Procuring Cause and the Arbitration of Broker Commission Disputes

April 4, 2024
New and Existing Licensees

For more than one hundred years, real estate professionals have worked together for the common good of home buyers and home sellers. It is remarkable how friendly and harmonious the relationship between competing brokers and their agents has been over this time. Occasionally, however, one buyer may interact with more than one agent in the search for and acquisition of a property.

This can trigger a question as to which agent is considered to be the procuring cause of the sale. The answer to this question is important since the procuring cause of the sale is generally considered to have earned any commission offered by the listing agent’s broker (as authorized by the listing agent’s seller-client).


Procuring Cause as defined from the “Street”

Let’s listen to the following conversations to see if we can glean some insight on procuring cause:

Agent 1: I talked to the buyer over the phone before anyone else and I even emailed her 14 listings from the MLS. Doesn’t that make me the procuring agent?

Agent 2: I listed a seller’s home. During the listing, the seller purchased their next home with another agent. Doesn’t being the lister mean I have “first dibs” on selling “my clients” their next home?

Agent 3: I showed my buyer-customers several MLS properties. My buyers went back to see one of these properties which was being held open by another agent who stole them and wrote the deal. An open house should not be used as a buyer trap!

Agent 4: I don’t care if the other agent showed the home first. Big deal, anybody can show a home. I was the one who actually got the buyers to sign the offer. I’m keeping my earned commission!

Agent 5: I got a floor call from a prospective buyer and emailed her all of the active listings in Michigan. It took me all day todo this! The buyers took my list and went to XYZ Realty where some other agent sold them one of the properties that was on the list. I provided the list which means the buyers were mine!

Agent 6: I worked with these first-time buyers for five weeks. I showed them 30 properties and built a great friendship. I even got invited to their kid’s birthday party. Then, a couple of weeks later at a wedding, my buyers bumped into a cousin with a real estate license who sold them a different home. Since I invested all that time, that makes me the procuring cause for anything the buyers purchase!

Agent 7: I have an agency agreement with a buyer who turned around and purchased from their neighbor who just got her real estate license. Having a buyer’s agency contract automatically makes me the procuring cause of sale!

Agent 8: Once a property is shown by an agent, everyone else has to back off for a couple of weeks. I heard one of the agents in our office say it’s in the rules!

If you are an experienced agent, some of these proclamations may sound eerily familiar. While the urban legends surrounding procuring cause abound, the National Association of Realtors® (NAR) has along-standing, clear definition. What is not always so clear, however, is how to best apply this definition to an emotionally charged set of real-world facts.


Procuring Cause as defined by NAR

We Realtors® like clear, easy-to-comprehend lines of legal demarcation, or what attorneys call “bright line tests,” for determining right from wrong. Who doesn’t? However, traditional lines appear to be shrinking with the resulting gray area expanding faster than ever with the Internet and social media. In other words, there seems to be more opinions and not enough researched answers.

NAR primarily relies on the legal definition of procuring cause as it is articulated in Black’s Law Dictionary:

The cause originating a series of events which, without break in their continuity, result in the accomplishment of the prime object.

To better understand the legalese, let’s divide it into five elements:

The cause [Who] originating a series of events [initiated the necessary actions] which, without break in their continuity [that, without interruption], result in the accomplishment [caused] of the prime object [the sale of the property].

Without intending to oversimplify an important concept, the above interpretation suggests that procuring cause may be the logical answer to the following question: Who initiated the necessary actions that, without interruption, caused the sale of the property?

It’s important, however, not to focus too much attention on who originated or initiated the actions. Procuring cause focuses more on the “series of events” than who the first person was to introduce the property to the buyer. This is why the second agent to enter the fray may, in fact, be the one responsible for the sale coming to fruition. Only by balancing the “whole course of conduct” can an arbitration hearing panel fairly award a commission.


Factors for consideration by a hearing panel

There are six key factors that a Realtor® Arbitration Hearing Panel is asked to apply when making a procuring cause determination. While each one is important, pay particular attention to Factor6, Consideration of the entire course of events, for it summarizes the comprehensive manner in which procuring cause is determined.

