The residential real estate business is quite competitive, and it is no surprise that from time to time disputes between agents rise to a level that calls for formal arbitration. One of the most common real estate arbitration themes has to do with claims to a commission. Generally this involves agents who have worked with the same buyer, and the issue is which agent is the one who has earned a commission by “…procuring a buyer which ultimately results in the creation of a sales or lease contract.”
Such disputes are commonly referred to as “procuring cause” cases, and for years they have given the brokerage community fits. What has been especially troublesome is the fact that there has seemed to be little consistency between procuring-cause arbitration rulings from one jurisdiction to the next, or even from case to case within a given jurisdiction. In large part this inconsistency has been explained by the alleged fact that arbitrators have not had a clear set of guidelines to help them come to their conclusions in particular cases.
Some years ago, after long and often-heated debate, the directors of the California Association of Realtors® (CAR) approved a document, Procuring Cause Guidelines, that could be used “to assist arbitration panelists in deciding which of multiple brokers is the procuring cause of a given transaction.” The document also received approval from the National Association of Realtors® (NAR). Its use by a local association is strictly voluntary.
The Guidelines do not present a method that will definitively yield a decision in any particular procuring cause case. Rather, they provide a factors chart which, appropriately enough, gives guidance to panelists with respect to the sorts of questions they should be asking and the kinds of circumstances they should be considering.
One thing, though, is clear. “Procuring Cause is a factors test that doesn’t necessarily have one triggering event that will give a sure result.” There is no one crucial factor. That fact that Broker A introduced the buyer to the property does not, in and of itself, mean that Broker A is the procuring cause. Conversely, even if Broker B wrote the offer that was ultimately accepted, that doesn’t necessarily mean that Broker B is the procuring cause.
Generally, a procuring cause complaint is filed by the broker who did not receive the commission. “The broker who files the arbitration complaint carries the burden of proof to demonstrate, by a preponderance of the evidence, why he or she is the procuring cause of the transaction and is, thus, entitled to the commission…” “A number of relevant factors, including the behavior of the involved brokers and the reason the buyer left the first broker, would be used by the panel to decide who gets the commission.” Hence the factors chart.
“For purposes of the chart, Intro Broker is the one who did not ultimately write the contract, and Closing Broker is the one who wrote the contract that was ultimately accepted and performed services through escrow to close the transaction.” The chart is divided as follows:
A. Connection to the Transaction. Factors 1-7 include the relationship of both brokers to the buyer in this particular transaction.
B. Buyer’s Choice. Factors 8-10 focus on why the buyer left the Intro Broker.
C. Broker Conduct. Factors 11-18 focus on the conduct of the Closing Broker.
D. Other. Factors 19-24 deal with contractual and other miscellaneous issues that are relevant to the ultimate decision.
Some examples of relevant factors: “Did a significant amount of time elapse between the time the first broker showed the property and the closing broker actually wrote the offer?” If so, that factor favors the closing broker.
“Did the closing broker instruct the buyer to shop with other brokers, and then return to him/her when the buyer was ready to make an offer?” An affirmative answer would favor the Intro broker.
“Was the closing broker a listing broker who offered to ‘cut the buyer a deal’ by lowering the commission if the buyer made an offer directly through him/her?” That too would favor the complaining broker.
The factors list goes on and on (six pages), and covers most situations that are liable to arise. It doesn’t give numerical weighting to various answers, and doesn’t yield a computable decision. There is still room for judgment. Nonetheless, it gives arbitrators much clearer guidelines than they once had.
Bob Hunt is a CAR director and is the author of Real Estate the Ethical Way. His email address is [email protected]