Is That Your Commission?

We have all been struggling through one of the most difficult markets of our lifetime.  This is a market which finds people particularly competitive for clients and commissions.  For this reason, there has been a bit of a spike in Procuring Cause Hearings.  In this climate, it is of particular importance that real estate agents understand the factors which are likely to be considered in the event of a dispute regarding Procuring Cause.

The Procuring Cause Guidelines published by the California Association of REALTORS® (“C.A.R.”) were set forth to assist realtors in understanding the factors which are considered when assessing Procuring Cause.  The Guidelines contain a chart of 25 factors and sets forth which factors favor the agent that closed the transaction, and which factors favor the agent that introduced the transaction.  Although this article will focus on only a few factors, every real estate agent is encouraged to locate this list on the C.A.R. website and become familiar with all of the factors.

While each dispute will vary depending on the facts, the parties and the panel, as a general rule the issues which tend to be most heavily considered are: (1) whether the agent claiming procuring cause was the first person to show the property to the buyer; (2) whether the agent claiming procuring cause wrote the offer that was ultimately accepted (or a substantially similar one); (3) the amount of time that elapsed between when the agent claiming procuring cause ceased to provide services and the closing of escrow; (4) whether the closing agent did something unique that caused the transaction to succeed which was not done by the original agent; and (5) how the buyer feels and what the buyer says about the agents and/or the transaction.

For the introducing agent, it highlights the importance of maintaining a thorough file, including a detailed log, as well as making sure everything is in writing.  Relying on a good relationship is great while that relationship is going well, but most often a Procuring Cause Dispute arises out of the fact that the relationship went sour.  As a result, it is most helpful to be able to show documentation of all efforts to avoid a revisionist history of what transpired.  In addition, it is also important to make sure to advise any subsequent broker of the efforts made so that broker is put on immediate notice.

For agents stepping into a deal, it is important to evaluate and communicate.  That agent should evaluate what has occurred and what risks might exist going forward with the buyer.  It is easier to walk away before investing a lot of time.  That agent should also communicate with the buyer and if possible the prior agent.  An advanced agreement with the original agent on some commission split, which is always easier to get before the money is sitting in escrow, may be a great way to manage the situation.  Beyond this, and as stated above, documentation will be a key factor in demonstrating what actually occurred.

Regardless of whether the agent is the original or the subsequent agent, many disputes can be avoided altogether by using a Buyer-Broker Agreement.  This creates a clear contractual relationship between the buyer and the agent.  Many agents do not use these forms, and they often do not come into play.  That said, the times they do matter, they often save a lot of time, money and aggravation.

Beyond the foregoing, as a reminder, before any agent begins working with any buyer, the agent should ask the buyer if they are working with any other agents.  This is not only an important step that should be taken for procuring cause purposes, this is also an affirmative duty imposed on all agents.  Once again, documenting such a discussion, even if through a gentle follow-up e-mail, is critical.

All this considered, the issue of Procuring Cause is an art not a science.  As such, there is never any certainty or guarantees as to how such a hearing will be decided.  For this reason, if you ever find yourself in a dispute, a sincere effort to settle is a wise course of action.  In this manner, you can have some control of your destiny and likely walk away with some amount of money for your efforts.  There is truth in the cliché: “a bird in the hand is worth two in the bush.”

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