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Procuring Cause Disputes

by | Feb 5, 2021 | Arbitration, Mediation and Liquidated Damages, Commissions

Q:  I have been working with a Buyer for three months, got her pre-qualified for a loan, educated her on home prices, neighborhoods and public amenities.  She was anxious to purchase a home as soon as she saw the perfect home.  Last Sunday, she saw a “For Sale” sign and called the Seller’s Agent who was close by and showed her the home.  According to my client, she told the Seller’s Agent that she was working with me, but that Agent told her that if she wanted to buy the house, she would have to write an offer immediately and that only he could get her the “best deal.”  Short story is that she is now in contract on that Property. I think that Seller’s Agent stole my client; I am the procuring cause of that sale and I’m entitled to the Buyer’s Agent commission since I did all of the work.  What do I do? 

A:  This is a typical story and variations on this scenario happen all the time.  When there are commission disputes between REALTORS, the Agent’s Broker will need to arbitrate the matter before the Professional Standards Panel at the local Association of REALTORS® (“AOR”).  This Tip will focus on the relevant issues involved in determining who is entitled to be paid the Buyer’s Broker’s compensation that was offered in the MLS.

  1. OFFER OF COMPENSATION: A Buyer’s Broker is entitled to be paid compensation by the Seller’s Broker if there is an “offer of compensation” to pay the broker who procures the Buyer.  This offer of compensation is usually made in the MLS to Broker members of the MLS, and members of any other MLS which has a Reciprocal Agreement with that MLS. However, that offer of compensation may also be made to the Buyer’s Broker, either in writing, or even verbally (which is extremely difficult to prove). If there was never an offer of compensation, then the Buyer’s Broker will not prevail in the arbitration regardless of who procured the Buyer.
  1. PROCURING CAUSE: Although there are a number of definitions of “procuring cause,” NAR defines procuring cause as “the uninterrupted series of causal events, which results in the successful transaction.”  Under the NAR Guidelines, procuring cause is a “factors test,” which means that there is not necessarily one triggering event or fact that will determine the outcome.  For example, some brokers mistakenly believe that if they are the “first showing broker,” then they are the procuring cause.  However, under the “factors test,” this is only one of a number of factors that will be considered by the arbitration panel in arriving at a decision.

CAR has an excellent article entitled Procuring Cause Guidelines which can be found on the CAR.org site. See link below. 

https://www.car.org/riskmanagement/qa/commissions-folder/procuring-cause

These guidelines are designed to assist arbitration panels in deciding which Broker is the procuring cause of a given transaction by establishing the factors that need to be considered.  Use of these Guidelines by local Associations is not mandatory; however, most local AOR’s will follow them in deciding on commission disputes.

  1. BURDEN OF PROOF: The Broker who files the arbitration complaint carries the burden of proof to demonstrate, by a preponderance of the evidence, why that Broker is the procuring cause of the transaction and is, thus, entitled to the commission
  2. WHAT ARE THE “PROCURING CAUSE FACTORS” USED BY THE ARBITRATION PANELISTS?

The following is a brief summary of some of the factors that are detailed in the CAR Procuring Cause Guidelines which will favor either the Introducing Broker (who introduced the client to the Property) or the Closing Broker (who closed the transaction and usually was paid the commission).  Keep in mind that this is not necessarily a numerical test; the Party who has the most factors on their side may still not win.  The arbitration panel can weigh the various factors, giving more significance to one factor over others based on the individual facts of the case. 

