Who Gets The Money?
Have you ever wanted to see a property and perhaps buy it, but the trusted real estate agent with whom you’ve been working for a long time is unavailable? Maybe you’re concerned that waiting might cost you the property. What do you do? What’s your proper course of action?
Buyers often simply call the listing broker and arrange to view the property, and if they like it enough to buy it, they then ask their “trusted agent” to draw up a contract. Unfortunately, this strategy can create a serious conflict between the trusted agent who wrote the contract and the listing broker who showed the property, especially if the contract proceeds to a closing of sale/purchase. Specifically, the brokers may disagree as to which broker has earned the portion of the commission that pertains to the buyer’s side, or “selling side,” of the transaction.
For most real estate transactions conducted through real estate brokers, the commission earned upon closing is split between the listing broker’s firm and the selling broker’s firm, with an agreed-upon portion going to each. Once paid to the respective brokerages, the portions are often further divided between the brokerage and the broker.
But in the example above, which of the brokers (the one who showed the property or the one who wrote the contract) is entitled to the “selling side” of the commission?
In our industry we have a concept known as “procuring cause”. The National Association of Realtors defines procuring cause as “the broker who initiated an uninterrupted sequence of events that results in the sale of the property” or more simply, the broker whose actions and efforts result in the sale. The broker who is determined to be the procuring cause is the one who is entitled to the commission.
Who makes that determination? If one or both of the disputing brokers are not Realtors®, the dispute is handled through the judicial system. However, if both are Realtors®, then they’re automatically members of their local board, respective state association (e.g. Colorado Association of Realtors) and the National Association of Realtors (NAR). As such, both brokers (who are entitled to use the title of “Realtor®” due to the aforesaid board/association memberships) are obligated via the NAR Code of Ethics to submit their dispute to a panel of their peers (other Realtors®) in a process known as arbitration. The decision of this hearing panel is binding.
The hearing panel considers such factors as which broker showed the property, which broker wrote the contract, which broker gave more assistance in answering questions about the property, financing, etc., how much time elapsed between showing and contract, did a broker alienate the buyer, and many more. No single action makes a broker the procuring cause.
So how can you as a buyer avoid creating procuring cause disputes? A few suggestions:
· Don’t call the listing agent for a showing.
· But if you do find yourself in a showing with the listing agent, make it clear to that agent that you’re working with another agent and provide your agent’s name and phone number.
· Enter into a buyer agency (“Exclusive Right to Buy”) agreement with your preferred broker. Explain to any other broker with whom you come in contact that you have a buyer’s agent and relay their name and phone number.
Published April 2022