to exercise. If an agent asked themselves whether they have done everything that would have affected the sale, and they can answer “yes,” then they are the “effective cause of sale”. On the other hand, however, if the agent knows that the second agent has also done things that have resulted in the sale, the first agent has not been the effective cause of sale. For example, if negotiations have been undertaken via the first agent, and no sale was perpetrated, and the second agent was able to acquire a sale on a higher price because of their strategies, it is the second agent that is entitled to the fee, even if the first agent was the one to introduce the purchaser.
In reality, both agents have probably caused the sale. I have never seen a case where there is a clear cut distinction between the first and the second agent in relation to the sale. Personally, I believe the concept of “effective cause of sale” is a blight upon the property industry, pitting good agent against good agent.
If you want to protect your commission because you believe you are the “effective cause of sale”, you must have good paperwork. You must be able to indicate what you have been instructed to do, what you did and how it related to the sale. This causal link of events is essential to winning any case on “effective cause of sale”.
Please note that although the Property, Stock and Business Agents Regulation 2003 require a warning to be enclosed on agency agreements that a vendor may have to pay two commissions, it is rare that the court will make two agents the victor. The courts or tribunals will always look to find out who is the “effective cause of sale”. We must also point out that, in our opinion, the second agent holds the upper hand. The second agent has to almost only roll into town at a critical point and affect the sale. If they have done anything to cause the sale, they will generally be the winner.
We expect to return to this topic over the coming weeks because it is one of the largest arguments in this industry.
Restoration of Licenses
Leverage News readers have two for one today. This is because a change has happened to the industry that was almost squeezed in by the Office of Fair Trading unnoticed. Actually, it has been squeezed in with no notice.
From 19 June 2009, the education requirements for obtaining a licence have altered. One of the things that was not noticed, is that it has also altered for those people that let their licence lapse.
The Property Stock and Business Agents Act 2002 (PSBAA) provides a grace period for any agent. Licences are meant to be renewed on the date of their anniversary, but many agents fail to lodge on time. The PSBAA states that a licence will be reinstated as if it never lapsed provided the renewal of the licence was lodged within three (3) calendar months of the lapsing of the licence. This protects agency agreements and all legal functions of the agency.
Once 3 months has passed, a new application must be lodged for a licence. This means that an agent needs to prove that they have the right qualifications for the brand new licence. Provided you have done the most recent courses, you will be granted your licence. If you have done the now out-dated PRD01 course which lapsed on 31 May 2009, you will only be given a grace period of 12 months. If you have done the new CPP07 courses which were introduced on 19 June 2009, you have a grace period of 3 years. If it is 12 months since you have done the PRD –based course, you will need to do your courses again.
We recently had a person ring our office that had been in the industry for 22 years. He let his licence lapse while he was overseas in 2007. He now has to do the courses again.
ACP and Leverage offer a service whereby assistance is given to old licensees to obtain their licence without having to sit through a long régime of courses. If they have done an old course and have been in the industry for a period of time, ACP can recognise prior learning and/or experience in assessing these long term agents, and if successful, can grant them their qualifications.
If you are intending to go overseas, or you’re thinking about leaving the industry for a small period of time, we suggest that all your qualifications be updated to the new CPP07 series. This will provide you with a 3 year grace period and the new Certificate IV in Property Services qualification. The alternative is, don’t let your licence lapse. File your renewal on time, do your CPD and file all audit returns.
Until next time,
Bailey Compton and the team at
Leverage Australia &
Australian College of Professionals