1. No predetermined rule of entitlement: Understanding that every arbitration hearing must be viewed in light of all transaction events, it follows that all relevant facts must be considered. Accordingly, no Arbitration Hearing Panel can impose a one-size-fits-all, rule-of-thumb for determining procuring cause. This means that questions such as “Who first showed the property?” (which is sometimes referred to as The Threshold Rule), and “Which agent was able to obtain the buyer’s signature on the offer to purchase?”(which is often referred to as, The Ink Rule), cannot be used as sole determining factors. Nonetheless, such questions are appropriate facets of the entire course of events.

Further, the fact that one broker may have a buyer agency contract with the buyer while the other broker did not should not be the sole deciding factor for determining who was the procuring cause of the sale. Similarly, the fact that the buyer may prefer to subsequently work with a relative who just obtained a real estate license should not be the sole factor. The buyer’s preference, while important to the buyer, cannot be the sole determining factor for procuring cause. Instead, we allow an expert hearing panel of experienced real estate professionals to render the decision (rather than the untrained buyer).

2. Arbitrability and appropriate parties: Article 17 of the NAR Code of Ethics requires that real estate-related contractual disputes between Principal Realtors® associated with different firms must be arbitrated at the Association rather than litigated in a court. For example, a listing broker makes a seller/client-approved offer of compensation via the proper communication channels in exchange for cooperation by a selling broker. This offer is contractual in nature. If an agent licensed under Selling Broker A and an agent licensed under Selling Broker B both claim to be the procuring cause of the sale, they are, in essence, claiming to have accepted the Listing Broker’s offer of compensation by locating the buyer who purchased the property. Accordingly, both selling brokers claim entitlement to the disputed compensation.

3. Relevance and admissibility: Arbitration hearings in Michigan do not have to abide by the same rigid rules of procedure that are required in court proceedings. As a result, the parties to an arbitration are generally afforded a less restrictive opportunity to “have their say” and present their desired evidence during an arbitration hearing. Parties are always able to bring their respective legal counsel as well. While the arbitration is conducted between the Principal Realtors® (i.e., company brokers), the broker’s affiliated licensees may attend the hearing at the discretion of their respective broker.

4. Communication and contact–abandonment and estrangement: The development and maintenance of an ongoing relationship between a selling agent and a buyer is often key to being the procuring cause of a sale. These relationships can be affected by the activities, or in activities, of the selling agents. For instance, did a particular selling agent’s actual (or perceived) inactivity or lack of responsive communication lead the buyer to believe that the selling agent was no longer interested in working with the buyer? The buyer may have logically concluded that he or she was abandoned by the 1st agent and justified in seeking the services of the 2nd agent to complete the purchase and sale.

Alternatively, certain words, actions, or conduct by one selling agent may drive the buyer into the hands of a different selling agent. Assume, for example, that the 1stagent made an offensive, insensitive, or otherwise an inappropriate statement to the buyer. As a result, the buyer refused to continue working with the 1stagent. This is an example of estrangement. Both abandonment and estrangement, if present or claimed, are important additional factors to be considered by an arbitration hearing panel.

5. Conformity with state law: NAR’s system of arbitration must conform with Michigan law (which it essentially does).

6. Consideration of the entire course of events: Determining procuring cause presents a unique challenge to modern licensees who operate within a highly competitive environment. Whenever multiple selling agents compete for a limited pool of buyers, conflict over who actually “sold” the property can develop. Mapping out the series of events in a transaction that leads to a determination of procuring cause sometimes remind one of a Rube Goldberg Machine (refer to a picture of the Hasbro, Mouse Trap game).

Most agent-envisioned interpretations of procuring cause do not allow for consideration of the multiple possibilities that exist in an actual transaction. For example, does “originating a series of events” require that the subject property actually be shown? Could it suffice that the 1stagent in the transaction merely introduced the property in some way rather than actually showing it? This leads to another layer of questions such as, “Does introduction mean physically showing the property in detail?” or “Would it suffice to email a list of properties and then talk about the details with the prospective buyer after the buyer drives by the properties?”

