The Best of the Legal Hotline: Procuring Cause


 Tracy Rucka  |    September 27, 2007
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Procuring cause is the standard by which commission offered by the listing broker through the MLS to cooperating brokers is earned. Generally speaking, the broker who is the procuring cause was involved in the uninterrupted series of events that resulted in a successful transaction. This determination is made by reviewing many factors in the transaction. no automatic decisions can be made based on the presence or absence of any one factor, and no predetermined formula will always decide whether a broker is the procuring cause of a sale. The facts need to be weighed on a case-by-case basis.

Series of events 

The listing agent held an open house on Sunday, and a couple drove by, saw the sign and stopped. The buyers spent an hour and a half touring the house, asking the agent questions and discussing their options. The buyers really wanted to make an offer on the house but had written an offer with another broker on another home, and had not yet heard back from that seller. The buyers left the agent with questions about utilities and assessments. On Monday, the listing agent gathered the information and gave it to the buyers. The listing agent would like to know if working with the couple gives the listing agent procuring cause for a purchase of the open house home? What happens if the other REALTOR¬ģ drafts an offer?

There is not yet enough information to determine if the listing broker is the procuring cause of the sale. It will be up to the listing agent to maintain the relationship with the buyer and complete the sale to assure procuring cause. Being involved in the first contact or introduction of the property to the buyer establishes the beginning of the series of events, but does not automatically assure procuring cause. The fact that the listing broker introduced the home to the buyers (when the buyer drove by the open house sign and went into the home), had conversations with the buyers that helped build their interest and followed up with additional information will all be part of the series of events. It appears, but for the mitigating factor of the other outstanding offer, the buyers would have drafted an offer. The timely follow-up to the buyers’ questions is activity that maintains the series of events. Provided the listing agent continues on this path and does not abandon or estrange the buyers, the listing broker will probably be the procuring cause of the sale even if another broker enters into the transaction. Procuring cause here is the listing broker’s to keep or lose, even if another broker becomes involved in the transaction. In the absence of any demonstrable break in the continuity of events, such as abandonment or estrangement, a panel would most likely find in favor of the listing agent.

Successful transaction 

A cooperating MLS broker drafted a full price, no contingency offer that was rejected by the seller. The buyer wants the broker to pursue the selling commission. Can this be done?

According to the terms and conditions of an offer of compensation made through the MLS, a successful transaction is required to earn the commission as the procuring cause of the sale. A successful transaction is defined as a sale that closes or a lease that is executed. The cooperating broker was instrumental in procuring the offer that triggered the listing broker’s right to commission according to the procurement provisions of the listing contract. However, there is no transaction between the buyer and the seller, so the cooperating broker is not entitled to the selling commission.

Uninterrupted/ estrangement 

A broker showed a property to a buyer and drafted an offer. The buyer and seller were unable to reach an agreement. The communications between the brokers and parties became adversarial and antagonistic, so the buyer went to a broker from another company and looked at many other properties. The second broker suggested the buyer reconsider the first property and the second broker drafted a new offer. Is the second broker the procuring cause?

An arbitration hearing panel will make the determination if the brokers are unable to resolve this by negotiation or mediation. The panel will consider why the buyer chose to work with the second broker. Estrangement results if the first broker engaged in conduct that caused the purchaser to terminate the relationship. Examples of actions that could be estrangement include: refusal to draft an offer; antagonistic behavior towards the buyer; acting without the consent of the buyer; acting in a manner contradictory to the buyer’s direction; or other bad faith actions. The failure of the negotiations, if due to the first broker’s interference, could be estrangement.

If the buyer was estranged due to the first broker’s actions, the second broker’s actions can create a second series of events resulting in procuring cause for the second broker. The panel will look at the continuity or discontinuity of the original and final negotiations, which resulted in the successful transaction. The hearing panel may consider whether the transaction would have occurred without the actions of the second broker. The second broker’s encouragement to consider the subject property and drafting of the accepted offer supports the second broker’s claim for procuring cause.

