Legally speaking: The case of the secret buyer agency agreement
On January 3, 2017
By Peg Ritenour, OAR Vice President of Legal Services/Administration
The OAR Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law, our “Legally Speaking” series spotlights some of the timely questions that are being asked by REALTORS. The following addresses a commonly asked question pertaining to procuring cause…
Q: I listed a home in a very hot market that has a low inventory. A buyer attended an open house and immediately decided to write a full price offer, which was ultimately accepted. Within days I got a call from another broker who said she represented the buyer and had a written exclusive buyer agency agreement with the buyer. She claimed that I had violated the Code of Ethics because I should have asked the buyers if they were represented. She also claims that I owe her a commission that was offered in the MLS. The buyer never mentioned that he was working with another broker and that broker never showed the property to the buyer. Did I do anything wrong? Do I owe this broker a commission?
A: This is an issue that is addressed by both the license law and the REALTOR Code of Ethics. It also involves the issue of procuring cause.
First, let’s look at the license law provisions. Ohio Revised Code Section 4735.18(A)(19) provides that a licensee cannot negotiate directly with a seller or buyer who they know is subject to a written exclusive agency agreement with another licensee. Administrative Code Section 1301:5-6-09 further provides that a licensee is not required to ask a buyer if he is working with another agent unless there is reasonable cause to believe the buyer may be represented by another licensee. In that case, a licensee is required to inquire as to the nature of the relationship. In your scenario, the buyer did not mention that he was represented by another broker. Therefore, unless you had some other reason to know that such a relationship existed, it does not appear that you had a duty to inquire or violated the license law by writing this offer for the buyer.
However, NAR’s Code of Ethics creates a higher ethical standard for REALTORS. To avoid interfering with the agency relationship another REALTOR may have with a buyer, Standard of Practice 16-13 provides that REALTORS must ask prospects if they are a party to an exclusive representation agreement before providing any substantive services. This includes writing an offer. Thus, under the NAR Code of Ethics, even though the buyer didn’t mention that he was working with another broker, you had a duty to ask the buyer if he was subject to an exclusive agency agreement before writing an offer. The determination as to whether you violated the Code of Ethics would be up to a Professional Standards panel if this broker chooses to file an ethics complaint with your local board of REALTORS.
The issue of whether you owe the buyer’s broker a commission, however, is a separate issue from the Code of Ethics. As a REALTOR, if this other broker believes you owe her a commission, she is required to file for arbitration with your local Board of REALTORS. In order for you to be obligated to pay the buyer’s broker, that broker must establish that she was the procuring cause of the sale. Under the NAR guidelines, the fact that a broker has a written exclusive buyer agency agreement will not, by itself, automatically entitle her to the compensation offered to buyer brokers in the MLS. Instead, this broker must demonstrate that she was the procuring cause of the sale, which will be based upon the entire course of events that led up to the procurement of a ready, willing and able buyer. That may be very difficult for the other broker to establish if she never introduced or showed the property to the buyer or wrote the offer to purchase.
To conclude, while the fact that the other broker has a written exclusive buyer agency agreement with the buyer may obligate the buyer to pay this broker a commission, it doesn’t obligate you to pay the buyer broker unless that broker can establish she was the procuring cause of the sale.
More information on procuring cause can be found by clicking here.
Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.
Tags: legal, Legally Speaking