FACTORS FAVORING THE INTRODUCING (“INTRO”) BROKER

  • Buyer is first introduced to the Property by Intro Broker.
  • Intro Broker provided significant information about the specific Property, its neighborhood, value of the Property, financing and other issues over a period of time.
  • Intro Broker wrote and presented an offer on the Property on behalf of the Buyer but the transaction was not consummated.
  • Intro Broker was aware that the Buyer would be going to open houses, and told the Buyer to inform other brokers of the Buyer’s relationship with Intro Broker.
  • Closing Broker never showed the Property.
  • Closing Broker wrote and presented an offer on the Property on behalf of the Buyer that was substantially similar to an offer written by Intro Broker within a short period of time. (If the two offers are not close in terms of either content or time, this factor would move to neutral.)
  • Closing Broker does not belong to the MLS in which the Property is listed, or any MLS in a reciprocal arrangement with the MLS, and has not made independent arrangements with the listing broker for a commission.
  • Closing Broker is the listing broker and offered financial incentive to the Buyer to come directly to him/her, after the listing broker knew of the involvement of the other broker.
  • Intro Broker has a Buyer Representation Agreement or a Buyer-Broker Compensation Agreement that contains a description of the Property, which includes the subject Property and is dated before Closing Broker meets with the Buyer.

FACTORS FAVORING THE “CLOSING” BROKER 

  • Intro Broker failed to give the Buyer an Agency Disclosure form.
  • A significant amount of time elapsed between the time Intro Broker last showed the Property and Closing Broker wrote an offer on the same Property.
  • Closing Broker wrote and negotiated the offer and performed all the services during escrow.
  • Intro Broker does not keep in touch with Buyer after a period of time.
  • Buyer is dissatisfied with Intro Broker due to the Broker’s professional abilities or conduct.
  • Closing Broker asked about Buyer’s relationship with another Broker early in the process and determined there was no existing contractual or exclusive relationship between Intro Broker and the Buyer.
  • Closing Broker instructed a Buyer to go to open houses, or made appointments for the Buyer, or was aware that the Buyer would be going to open houses, and instructed the Buyer to inform open house brokers of the Buyer’s relationship with Closing Broker.
  • Closing Broker has an exclusive or nonexclusive Buyer-Broker Compensation Agreement. 

PRACTICE TIPS: 

Buyer’s Agents 

  1. Give the Buyer an Agency Disclosure form as early in your relationship as possible; after the Buyer has signed it, give a copy to the Buyer and make sure a copy is put in the Broker file. If an Agent fails to provide the Buyer with that statutory form, the other Broker can legitimately argue that, as a matter of law (as stated on the Agency Disclosure form), the Agent had less than a “casual relationship” with the Buyer.
  1. Use Buyer Representation Agreements. Such Agreements establish a right to compensation and Arbitration Panelists are far more likely to recognize that the Buyer who signed that document was the client of that Broker.
  1. Advise your Buyers that if they look at Property without you, they should give your business card to the Seller’s Agent and advise that Agent that they are working with you (and/or they have signed a Buyer Representation Agreement with you, if that is true), and, if they see a Property in which they are interested, to contact you.
  1. Warn your Buyers to expect to be solicited by the Seller’s Agents and, if that happens, to promptly contact you to represent them on that Property.
  1. Keep in contact with the Buyers regardless of how long they are looking at properties. Failing to keep in touch can be construed as “abandoning” the client.

Seller Agents:  

The Code of Ethics requires that: 

“Before providing substantive services (such as writing a purchase offer or presenting a CMA) to prospects, REALTORS® shall ask prospects whether they are a party to any exclusive representation agreement. REALTORS® shall not knowingly provide substantive services concerning a prospective transaction to prospects who are parties to exclusive representation agreements, except with the consent of the prospects’ exclusive representatives or at the direction of prospects.” (Standard of Practice 16-13)

Both Buyer and Seller Agents:

  1. When you start interacting with a new, potential client, always ask the client the following questions:

(a) Are you working with a Real Estate Agent; and

(b) Have you signed any paperwork with any Real Estate Agent?

  1. When encountering a situation where another Agent/Broker may claim to be either an Introducing Agent or Closing Agent, promptly contact your Branch Manager or Broker to review the CAR Procuring Cause Guidelines and then take the necessary steps to protect your potential commission rights. 

DO NOT FORWARD TO CLIENTS.  This Weekly Practice Tip is an attorney-client privileged document for the exclusive use of clients of Broker Risk Management and their Agents.  It may not be reproduced or distributed without the express written consent of Broker Risk Management.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.

© Copyright Broker Risk Management 2021            02/05/21