Protecting Your Commission From Procuring Cause Claims
October 19, 2017 |
Imagine this scenario:
You’ve done a superb job as a buyer’s agent. You’ve shown your client the property through photographs and in person, you’ve negotiated the purchase agreement and guided your client to a successful closing… only to find out another agent claims a right to your commission under the theory of procuring cause. Procuring cause disputes are the most common commission disputes among agents. Understanding the difference between procuring cause and agency will go a long way to avoid the wrong end of a procuring cause claim.
Procuring Cause – The agent’s ability to directly originate a series of events. These events, without a break in their continuity, directly result in the accomplishment of procuring a purchaser that is ready, willing, and able to buy real estate on the seller’s terms. Because each real estate transaction is unique, resolution of procuring cause disputes depends on the facts and circumstances of each particular case.
Many agents falsely assume that if they are someone’s agent, they are unequivocally entitled to the commission. In fact, the agent entitled to the commission is completely different from the client’s agent.
Consider the following example:
A buyer’s agent (Selling Agent 1) is working with buyers and shows them multiple properties. Ultimately, the buyers select one and ask the agent to prepare a purchase offer; which is accepted. The buyers learn a family friend (Selling Agent 2) will handle their purchase and rebate back 1% of the cooperative commission. The buyers switch to Selling Agent 2, who has the buyers sign an exclusive buyer agency agreement. At closing, who is entitled to the commission?
Selling Agent 1 will argue they were the procuring cause of the sale, even though they did not represent the buyers through closing. Selling Agent 2 will argue they were the exclusive agent of the buyers and thus due the commission. The procuring cause dispute will likely be resolved in favor of Selling Agent 1. This is because it was Selling Agent 1 that introduced the buyers to the property and initiated the series of events that led to the successful closing. In this scenario, even though Selling Agent 2 was in an agency relationship with the buyers, Selling Agent 2 is not entitled to the commission.
Just because an agent is the first to show a property to buyers doesn’t always mean the agent is the procuring cause of the sale. The passage of time or the occurrence of some event may serve as the “break” in events leading to the sale of the property. For example, the buyers may view multiple properties and have no contact with the agent for many months. Then, at some future point, buy a property they saw with this agent. The agent would likely fail on a procuring cause claim because of the passage of time.
What are some things you can do to protect yourself from a procuring cause claim? If your buyers have viewed the property with a previous agent, find out why they have switched to you. Do the buyers contend the agent wasn’t representing their interests well? Did the buyers enter into a written agency agreement with the other agent? How much time has elapsed? Are the buyers interested in other properties?
I also recommend reaching out to the other agent and having a professional conversation about the buyers. It is always better to be aware of a potential procuring cause dispute up front and resolve it via referral fee or other settlement. This helps ensure that you receive the commission earned from your hard work. If you are not able to resolve the dispute up front, the dispute will likely be brought before your local Realtor arbitration panel for determination.
Remember, procuring cause disputes are resolved on a case by case basis. Oftentimes, it involves more than just who showed the property first. If you think you might have a procuring cause dispute, make efforts to resolve the issue before the transaction closes.
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