Exploring this further, examine the following question, “Was the introduction instrumental in creating the desire to purchase?” What if the 1st agent actually showed the property, and the buyers did not become excited until they returned to see it when it was being held open by the 2nd agent? Are we going to start awarding commissions to the agent with the best selling skills? While I highly doubt that procuring cause will ever come to this, one can certainly see how the confusion may arise.

According to NAR guidelines, each transaction is unique thereby rendering it impossible to develop a single comprehensive list of all issues or questions to consider. Asa result, the “entire course of events” brought to bear on the transaction by the respective agents must be fully weighed. To accomplish this, a fusion of judicial temperament, fair play, and common sense is helpful. Agents are often best served by asking themselves these same questions before a problem arises rather than waiting for a hearing panel to provide the answers for them.


Claims of unethical behavior in an arbitration

The cry, “I should be awarded the commission because the other agent was unethical,” is often heard uttered in connection with procuring cause conflicts. To the aggrieved, this may seem like a logical rationale for awarding him or her the commission. Nevertheless, NAR has a clear policy against using the Code of Ethics as a club or lever to settle a business dispute over commission entitlement. As strange as it sounds, it is technically possible to act in an unethical manner and still meet all of the qualifications as the procuring cause of the sale.


Arbitration versus Ethics

An arbitration hearing involves a money dispute, arising from a common transaction, in which real estate services have been rendered. An ethics hearing, on the other hand, involves a broader offense against the Association and its members generally. According to this premise, when one member acts in an unethical manner, it hurts the reputation of all members in the eyes of the public. There are separate sanctions carved out to address unethical behavior and one of them cannot be the taking away of a duly-earned commission as the procuring cause of the sale.


Brief procedural review

An arbitration request is filed with the Association by the broker-complainant. Upon receipt, the Association refers it to what is known as the Grievance Committee.

Role of the Grievance Committee (GC): The job of the GC is to determine if an arbitration hearing is warranted under the circumstances. The GC does not hold hearings or arbitrate a dispute. If the request is properly completed, the appropriate parties are named and qualify, and it is filed within 180 days after the closing of the transaction, the GC sends it to the Professional Standards Committee for arbitration by a select hearing panel.

Role of the Professional Standards Committee (PSC): The PSC serves as a pool of potential panelists who agree to be available to participate in individual (and separate)ethics and arbitration hearings. An odd number of panelists is selected foreach proceeding, generally three depending on the local Association. One of the panelists is appointed to chair or conduct the hearing. Since constitutionally-mandated due process requires a fair and unbiased hearing, no panelist can be related by blood, marriage, or employment to either of the disputing parties.

Attendance: Attendance at the hearing is limited to: (1) the parties and their respective attorneys and/or witnesses; (2) hearing panel members; (3) board staff and/or counsel; and, (4)a court reporter, if any. Witnesses are dismissed from the hearing after providing their testimony.

The award: The arbitration award will be in writing, signed by a majority of the panel, and include only the amount of the award. Policy strongly recommends that the hearing panel render a “winner take all” decision. It is too easy for a panel to try to satisfy everyone by splitting the amount in controversy. The uniform splitting of awards, i.e., taking the easy way out, tends to promote less than thoughtful dissection of the entire course of conduct by a hearing panel. In other words, why bother with the hearing when the outcome is already preordained?

Award splitting also breeds less than meritorious claims by agents who might not otherwise file a tenuous claim and risk the filing fee. The thought behind this reasoning says, “If I really don’t think I have a strong case, but my Association usually splits awards in half to make everyone a little happy, then why not pay the filing fee and grab half of the other agent’s duly earned fee?” This is obviously not the appropriate way to initiate or resolve a procuring cause claim.


