Introduction, is it enough?


Having looked at the Arbitrations processes in recent articles it now seems timely to look at the issue that is the basis of most disputes; introduction.


Introduction is what we get paid for. We do not get paid for drawing up the agreement, negotiating the sale, organising mortgage brokers, collecting, retaining and disbursing the deposit, or any of the other many services we perform. These actions are a very important part of assisting a willing buyer and a willing seller to achieve a contractual relationship and to optimise the likelihood that the contract completes. If we didn’t do it, we would be relying on the parties or maybe their solicitors to do these things, need I say more!


Virtually every listing authority (appointment of agency) that I have seen states basically that if the agent introduces someone who purchases the property, either during the agency or after it has been cancelled, the vendor will pay the agent a commission. It doesn’t matter if the sale is made by another agency, or privately, we rely on introduction to create our entitlement to our fee. Simple enough, or is it?


In my early days in sales there was an unwritten rule that if a salesperson showed their client a property, and that client purchased the property within three months from any other agent, the first salesperson was entitled to the commission.


This was unsatisfactory for a number of reasons including that it relied solely on introduction, whether or not it was the cause of the sale, and we will come back to that. Secondly, why three months?” Why not two or less, or four or more? The “rule” was a nonsense.


Then the pendulum swung to the other extreme and introduction became of less relevance and we tended to give the bulk, if not all of the commission to the “effective” agent. This was a disaster because it encouraged less scrupulous salespeople to close other salespeople’s sales. Great if you had a friend looking for a property, you could send them out with every other salesperson and when they found something they liked you could make the sale and claim to be the “effective” agency. Hard to believe that there were people like that but …… there were!


Eventually we saw sense and decided to do away with unwritten mores or protocols and rely on the law and this is the situation we now enjoy.


So, back to introduction and is it enough? The answer is provided for us by Justice Tipping in Harcourts Group Ltd vs McKenzie, Christchurch, 6 September 1993.


He noted “Subject always to the terms of the contract in question (i.e. the listing), it has been held and is now relatively uncontroversial, that an introduction per se does not entitle the agent to commission …… the introduction must have been causative of the sale.”


Note those last few words “the introduction must have been causative of the sale.”


The Harcourts/McKenzie case was wonderful for us because it addressed a situation where the client purchased a property some ten months after introduction by the agent. Tipping acknowledged that if an agent showed that the ultimate purchaser was introduced through their agency then they had a prima facie entitlement to the commission.


However he went on to say, “The prima facie obligation to pay commission ceases only when the agent’s introduction ceases to have a material bearing on the sale. By that I mean that the agent’s introduction was no longer instrumental in any material way in bringing about the sale.”


Justice Blanchard supported this view in The Real Estate Centre v Chamberlain. Tauranga. 27 July 1995) when he determined “All that was needed was that the introduction had to remain as a material cause (not the exclusive cause) of the sale which ultimately occurred.”


Introduction is the essential basis of our right to claim our fee but the bigger issue often becomes; was it the cause of the sale?


In Harcourts/McKenzie the purchaser wanted to buy the property at the time of introduction but was unable to. Ten months later they went to the property for a totally unrelated reason. On discovering that it had not been sold, they purchased it directly from the owners. Harcourts argued that their introduction was the reason the purchasers were interested in the property and that they asked the owners if they would still sell. Tipping agreed and gave the interpretation on the significance of introduction that has been used many times since by Courts, Arbitrators and disputing agencies.


Introduction is the essential event that creates our entitlement to a commission but that introduction must also be shown to be a cause of the sale.



Michael Pinkney FREINZ AAMINZ
National Councillor
First Published June 2004