A. Procuring Cause is Still the Rule of Law.
With the advent of Buyer Agency, two schools of thought developed. The first school advocated a replacement of the concept of procuring cause with buyer agency. In other words, supporters of this theory argued that a cooperating broker who had an agency relationship with the buyer or tenant should automatically be entitled to the selling share of the commission whether he was the procuring cause of the sale or not. His rights to the commission should be based upon his contract with the buyer/tenant, not based upon any contractual relationship between the listing broker and the cooperating broker.
The second school of thought argued that buyer agency was irrelevant to a determination of commission rights between a listing broker and a selling broker. The listing broker is not a party to the agreement between the buyer and the buyer’s agent, and therefore, that contract should not control the listing broker’s obligation to share the real estate commission. Moreover, procuring cause is a concept designed to produce equity and fairness in real estate disputes, and the elimination of procuring cause jeopardizes the likelihood of fair and equitable outcomes.
Very shortly after these two schools of thought began competing for the approval of NAR, NAR came out strongly endorsing, even mandating, the second school of thought. Procuring cause has not been replaced by buyer agency. Procuring cause is still the rule of law that must be used in determining commission disputes. Buyer agency may be one factor the Arbitration Panel needs to take into consideration, but it is just that – one factor that may or may not have relevance to the determination of procuring cause.
The best examples of the interplay between buyer agency and procuring cause are found at Appendix 1 and II to Part Ten of NAR’s Code of Ethics and Arbitration Manual which is attached hereto and incorporated into this paper. Appendix I and II contain an excellent discussion of procuring cause, guidelines for the determination of procuring cause, and examples of how commission disputes might be decided when procuring cause runs head long into claims of buyer agency.
Buyer agency has brought many changes to the practice of real estate. For example, NAR substantially revised its Code of Ethics, reorganizing, eliminating and rewriting many of the Articles – perhaps the first substantial revision since the Code was originally enacted in 1913. Moreover, Multiple Listing Service rules and regulations have been modified to recognize that the placement of a listing in the multiple listing service can now constitute an offer of cooperation to both subagents and buyer’s agents, not just subagents as formerly the case. Furthermore, listing brokers no longer need to offer subagency; they can limit their offer of compensation to buyer’s representatives. An offshoot of these changes and other changes is to preserve procuring cause as the rule of law in resolving commission disputes.
In addition to the examples discussed in Appendix I and II to Part Ten of the Manual, there are a couple of fact patterns that commonly find their way into commission disputes before local Boards in Ohio. Perhaps the most common is the open house situation.
B . Open Houses
In the typical open house situation, a listing broker schedules an open house which is attended by potential buyers. Those buyers may or may not be accompanied by the real estate licensee with whom they are working. Moreover, their real estate licensee may or may not be a buyers’ agent, that is, he may or may not have entered a contractual relationship, express or implied, with the buyers. Furthermore, the potential buyers may have found the open house with the effort and assistance of the licensee with whom they are working, or they may have found the open house on their own. In those situations in which the potential buyers actually purchase the property, often both the listing broker, who was present at the open house and showed the property to the buyers initially, and the broker with whom buyers had been working, claim a right to the real estate commission. It has been estimated that well over one-half of the commission disputes coming before Arbitration Panels fall somewhere within this fact pattern. Whereas no Arbitration Panel is bound by the suggestions in this paper as to how these commission disputes should be handled (since there can be no predetermined rule), reasonable theories for dealing with these situations are set forth below.
First, consider the situation in which the buyers’ agent does not accompany the buyers to the open house. Furthermore, the buyers’ agent did not assist the buyers in finding the open house; the buyers located the open house by driving by the for sale sign or seeing an advertisement by the listing broker in the newspaper. The buyers then toured the open house with the listing broker and immediately become interested. They call the listing broker subsequently to see the property again, and the listing broker answers their questions and provides them with property-specific information. The listing broker asks the buyers if they are represented by another real estate licensee, and the buyers say that they are not. Buyers then ask the listing broker to prepare a purchase contract which he does after disclosing that he is the agent of the seller, not their agent. The contract is presented and accepted, and the listing broker receives both the listing share of the commission and the selling share of the commission. The cooperating broker learns that “his” buyers have purchased the property and files a complaint with the local Board claiming a right to the selling share of the commission. In this scenario, it would be fairly easy for the Arbitration Panel to determine that the buyers’ agent was not entitled to the selling share of the commission. Clearly, he was not the procuring cause of the sale; in fact, he had very little to do with “his” buyers’ decision to purchase the property. The fact that he had a buyers’ agency agreement with the buyers does not replace the applicability of principles of procuring cause, and the Arbitration Panel should award the disputed commission to the listing broker.