Procuring cause preventative tips

It is important to remember that there is no way to absolutely predict the outcome of an arbitration hearing nor guarantee that you will not have a request to arbitrate filed over a deal in which you participated. There are, however, certain practices that can reduce the risk of such an occurrence. The following list is not intended to be all-inclusive. Often, issues you may never have thought of during a transaction suddenly “pop up” during an arbitration.

As an initial preventative strategy, consider these easy-to-follow points:

1. Give your best efforts in every transaction while, at all times, embracing the fundamental truth of the Golden Rule.

2. Provide all statutory disclosures in a timely fashion, especially the required Agency Disclosure Form. Take care that the prospective buyer or seller addresses the “Does/Does Not have an agency relationship with any other real estate licensee” located above the “Acknowledgment” section at the bottom of the agency disclosure form.

3. Keep careful notes and records along with copies of all contracts, forms, and disclosures. Include in your notes any unusual facts, circumstances, or demands made by clients or other agents.

4. Abide by all company policies and procedures, without fail, unless a policy modification is warranted by circumstances and formally authorized by your broker or manager.

5. Inquire, where appropriate, if a prospective buyer is working with another agent.

6. According to Article 16 of the Code of Ethics, Standard of Practice 16-9, REALTORS®, prior to entering into an exclusive agency agreement, must make reasonable efforts to determine whether the prospective client is already obligated under an exclusive contract to provide the same type of service. Further, Standard of Practice 16-13 requires a REALTOR® to ask prospects if they are a party to an exclusive representation agreement before the REALTOR® provides “substantive services” such as presenting a CMA or writing a purchase offer. Such an inquiry may play a vital role in establishing or protecting a claim in a subsequent arbitration.

7. If you discover that your customers or clients were previously working with another agent on the same transaction, attempt to determine if they have discontinued their relationship with the other agent and, if possible, why. In the case of a salesperson, immediately inform your broker or manager of any such developments.

8. Consider contacting the other agent to settle any possible procuring cause issues before they fester into an arbitration hearing and bitter feelings (salespersons should let their broker or manager handle this). Sometimes a referral fee, offered in good faith, can work wonders. Keep in mind, however, that your first duty is to your client and the transaction. You should not allow a potential procuring cause conflict to interfere with the flow of the transaction. If a disagreement between selling agents cannot be averted in this manner, you should allow the deal to move forward without hindrance and the broker will stake his or her claim to compensation by filing a request for arbitration(within the 180 days requirement).

9. If you are acting as a buyer’s agent, make certain that you have obtained the proper documentation including a fully completed and signed agency disclosure form and broker-approved buyer’s agency agreement.

10. Whether acting as a buyer’s agent, subagent, or transaction coordinator, maintain close and frequent contact with your buyers. Be accessible and responsive. A common mistake made by real estate licensees is poor communication. Think back to how you felt during your last one-hour wait in the doctor’s office, and then the examination room, only to be treated to a rushed, five-minute visit by anon-the-fly doctor.

11. Never refer your customers or clients to an open house hosted by another agent or company without accompanying them. Supply your buyers with your business cards and provide instructions on their use in case they ignore your illuminations about attending an open house without you accompanying them.

12. If hosting an open house yourself, maintain a complete registry of all prospective buyers who preview the property, including dates, times, and notations of those buyers who either are accompanied by agents or indicate that they are working with another agent. If an unaccompanied buyer does not mention that he or she is already working with another agent, the host agent should make an inquiry.


Bottom line

While arbitrations are sometimes necessary to protect a duly earned commission, it should not be a primary tool for creating income as a real estate professional. You are best served by being as productive as possible and understanding that, occasionally, another agent may attempt to lure your buyer away. If this happens, know that arbitration is a time-honored mechanism that can be used to resolve the matter. Now go forth, be productive, and become the procuring cause of as many transactions as possible!

Note: The opinions expressed in this article are strictly those of the author. This article is not intended to serve as a substitute for consultation with an attorney. No representations or warranties are herein made. Further, licensed sales associates must always refer commission-related matters to their broker or manager.

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