Reader Question: One of the agents we are interviewing to help us find a home mentioned something called “procuring cause” which is a term unfamiliar to us. Apparently, we have to be careful about talking with other real estate agents because other agents can get the commission if they mention a potential match that we end up buying. We want to avoid conflicts like this, but we don’t want to be limited in looking around. The agent was somewhat vague, and we want a better explanation. What is procuring cause?
Monty’s Answer: Procuring cause is difficult to explain, which may be why the agent seemed vague. Procuring cause boils down to which agent earns the commission if a dispute arises. To receive the commission the agent has to demonstrate they followed the rules and did the necessary work laid out in the multiple listing service guidelines between brokers when working with a customer and a second agent also lays claim to that same commission. The second agent must also demonstrate they followed the rules. The critical point is determining which agent caused the buyer to write an offer that results in the sale of the property. On the surface, it would seem simple to decide on, but it is not always that easy. The problem with these disputes is that until the presentation of all the facts procuring cause cannot be determined. For example, drafting the purchase agreement is not enough stand-alone evidence to award the drafter the commission.
Switching agents and customers
From an agents perspective, they can and will drop clients after working with them. The reasons can vary, but some of the most common causes are; client looking for a home with characteristics or neighborhoods they cannot afford, personality clashes, or the perception a customer is untruthful.
Homebuyers and sellers also drop agents. Some examples; an agent was not keeping their promises, puffing or furnishing incorrect information, lack of communication, not listening, and more. A buyer could walk into an open house on their own, fall in love on the spot, and the fear of loss may drive them into the hands of an agent they had just met.
These activities of both agents and customers create a reasonably large pool of potential procuring cause situations. Anecdotally, some agents will become exclusive buyer agents, then drop out of sight, and reappear at the closing looking for their buyer agent commission. Holding an exclusive buyer agent agreement in itself is not a guarantee of being paid by the listing broker.
Most often the brokers and agents involved can settle the disputes on their own, but if they cannot, the local real estate board will arbitrate.
Procuring cause disputes do not appear until after closing has taken place. It is considered unprofessional and contrary to the Realtor Code of Ethics for an agent to drag a customer or client into a commission dispute.
What constitutes earning the commission
When a dispute arises, the designated brokers and the agents gather the facts that took place or did not take place through the course of the events leading up to the closing. The following activities are the primary considerations (a time lapse is an additional consideration) that determine the outcome:
— Did the first agent make reasonable efforts to develop and maintain an ongoing relationship with the purchaser?
— Did the first agent actively maintain ongoing contact with the purchaser?
— Did the first agent’s inactivity, or perceived inactivity, cause the purchaser to reasonably conclude that the agent had lost interest or disengaged from the transaction, known as abandonment?
— Did the customer choose to work with the second agent because the first agent’s conduct caused the buyer to seek the second agent? This action is known as estrangement.
— Was there a series of uninterrupted actions that caused the completed transaction created by the agent awarded the procuring cause?
Ultra competitive business
Real estate sales are fiercely competitive, as can be the clients and customers. Agents work as independent contractors and pay all their operating costs. The average agent produces 12 to 15 transactions annually, so every sale counts. Homebuying customers and clients will sometimes wander around in the marketplace in the belief that they increase their chances for finding the right property. Expired listings with “protected buyers” expose listing agents to procuring cause. Alternatively, customers and clients can accidentally trigger a dispute not realizing how real estate works. The real estate environment is a crucible for conflicts.
— Richard Montgomery is the author of “House Money - An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He is a real estate industry veteran who advocates industry reform and offers readers unbiased real estate advice. Find him at DearMonty.com.