As a real estate professional, the amount you're paid for each sale is often dependent on commission. And the average commission for the sale of a property is 6% of the purchase price.
But, how do you know you'll be paid fairly for the work you've done? This is where procuring cause comes into the picture.
Let's demystify the procuring cause and what it means for real estate professionals.
Procuring Cause Definition
A real estate broker is referred to as the procuring cause of a sale if their outreach and actions resulted in the sale or lease of a property. The broker who is the procuring cause of the transaction is entitled to a commission. In some cases, procuring cause disputes can arise between brokers or brokers and their clients.
The procuring cause determines who receives commission once the sale of a home is complete, and the payment goes to the broker whose actions led the client to buy. Issues can arise if a buyer works with more than one broker or agent during the home buying process.
For example, let's say one agent introduced the buyer to a property, and the buyer eventually purchased and finalized the sale with a second agent. If the agent claims they were the procuring cause of the sale, this could lead to a procuring cause dispute.
Next, we'll take a look at how the procuring cause can lead to conflict.
What is a procuring cause dispute?
A procuring cause dispute can occur after the sale or lease of a property. And a complaint is typically filed with the local real estate board by the agent who didn't receive a commission for the sale.
Procuring cause disputes are often settled through arbitration -- a dispute resolution technique that resolves the conflict outside of court. There are hearing panels that arbitrate disputes between real estate brokers, or between brokers and their clients.
According to the National Association of Realtors (NAR), "the objective of a panel is to carefully and impartially weigh and analyze the whole course of conduct of the parties," to come to a fair resolution for the parties involved. Once the panel deliberates and chooses who receives the commission or award for the sale, it can rely on the power of local courts "to support and enforce its arbitration awards."
NAR's Code of Ethics & Arbitration Manual includes a procuring cause arbitration worksheet which provides questions a hearing panel can use to mediate the arbitration. Below are a few examples:
- Who introduced the buyer or tenant to the property first?
- When was the first introduction to the property?
- Was the property introduced to the buyer or tenant at an open house?
- Did the buyer or tenant find the property on their own?
- Did the broker who made the initial introduction to the property maintain contact with the buyer or tenant?
- If more than one broker was involved, when did the second broker enter the transaction?
In many cases, the panel needs to consider a combination of many factors, which is why it's important the panel covers a variety of questions. Here are a few factors the hearing panel will consider when making a decision about who is entitled to compensation.
- Nature of the transaction
- Terms of the listing agreement
- Terms of the offer to compensate
- Roles and relationships of the parties involved
- Conduct of the broker, buyer, and seller
- Breaks in continuity (i.e., abandonment and estrangement)
Procuring cause disputes might not be preventable in every situation, but there are certain actions a real estate broker can use to decrease the likelihood of conflict. If the broker talks with the client at the beginning of their relationship, they can ask the client if they worked with a different broker earlier in their home buying process.
For example, if your client was shown a house by another broker and they signed a buyer-broker agreement with that broker, this is information you'd want to know. And if they signed an exclusive contract with the other broker, you knew about the contract and continued to work with the buyer, this could result in a dispute.
Understanding who the client worked with previously will alert you to the potential of a procuring cause dispute. To learn more about real estate, check out these real estate income questions and answers next.
This article does not constitute legal advice. The process of a procuring cause arbitration will vary, so you should seek your own legal advice to ensure you follow the correct process.
