As a real estate professional, the amount you're paid for each sale is often dependent on commission — and the average commission for selling a property is 5-6% of the purchase price.
So, 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, what it means for real estate professionals, and how you can prevent disputes before they even begin.
- What is procuring cause?
- Real Estate Procuring Cause
- Procuring Cause Dispute
- How to Prevent Disputes
What is procuring cause?
Procuring cause is the determining act or effort that successfully acquires a customer or transaction. It's the pivotal action or factor that initiates, facilitates, or brings about a specific desired outcome in a given context.
In a general sense, procuring cause is the reason for a successful transaction, so what does that look like for real estate professionals?
Real Estate Procuring Cause
Real estate procuring cause refers to the act or effort that led to a real estate agent successfully acquiring a customer for a business. It's the decisive action or connection that ultimately leads to the sale or transaction taking place.
For example, a real estate agent is referred to as the procuring cause of a home purchase if they are the one who caused the buyer to purchase a home.
Now you can imagine how this cause can be the source of some disputes. 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.
What is a procuring cause dispute?
A procuring cause dispute is a complaint is typically filed with the local real estate board by the agent who didn't receive a commission for the sale. It can occur after the sale or lease of a property.
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 customers.
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.”
Procuring Cause 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 the panel should cover a variety of questions. Here are a few factors the hearing panel will consider when deciding 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 a real estate broker can take certain actions to decrease the likelihood of conflict.
How to Prevent a Procuring Cause Dispute
1. Exclusive Right-to-Represent Agreement.
A real estate professional should issue an Exclusive Right to Represent (ETR) agreement to protect and reward their efforts and expertise. This agreement establishes a clear relationship between the professional and the customer, granting exclusive representation rights to the real estate professional. It helps prevent the customer from working with multiple agents simultaneously and increases the likelihood of earning a commission by providing a legally binding agreement that outlines the terms and commitments of the partnership.
2. Nonexclusive/Not-for-Compensation Agreement.
When a real estate professional opts for a Nonexclusive/Not-for-Compensation agreement, they indicate that they don‘t wish to have exclusive representation rights or receive payment for their services. This agreement enables the professional to offer assistance or advice without expecting any commission or financial compensation in return, and it doesn’t restrict the customer from working with other agents simultaneously.
3. Agency Disclosure Agreement
Working under an Agency Disclosure Agreement establishes the type of relationship between a real estate professional and a customer, such as being a seller‘s agent, buyer’s agent, or dual agent. It manages expectations, avoids conflicts of interest, and ensures compliance with legal and ethical requirements. This agreement protects both the professional and the client by clearly defining their responsibilities and duties during the transaction.
The procuring cause gives credit where it's due.
Understanding who the customer worked with previously will alert you to the potential of a procuring cause dispute. Ensure you receive credit for your hard-earned labor when it's time for commission to be paid.
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.
Editor's note: This article was originally published in January 2019 and has since been updated for comprehensiveness.