Changing this scenario slightly, the buyers’ agent does not accompany his clients to the open house, but he does locate the property, discuss the property with the buyers prior to the open house and calls the listing broker and tells him that these buyers will be attending the open house without him. The buyers become interested in the property and return to their broker after the open house to discuss the property with him. They then ask their broker to prepare a purchase contract. Their broker prepares a purchase contract, submits it to the listing broker, and it is ultimately accepted by the seller. The cooperating broker receives the selling share of the commission, and the listing broker files a request for arbitration with the local Board claiming that he first showed the buyers the property, and therefore, he is entitled to the selling share of the commission. In this scenario, it should be fairly easy for the Arbitration Panel to decide that the buyers’ broker was the procuring cause of the sale and deny the listing broker’s claim for the selling share of the commission.
Obviously, there are a myriad of possible fact patterns that fall between the two examples discussed above – examples that exist at one end of the continuum or the other. In the middle are cases where one or more facts may change, and this change can be determinative of the outcome. It has been suggested that certain open house guidelines be published which will provide some degree of certainty in the resolution of open house/commission disputes. There are some such guidelines in existence although no Arbitration Panel can be bound to apply the guidelines without examining the entire course of conduct and looking at all the facts. In other words, open house guidelines may be instructive in reducing the number of disputes that are brought to arbitration; however, once the disputes are presented to an Arbitration Panel, the Arbitration Panel must decide the dispute based on concepts of procuring cause, not open house guidelines – even open house guidelines that have been disseminated by the local Board.
With this in mind, there are a few rules of thumb that seem prudent. Clearly, if the listing broker who is present at the open house makes a good faith effort to determine if the prospective buyers are separately represented by a buyer agent, then many potential disputes may be eliminated. If the prospective buyers indicate that they are working, or have been working with a buyer’s agent, then the listing broker should deal cooperatively with the buyers’ agent and recognize that the buyers’ agent will most likely be entitled to the selling share of the commission. On the other hand, if the prospective buyers indicate that they are not working with their own agent, and they ask the listing agent to help them with the purchase, either as the agent of the seller or as a dual agent, then the listing broker is more likely entitled to the selling share of the commission.
Furthermore, it is incumbent upon a buyers’ agent to take reasonable steps to notify the listing broker that “his” buyers may be attending the open house. He can do this by accompanying his buyers to the open house or at least notifying the listing broker in advance that his buyers will be attending the open house. This significantly increases the likelihood that he will be awarded the selling share of the commission.
There can be no substitute for communication. When brokers talk to each other openly and in good faith, the likelihood of a subsequent commission dispute is significantly reduced.
C. Abandonment and Estrangement
The other fact pattern with which Arbitration Panels are often confronted falls within the broad categories of abandonment and estrangement. Abandonment is the concept that recognizes that the real estate licensee who was working with the prospect does something that is responsible for severing the relationship between that licensee and the prospect. He can fail to return telephone calls; he can fail to give appropriate attention to the prospects, he can fail to give answers to questions asked or give wrong answers; or engage in any other conduct which causes the prospect to decide justifiably to cease working with that licensee.
On the other hand, estrangement involves the situation in which the prospect abandons the licensee through no fault of the licensee. The licensee has been diligent in providing real estate services to the prospect, but for some unjustified reason, the prospect, on his own, decides to begin working with another licensee. That licensee may be a relative, friend, or may have some other relationship with the prospect that causes the prospect to want to benefit that licensee with the selling share of the commission.
In the abandonment situation, the second licensee working with the prospects most often is entitled to the real estate commission. On the other hand, in the estrangement situation, the first licensee working with the prospects is most often entitled to the commission. Naturally, these are general principles and must be analyzed in the context of every commission dispute. However, experience teaches us that most real estate commission disputes can be resolved by determining how the second broker came into the transaction. The first broker is the broker who begins working with the prospect. He either abandons the prospect or he is estranged from the prospect. The second broker then assumes representation of the prospect. Focusing on how this second broker came into the transaction, and why he became involved, will give guidance to Arbitration Panels as to who is the procuring cause of the transaction.
The REALTOR arbitration system is still driven by the concept of procuring cause. Buyer agency has brought several changes to the practice of real estate in Ohio, but it has not eliminated the concept of procuring cause in commission disputes. Procuring cause continues to be the guiding principle of law which must be applied by Arbitration Panels when determining commission entitlement.