So, Whose Sale Is It? Understanding 'Procuring Cause'
As the real estate industry evolves, transactions get more complicated. But one thing that remains the same is the standard of compensation, also known as "procuring cause."
Unfortunately, there are no black-and-white rules on what constitutes procuring cause and exactly what a broker must do to achieve it. Rather, it varies depending on the facts and circumstances of each transaction.
Let’s start by defining the issue.
What is procuring cause?
Real estate is unique in that Realtors begin each day with the intent to cooperate with their direct competitors. In doing so, most properties are sold cooperatively through a Multiple Listing Service (MLS) with an offer of compensation to other participants.
When listing brokers place an offer of compensation in the MLS and a competing broker procures a buyer to complete a successful real estate transaction, a contract is formed.
Whether a specific broker is the procuring cause of a sale is determined on a case-by-case basis. Many factors may impact a
determination of procuring cause, but no single factor in itself determines the outcome.
When there’s a dispute among Realtors, procuring cause is determined by applying the factors established by the National Association of Realtors (NAR) to the situation in question.
A hearing panel is charged with analyzing the information in order to demonstrate that the efforts of a specific broker were responsible for the buyer’s decision to buy the property and resulted in a successful transaction without any break or interruption.
Factors that determine compensation
Appendix II to Part 10 of the NAR “2009 Code of Ethics and Arbitration Manual” explains the various elements of procuring cause as they apply to commission disputes, including the terms of the listing contract, any compensation offered by the listing broker to cooperating brokers (through the MLS or otherwise) and the terms of the purchase contract.
NAR has listed six suggested factors for determining procuring cause. This list is not all-inclusive, but it does delve into the depths of a transaction to help establish factual information.
Those factors are:
1. Prior cases have no impact on your case.
Each arbitration hearing is unique, and all decisions are based on the facts and circumstances presented by the parties and their witnesses. This means that prior cases have no impact on the outcome of your case, as the hearing panel doesn’t take them into account when reviewing your case.
Agency relationships don’t determine whether you’re entitled to compensation. Simply having a single-agent exclusive agreement with a consumer won’t guarantee that you’re the procuring cause of a sale.
It’s possible, however, for a separate agreement to entitle you to receive compensation directly from a consumer.
2. Is the issue able to be arbitrated?
The hearing panel will consider whether the issue even qualifies to be decided through arbitration and if the correct parties are named.
This is essential to ensure a fair outcome for all parties affected by the dispute.
3. Is your evidence relevant and admissible?
Frequently, hearing panels are asked to rule on questions of admissibility and relevance of specific evidence.
The general rule is that anything the hearing panel believes may help it reach a fair, equitable and knowledgeable decision is admissible.
The panel will not, however, take into account character evidence regarding either party. Just because a broker is not the nicest person doesn’t mean that he or she isn’t entitled to a fee.
Remember, arbitration hearing panels are called on to resolve contractual questions, not to determine whether the law or the Realtor Code of Ethics has been violated.
An award can’t be withheld solely because the hearing panel doesn’t like the potential recipient’s manner of doing business or even because the panel believes that unethical conduct occurred.
4. Was there communication and contact? (abandonment and estrangement)
Many disputes subject to arbitration turn on the relationship (or lack thereof) between a broker (often a cooperating broker) and a prospective buyer. Panels will consider whether the broker made reasonable efforts to develop and maintain an ongoing relationship with the buyer.
In cases where two cooperating brokers have competing claims against a listing broker, panels will want to determine if the first cooperating broker actively maintained ongoing contact with the buyer or, alternatively, if the broker’s inactivity, or perceived inactivity, may have caused the buyer to reasonably conclude that the broker had lost interest in or disengaged from the transaction. This is commonly referred to as abandonment.
In other instances, a buyer, despite reasonable efforts by the broker to maintain ongoing contact, may seek assistance from another broker. The panel will want to consider why the buyer abandoned the first broker.
In still other instances, there may be no question that there was an ongoing relationship between the first broker and the buyer. The issue then becomes whether the broker’s conduct or, alternatively, the broker’s failure to act when necessary caused the buyer to terminate the relationship. This is known as estrangement, and it can be caused by words or actions or even the lack of words or actions.
Panels will consider whether such conduct, or lack thereof, caused a break in the series of events leading to the transaction and whether the successful transaction was actually brought about through the initiation of a separate, subsequent series of events by the second cooperating broker.
5. Does it conform with state law?
The procedures by which arbitration requests are received, hearings conducted and awards made must be in strict conformity with the law.
6. Looking at the whole picture.
The person requesting the arbitration is required to prove his or her case. This means persuading the hearing panel, through testimony and evidence, that his or her position is the stronger one. This standard of proof is referred to as the preponderance of the evidence.
There is one thing that’s always true when it comes to procuring cause and that is that no one thing can pinpoint who the procuring cause of a sale is. Instead, it’s something that depends on the facts of each individual case.