Home buyers may not realize that they can jeopardize their real estate agent’s compensation in a real estate transaction by providing personal information to another agent at an open house, failing to formally end a working relationship with another agent, or even requesting information about a property through an agent’s Web site.
The National Association of Realtors has for decades maintained policies to resolve disputes that relate to “procuring cause” – a determination of which real estate professional started an ongoing chain of events that led to a completed real estate transaction. These policies are spelled out in the trade group’s Code of Ethics and Arbitration Manual.
In essence, procuring cause can block agents from stealing the deal away from another agent who is already working with a prospective home buyer. A real estate agent could have a valid procuring cause claim if that agent first introduced a consumer to a home that the same consumer later purchased while working with another agent.
But critics say there are fundamental flaws with procuring cause, and consumers are largely in the dark about policies that can channel a portion of the price they paid for their home to agents who they believed were no longer involved in the transaction.
“Procuring cause can take away from the income of an agent hired to do the work. Consumers should be aware of that. Consumers expect the person who does the work should be the one who gets paid,” said Tom Early, president of the National Association of Exclusive Buyer Agents, a group supporting agents who work only for home buyers. But the policies in place allow an agent or agents who formerly communicated with the buyer to make a claim for all or part of a commission.
Even if a buyer has entered into a written contract to work exclusively with a real estate agent, a Realtor arbitration panel could determine that another agent who previously worked with that buyer is owed payment for previous work performed.
“Procuring cause is NAR’s biggest secret,” Early said. The existing policies, he said, can benefit listing agents and brokers. This, he said, is because listing agents and brokers can potentially use procuring cause to make a claim to both sides of a real estate transaction: the listing side of the transaction and the purchase side of the transaction. If a buyer contacts a listing agent at an open house and then revisits that house with another agent and decides to purchase the home, the listing agent could potentially make a claim at compensation under the procuring cause policies.
“Procuring cause should simply go away. It’s an antiquated system. Buyer agents should earn their fee according to the contractual agreements they enter into with buyers. We need to have honest, contractual agreements on both the buyer’s side and the seller’s side,” Early said.
Under procuring cause, the listing agent’s side of the transaction is not in dispute – rather, it is the compensation on the buyer’s side of the transaction that is in dispute. There are cases, though, in which a listing agent represented both the seller and buyer in a transaction and there is a claim by another agent for compensation on the buyer’s side of the transaction.
National Association of Realtors policies provide for an arbitration process to resolve procuring cause disputes without litigation. The association has noted an increase in the number of cases that are now resolved through mediation even before reaching the arbitration process.
Cliff Niersbach, the association’s vice president of board policy and programs, said the association has revisited procuring cause policies several times over the years and made many changes. “Frankly, the organization has looked for a simpler method of resolving these disputes almost constantly for the last 30 years. The problem is finding one that’s fair.”
Arbitration panels consider a number of factors in procuring cause disputes, he said, and the association’s policies provide for a long list of items to consider. “It’s a fairly intensive examination that the panel members have to go through. Essentially (the panel) looks backward from a successful transaction. What is the genesis of this? What initiated the unbroken series of events … that resulted in a successful transaction? If you are the Realtor and you can define that you started that chain of events, then you are the procuring cause,” he said.
One of the reasons that brokers try to register consumers at a Web site or an open house is to keep a record of interactions with that client in cases of procuring cause, he said.
The association doesn’t take an active role in educating consumers about procuring cause, Niersbach said. “Essentially the buyer and the seller are out of the loop in most cases when it gets to this point” in becoming a procuring cause issue, he noted. “They generally don’t have a stake in the outcome of this.”
Determinations of Realtor boards’ arbitration panels and mediation sessions are confidential and are not published. Niersbach said that procuring cause is a fairly common issue in arbitrations. Mediation proceedings are gaining favor among Realtors, he said, and “I fully expect in the next five years that arbitration will become the rare exception.”
Ultimately, the most important output is restoration of positive, cooperative relations between the formerly disputing parties.”
Theoretically, a buyer’s electronic contact with an agent about a specific property that he/she ended up purchasing could be used to establish procuring cause, though experts say they haven’t yet seen such a case.
“I have not heard anyone say, ‘We began a chain of events because the client gave us information on the Web site,’ but I can see that coming,” Early said.
