What Is Procuring Cause In A Real Estate Transaction? How Commission Is Disputed

When you begin working with a real estate agent, you’ll be asked to sign an agreement that defines your relationship and how the agent will be paid. Circumstances can still arise that cause disputes over who earned what.

Let’s go over how commission disputes arise and how they’re resolved with the procuring cause of the sale.

What Is The Procuring Cause?

In real estate, the concept of procuring cause can be a real head-scratcher. When a buyer has engaged with multiple agents, it can be challenging to establish which one guided the home buyer to their purchase and should earn a commission on the sale.

The National Association of REALTORS^® (NAR) defines procuring cause as “the uninterrupted series of causal events which results in the successful transaction.”

This means the agent who earns the commission is the one who led the home buyer to the completion and closing of the home sale. If more than one agent is involved in the transaction, they could find themselves in a procuring dispute.

For example, if you’ve been working with one real estate agent but then you meet another agent during your house hunt, you could end up in this situation. If this new agent is the one who finally helps you purchase and close on a home (causing you to buy the property) – the second agent is the procuring cause.

How Do Real Estate Commission Disputes Happen?

When you decide on a real estate agent, you’ll be asked to sign a buyer agency agreement, sometimes called a buyer-broker agreement. This document is a conditional contract between the agent, their brokerage and the home buyer.

Parties enter these agreements with the best of intentions, but sometimes disputes arise. For example, let’s say you signed an exclusive agreement with Luka, a real estate agent, and Luka has worked with you for months.

But you met another agent at a party who said they had a new listing that sounds like just what you’re looking for. You might decide not to mention Luka for fear of discouraging Quinn from showing you the home. Quinn conveys an offer on your behalf, it’s accepted, and you prepare to close, ignoring Luka along the way.

Of course, Luka finds out about the sale. They present their exclusive buyer agency agreement as proof that they’re entitled to a commission even though you didn’t include them in the transaction. As the agent who actually performed the sale, Quinn feels entitled to the commission. Only one agent can be compensated, so now there is a commission dispute.

How Commission Disputes Are Resolved

As mentioned earlier, most buyer’s agency agreements specify that commission disputes will be resolved through arbitration. Let’s go over how arbitration works and resolves issues.

An Agent Files A Complaint

Arbitration is a popular way to resolve disputes from real estate transactions because it is quicker and far less costly than pursuing legal action.

In the case of a dispute between real estate agents, either agent can file an arbitration request with their state or local real estate board or REALTOR^® association to resolve the issue. Arbitration requests need to be filed within 180 days after closing.

Essentially, an arbitrator (usually an attorney but not a judge) agrees to follow relevant legal definitions and principles, reviews relevant documents and hears what the witnesses have to say. For commission dispute cases, the arbitrator will likely refer to the National Association of REALTORS^® Code of Ethics & Arbitration Manual as a guide.

Arbitration Is Decided

If the arbitrator determines that a hearing is necessary, a hearing panel of real estate professionals will be created to review and hear the case. This will allow for both parties involved to present their evidence and give testimonies.

The Arbitration Worksheet in the National Association of REALTORS® manual assists hearing panels or an arbitrator in understanding relevant issues and can be used when deciding what the procuring cause of the sale is. The hearing panel has 48 hours to make a decision on which party is awarded the commission.

If the other party wants to file an appeal, they must do so within 20 days after the decision was made.

How To Avoid Procuring Cause Disputes

Here are some tips to avoid a procuring cause dispute and keep the home buying process smooth:

Sign A Buyer Agency Agreement

The best way to reduce the chances of procuring cause disputes is to sign a buyer agency agreement. Once you get preapproved, you’ll interview buyers agents as you begin the house-hunting portion of your home buying journey. We may think of real estate agents as the person who shows us homes, but the truth is that they do so much more than just open doors for home buyers.

A buyer agency agreement is a written contract for the home buyer, their real estate agent and brokerage. It lays out everyone’s rights and responsibilities should the agent show the buyer the home they ultimately purchase. In other words, if they show you a house and you buy it, then they’ll earn a commission.

Communicate With Your Real Estate Agent

It’s also crucial to stay in regular contact with your agent throughout the home buying journey. An easy way to avoid disputes is to always contact your agent before looking at a home, regardless of how it catches your eye.

Don’t call listing agents whose names appear on a For Sale sign in front of a house you just drove by without calling your agent first. They’ll contact the agent directly and set up a time to see the house as well as negotiate on your behalf.

Follow Open House Protocol

It’s always smart to visit open houses with your agent to avoid any confusion related to procuring cause. However, if your agent is unavailable, you can still attend the open house. But remember to give your agent’s card to the open house agent or sign your agent’s name next to yours in the guest book. This way, your agent and the listing agent can follow up with each other later.

You don’t need to worry about somehow insulting a listing agent by bringing your agent into the deal. They prefer it. Agents have established commission-sharing structures in place.

The best policy is full disclosure all around. Tell the new agent you’re working with someone already, and then call your agent and tell them what you learned. They’ll arrange a convenient time and work together to get to the best deal possible for all parties involved.

The Bottom Line: Open Communication Will Help Avoid Real Estate Commission Disputes

Real estate agents are well-trained professionals who prefer full disclosure between buyers and other agents be established at the beginning of the relationship. If you’re working with one agent, keep them in the loop to avoid disputes over commissions and hard feelings in the future.

Ready to find the right real estate agent for you? Rocket Homes℠ can help!