What Is The Procuring Cause Of A Real Estate Transaction?
Andrew Dehan5-Minute Read
November 30, 2021
When you begin working with a real estate agent, you’ll be asked to sign an agreement that defines your relationship and how the agent will be paid. Circumstances can still arise that cause disputes over who earned what.
Here’s how commission disputes arise and how they’re resolved with the procuring cause of the sale.
What Is The Procuring Cause?
The National Association of REALTORS® (NAR) says procuring cause means the agent who earns the commission is the one who led you to the completion of the sale.
For example, maybe you’ve signed a buyer agency agreement (sometimes called a buyer-broker agreement) with one agent. But then you meet with another agent who helps you close on a house, the second agent is the procuring cause.
What Is A Buyer Agency Agreement?
Once you get preapproved, you’ll interview buyer’s agents as you begin the house-hunting portion of your home buying journey. We may think of agents as the person who shows us homes, but the truth is that they do so much more than just open doors for home buyers.
When you decide on the agent, you’ll be asked to sign a buyer agency agreement. This document is a conditional contract between the agent, their brokerage and the home buyer. It lays out everyone’s rights and responsibilities should the agent show the buyer the home they ultimately purchase. In other words, if they show you a house and you end up buying it, then they’ll be paid a commission.
What Does The Buyer Agency Agreement Govern?
Here’s what each party is seeking: Agents want longer terms with exclusivity, while buyers want to keep the relationship as open as possible. If they find an available house in a tight seller’s market, they might not stop to think about their agent in the process.
Exclusivity In The Relationship
Generally, agents will ask for an exclusive period in which they hope to show you your future home and negotiate the best possible terms for you. Different markets have different practices, but it’s not unusual for the exclusive period to last 30 days, after which the buyer can begin to work with other agents.
As a buyer, you can negotiate over the length of the exclusivity period. Agents will show their newest and best listings to exclusive buyers because they’re sure to earn their commission. In a seller’s market, it might put you at a competitive disadvantage to have non-exclusive relationships.
Geographic Limits To The Relationship
The contract also may limit the exclusivity to when the buyers are on your turf. That means you're free to work with other agents outside of the designated territory. You’ll have to pay attention to those lines to avoid commission disputes.
Economic Terms Of The Relationship
The buyer’s agency agreement defines the conditions under which an agent will earn a commission and the amount of that commission, generally between 2.5% – 3% of the home’s purchase price.
How Disputes Will Be Handled
In the fine print of the buyer agency agreement, you’ll find provisions deciding how disputes between the parties will be handled. In most cases, agreements specify that the parties will refer disputes to arbitration for resolution.
Whether A Dual Agency Exists
Dual agency occurs when one brokerage represents both the buyer and seller. There are differences between brokers and agents. For our purposes, let’s say that the agent who works with clients works for a brokerage, and that brokerage employs both listing agents and buyer’s agents. Such a relationship must be stated in the buyer agency agreement.
How Do Real Estate Commission Disputes Arise?
The parties enter these agreements with the best of intentions, but sometimes disputes arise. For example, let’s say you signed an exclusive agreement with Luka, a real estate agent, and that Luka has worked with you for months.
But you met another agent at a party who said they had a new listing that sounds like just what you’re looking for. You might decide not to mention Luka for fear of discouraging agent Quinn from showing you the home. Quinn conveys an offer on your behalf, it’s accepted, and you prepare to close, ghosting Luka along the way.
Of course, Luka finds out about the sale. They present their exclusive buyer agency agreement as proof that they’re entitled to a commission even though you didn’t include them in the transaction.
How Are Commission Disputes Resolved?
Most buyer’s agency agreements specify that commission disputes will be resolved through arbitration following the guidelines. In a commission dispute case, the arbitrator would refer to the National Association of REALTORS®’ Code of Ethics & Arbitration Manual, which governs these types of disputes.
How Does Arbitration Work?
Arbitration is a popular way to resolve disputes because it is quicker and far less costly than pursuing legal action. Essentially, an arbitrator – usually an attorney but not a judge – agrees to follow relevant legal definitions and principles, review relevant documents and hear what the witnesses have to say. In a case like yours, you, Luka and Quinn might be heard.
The Arbitration Worksheet included in the manual offers guidance on the factors an arbitrator should consider when resolving a commission dispute. It lists a wide variety of factors without any instruction about how much weight the arbitrator should give each factor. It’s up to the arbitrator to use their discretion in deciding what the procuring cause of the sale is.
By this definition, agent Quinn would be awarded the commission.
Common Misconceptions About The Procuring Cause In Real Estate
There are other scenarios in which commission disputes can arise. There are common misconceptions about whether being the first to show a property, having a signed buyer agency agreement or having a successful offer letter gives the agents dibs on the commission. It doesn’t. The arbitrator will look at the circumstances surrounding the sale, and decide which ones directly led to the completion of the transaction.
How Can Home Buyers Avoid Commission Disputes?
The easiest and best way is to always contact your agent before looking at a home, regardless of how it catches your eye. Don’t call listing agents – whose names appear on a For Sale sign in front of a house you just drove by – without calling your agent first. They’ll contact the agent directly and set up a time to see the house as well as negotiate on your behalf.
You don’t need to skip open houses if your agent isn’t available. Agents follow an open house protocol. Simply hand your agent’s card to the open house agent and sign your agent’s name next to yours in the guest book. They’ll follow up with each other later.
You don’t need to worry about somehow insulting an agent by bringing your agent into the deal. They prefer it. Agents have established commission sharing structures in place. In fact, it’s unlikely that Quinn would have shown you the home without your buyer’s agent. If they did, they’d have been acting as a dual agent and made themselves open to your legal action accusing them of violating their fiduciary duty to you.
The best policy is full disclosure all around. Tell the new agent you’re working with someone already, and then call your agent and tell them what you learned. They’ll arrange a convenient time and work together to get to the best deal possible for all parties involved.
The Bottom Line: Open Communication Will Help Avoid Real Estate Commission Disputes
Real estate agents are well-trained professionals who prefer relationships between buyers and other agents be said at the beginning of the relationships. If you’re working with one agent, keep them in the loop to avoid disputes over commissions and hard feelings in the future.
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