Brenda Florida, a managing partner for Century 21 Alliance in Lansdale, Pa., said she has personally been involved in procuring cause disputes and in her local Realtor board’s grievance committee process through which procuring cause complaints are received.
Florida said she coaches her agents to explain to buyers that they need to avoid any uncertainty about which agent they choose to work with. She recommends that agents tell buyers, “Make me do my job. If you don’t think I’m doing my job, fire me and know that I am not going to make a claim for procuring cause.”
She said she believes it’s time to take a fresh look at procuring cause. “I think it’s a practice that has probably outlived its usefulness. I question the validity of a practice that allows you to be paid when you didn’t do the job that you’re getting paid for.”
Consumers, if they are aware of the practice, have cause for alarm, she said. “Now I find out that my hardworking Realtor’s commission could be in jeopardy from (a Realtor) who I don’t want to work with. How meaningful is a practice that can allow an agent who has behaved unethically … to earn a commission? I think the time has come for Realtors to be accountable for what they do and only expect to be paid when they complete the job.”
Tom Wemett, a founding member of the National Association of Exclusive Buyer Agents who is retired from the real estate brokerage business but is still active as a consultant, has written guides about procuring cause, and in the past month published a new paper on the subject, titled, “One Date You’re Married.”
The guide tells home buyers that they may have put their agent at risk of a procuring cause dispute if they have signed in during an open house tour, called a real estate agent for information about a property listing, toured one or more homes with one or more salesperson or broker, or provided their e-mail address over the Internet to receive property listing updates.
“If you make contact with a real estate salesperson or broker who supplies you with information about a property or who shows you a property, they can make a claim to be paid a commission even though you purchase that property through another agent or even directly through the seller,” according to the guide. “You in essence have become married to that agent after one date or maybe just a handshake.”
Wemett said he has seen several cases in the past six months in which fee-for-service and discount brokers who worked directly with buyers were challenged by agents who said they have a claim to a buyer-side commission for a previous relationship with the buyers. Agents representing buyers “really need to question the buyer very closely” to determine if there could be a procuring cause claim, he said.
Wemett also said he questions whether arbitration panel members have received adequate training and are completely unbiased in the hearing process toward all business models.
“A lot of these associations just do not have the staff that are professionally trained enough to make sure these panels are unbiased,” he charged.
But Jonathan A. Goodman, a real estate lawyer in Colorado who has worked with real estate professionals involved in procuring cause disputes, said he believes the Realtors who serve as arbitration panelists are well equipped to handle the hearing process. “They have a much better grounding in the relevant issues than a judge or jury would. They’ve been involved and been burned on both sides, and I think they have a keen eye for sifting through the skin of the witnesses,” Goodman said.
Early, who himself participates in Realtor arbitration panels, said, “I would say that people who sit on those committees do their darnedest to get it right but sometimes that’s not the case. It’s almost on a market-by-market basis and has to do with the sophistication of the professional standards committees that are hearing these cases.”
Every local Realtor association or board has a Professional Standards Committee, Niersbach said, and Realtors are appointed by association presidents to serve on these committees. Ethics and arbitration hearing panel members are drawn from these committees.
“Many associations require orientation or training, or both, before committee members can serve on panels,” Niersbach noted. Mediators, meanwhile, can be drawn from the committees of a local association, though that is not a requirement.
“In some cases, (mediators) can be the association executive or a staff specialist. In a few cases association legal counsel serves,” he said.
Goodman said he believes that a buyer’s testimony – or silence – can be a key to procuring cause cases. “If I have the buyer I’m pretty sure I’m going to win. If I don’t I’m pretty sure I’m going to lose. Buyer’s testimony is key.”
The broadening geographic range of some real estate brokers could lead to an increase in the volume of procuring cause complaints, Goodman said. “I personally have noted an increase in consultations of procuring cause disputes,” he said, while the number of cases that actually reach arbitration have not appeared to grow. The mediation and arbitration process “is a pretty efficient way of resolving disputes,” he said.
While procuring cause disputes are not uncommon, Niersbach said the National Association of Realtors does not specifically track statistics related to the number of procuring cause-related disputes. “The majority of our dispute resolution focuses on broker-to-broker disagreements, and in those types of disputes procuring cause is the determiner.”
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