By K. Michelle Lind, Of Counsel
Imagine that you have been working with some friendly buyers and have shown them multiple properties. Then, you don’t hear from them for a while. When you follow up, you find out that they have purchased a home using another agent . . . it may have even been a home that you had shown them previously. You think: Hey! That was “my buyer” and “my commission!” Was it?
The MLS Offer of Compensation
After a listing broker enters into a listing agreement with the seller, the broker generally enters the listing information in the multiple listing service (“MLS”) in which the broker is a participant. The MLS is a means by which broker participants make blanket unilateral offers of compensation to other broker participants. A cooperating broker is entitled to a commission from the listing broker pursuant to the MLS offer of compensation when the cooperating broker is the “procuring cause of the sale.” In the event of a procuring cause dispute, if the brokers cannot resolve the issue informally or through mediation, REALTOR® brokers are obligated to arbitrate.
Unfortunately, determining which broker is the procuring cause of the sale can be difficult. Some of the factors an arbitration hearing panel will consider when determining which broker is the procuring cause of a sale include:
- Who first introduced the buyer to the property? The broker who introduced the buyer to the property is not automatically the procuring cause of an ensuing sale, but who initially introduced the property to the buyer is generally an important factor in determining procuring cause.
- Was the introduction of the property to the buyer instrumental in creating the desire to purchase? Merely alerting a buyer to the fact that a property is available does not usually constitute procuring cause.
- Did the introduction of the buyer to the property start an uninterrupted series of events leading to the sale or was the series of events interrupted in some way? If there was an interruption or break in the original series of events, a hearing panel will look at how the interruption was caused and by whom. For example, if a broker becomes aware that another’s efforts have broken down, steps in, and finalizes a sale by removing an impediment, a hearing panel will consider whether the transaction would have occurred without the assistance of the second broker. If not, the second broker is the procuring cause. However, if a broker is aware of another’s continuing efforts and in bad faith interferes with the transaction, the second broker will not be the procuring cause.
- Did the broker who made the first introduction to the property engage in conduct or fail to take some action that caused the buyer to utilize the services of another broker (estrangement or abandonment)? If the first broker said or did something the broker shouldn’t have, which caused the buyer to decide not to use the broker, that constitutes estrangement, which would break the uninterrupted chain of events. A broker not maintaining contact, not following up, or not providing requested information to the buyer in a timely manner would be considered abandonment, which would also break the series of events. The second broker who steps in to assist a buyer to achieve a successful transaction after the estrangement or abandonment of the buyer by the first broker would be considered the procuring cause of the sale.
- Did the seller, buyer, or other broker act in bad faith to deprive the first broker of the commission? For example, if the first broker introduced the property to the buyer and brought the negotiations to a point where the buyer had made the decision to purchase, the first broker is the procuring cause. The first broker would prevail in a hearing even if the buyer and seller, with or without a second broker, conspired to take the property off the market and consummate the sale without the first broker or otherwise “froze” the first broker out of the transaction.
Further, in determining which broker is the procuring cause, a hearing panel will consider only facts directly related to the sale of the property at issue. The hearing panel will not consider a broker’s prior relationship with the buyer, the fact that the broker showed the buyer numerous other properties or anything that happened after the buyer decided to make an offer.
Due to all the factors discussed above, procuring cause disputes are best resolved informally or through mediation, which is often successful with the assistance of the association’s volunteer mediators. For more information about procuring cause and the REALTOR® arbitration and mediation processes, go to: https://www.aaronline.com/resolve-disputes/arbitration/
As with any potential dispute, communication is key. A salesperson with a procuring cause issue in a transaction should talk to their broker or manager as soon as possible.
Avoiding Procuring Cause Disputes
Not all procuring cause disputes can be avoided, but most can. One way to avoid a procuring cause dispute is by using the AAR Buyer-Broker Exclusive Employment Agreement. The agreement benefits the buyer by setting forth the terms of the buyer-broker relationship. The agreement benefits the broker by assuring that the broker will be compensated the agreed-upon amount if the buyer purchases a property during the term of the agreement.
In the buyer-broker agreement, the buyer agrees to compensate the broker the specified amount or the compensation the broker receives from the seller or the seller’s broker, whichever is greater. In either event, the buyer authorizes the broker to accept compensation from the seller or the seller’s broker, which shall be credited against any compensation owed by the buyer pursuant to the agreement. If completion of any transaction is prevented by the buyer’s breach or with the consent of the buyer other than as provided in the purchase contract, the total compensation is due and payable by the buyer.
In the agreement, the buyer also agrees to work exclusively with the broker and be accompanied by the broker on the first visit to any property. If the broker does not accompany the buyer on the first visit to any property, including a model home, new home/lot, or “open house,” the buyer acknowledges that the builder, seller, or seller’s broker may refuse to compensate the broker, which will eliminate any credit against the compensation owed by the buyer to the broker.
Even if you choose not to use the AAR Buyer-Broker Exclusive Employment Agreement, which is your best protection as a buyer’s agent, educate the buyers about the real estate purchasing process, communicate with them often to avoid an abandonment or estrangement argument, and understand the basics of procuring cause. You deserve to be compensated for your hard work. You don’t want to find yourself in the situation of thinking: Hey! That was “my buyer” and “my commission!”
For more great articles by K. Michelle Lind, visit her blog HERE
K. Michelle Lind, Esq. is an attorney who currently serves Of Counsel to the Arizona REALTORS®. She is also the author of the book – Arizona Real Estate: A Professional’s Guide to Law and Practice (3rd Ed.)
This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel. 11/18/2022