Uninterrupted/abandonment 

The agent, who has the consumer’s present home listed, drafted an offer for the consumers to buy a condominium listed with another MLS company. The offer on the condominium was terminated because the sale of home contingency was not satisfied. The buyers told the condominium listing agent they would give him a call when they got an accepted offer on their home. Several weeks later, when their listing agent was out of town, the listing agent for the condominium wrote a new offer for the consumers, and the condominium seller accepted. The first agent wants a commission on the condominium sale as the procuring cause. The manager at the condominium listing company says the first agent abandoned the buyer as well as the property. Is there abandonment of the real estate or customers?

Yes, abandonment may occur in relation to the buyer or a property. Even if a broker maintains contact with the buyer about properties in general or, in this case, their listing, abandonment may occur with regard to a property if the broker does not maintain a series of events regarding that property. The brokers may consider whether the first agent’s conduct caused a break in the series of events leading to the rejection of the first offer, and whether the successful transaction was actually brought about through the initiation of a separate, subsequent series of events by the condominium listing broker.

The key is: Did the first agent actively maintain ongoing contact with the consumers? Or, did the broker’s absence, inactivity or perceived inactivity cause the buyer to reasonably conclude that the first agent had lost interest or disengaged from the transaction? Given the amount of time that elapsed between the first agent’s negotiations and the time of the accepted offer, and the fact that the first agent was not available due to his vacation, there may have been abandonment.

Buyer agency 

A broker gets a call from a buyer that he has worked with in the past. The buyer tells the broker what he is looking for, and the broker identifies several MLS properties that would be suitable, one of which the buyer saw previously with the listing broker. The broker discusses agency with the buyer and the buyer chooses buyer agency. Can the buyer’s agent draft an offer on the property the buyer saw with the listing broker?

There are two issues here, agency and procuring cause. The buyer agency agreement authorizes the buyer’s agent to provide brokerage services to the buyer. Unless specific properties are excluded from the buyer agency agreement, the buyer’s agent may draft the offer for the buyer. The WB-36 Buyer Agency/Tenant Representation Agreement may be negotiated to allow the broker to accept compensation from an owner or an owner’s agent, reducing the compensation owed by the buyer. However, whether the buyer agent is procuring cause is a different matter.

The buyer’s agent may draft the offer, but because the buyer worked directly with the listing broker on the subject property, the buyer’s agent will not necessarily be the procuring cause of the sale and earn the compensation offered through the MLS. Buyer agency does not equal procuring cause. The fact that the second broker is aware of the first broker’s activity does not prevent the second broker from becoming involved in the series of events. The question is whether the relationship with the listing broker has broken down due to abandonment or estrangement. The buyer’s agent enters into the transaction knowing full well that his efforts to finalize a sale between the buyer and seller are not necessarily enough to earn the compensation offered by the listing broker.

Factors 

Is there a simple checklist for a broker to know if he or she is the procuring cause of the sale when thinking about going to arbitration?

The analysis of procuring cause must be made on a case-by-case basis, considering dozens of factors and the activity of each of the agents involved in the transaction. When deciding whether or not to file for arbitration, the broker may consider the following questions:

  • Who made the first introduction of the property and how was it made to the ultimate purchaser?
  • Did the introduction evolve into a series of events that resulted in the sale?
  • Did the introducing agent maintain contact throughout the transaction?
  • Did the agent‚Äôs conduct prompt the buyer to look elsewhere for services?
  • Was a second broker invited into the transaction by the buyer because of the first broker‚Äôs abandonment or estrangement?
  • What did the agents know about the participation of other agents in the transaction?
  • Was the second broker‚Äôs participation necessary to complete the sale?

The answers to these questions will help a broker decide whether or not to make an arbitration request. The full list of factors considered by a hearing panel during an arbitration is available on the National Association of REALTORS¬ģ¬†website at¬† www.realtor.org/LetterLw.nsf/pages/95procuringcausefactors?OpenDocument&Login.

Tracy Rucka is a Staff Attorney for the WRA.

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