A strong case can be made that access to arbitration as a means of resolving commission disputes may be the most valuable right of membership in the REALTOR(Association. Often the amount of the commission in dispute is less than five thousand dollars (i.e., the selling share of the commission), and most likely legal fees involved in judicial litigation will exceed the amount in controversy before the case is resolved. Moreover, it is not unusual to see delays in trial dates of up to two years or more. On the contrary, arbitration provides a quick, efficient and economical method of dispute resolution before decision-makers who are familiar with the practice of real estate and the intricacies of commission disputes.
Naturally, though, the legitimacy and corresponding acceptance of the duty to arbitrate depends upon the fairness of the arbitration process. This is where due process and the obligation to decide cases in conformity with state law come into play. Obviously, an arbitration system which does not provide due process and does not produce results in accordance with applicable law cannot long survive.
This is why professional standards committees, and Arbitration Panels appointed therefrom, must understand and be prepared to apply the concept of “procuring cause.” In most cases, Ohio law provides that the broker who is the procuring cause of the sale is the broker entitled to the commission. Therefore, it is the purpose of this section to discuss what procuring cause is and when it should be employed to determine a party’s right to share in a real estate commission.
A. Rule of Law
“Procuring cause” is a legal concept utilized by Ohio courts when determining the rights of real estate brokers to real estate commissions. Basically, it is a judicially created doctrine which applies whenever the broker’s claim to a real estate commission is based upon an arrangement other than an Exclusive Right to Sell Listing Agreement. When a listing broker seeks a real estate commission pursuant to an Exclusive Right to Sell Listing Agreement, it is not necessary for that broker to establish that he was the procuring cause of the sale. Rather, he is entitled to a commission pursuant to the seller’s contractual obligation to pay a commission if the property is sold or otherwise transferred during the period of the listing or any extension period provided for in the listing agreement.
It may be obvious, but it is important to recognize that the listing broker in most cases is entitled to a commission even though he may not be the procuring cause of the sale. That is why it is important in the resolution of commission disputes for the Arbitration Panel to first determine the basis upon which the right to a commission is claimed.
There are basically four types of underlying agreements upon which a right to a commission can be claimed. First, as discussed above, is the Exclusive Right to Sell Agreement. The National Association of REALTORS, in its Statement of Multiple Listing Policy, has defined this type of agreement as follow:
A contractual agreement under which the listing broker becomes the agent of the seller(s) and the seller(s) agrees to pay a commission to the listing broker regardless of whether the property is sold through the efforts of listing broker, the seller(s) or anyone else; and a contractual agreement under which the listing broker becomes the agent of the seller(s) and the seller(s) agrees to pay a commission to the listing broker regardless of whether the property is sold through the efforts of the listing broker, the seller(s) or anyone else, except that the seller(s) may name one or more individual or entities as exemptions in the listing agreement and if the property is sold to any exempted individual or entity, the seller(s) is not obligated to pay a commission to the listing broker. (emphasis added.)
This somewhat complicated definition simply states that the right to a commission is not dependent upon a finding of procuring cause, but if the property is transferred during the term of the listing as a result of the efforts of anyone, including the seller, then a real estate commission is owed to the listing broker. Once again, it does not matter if the listing broker was the procuring cause of the sale.
The second type of listing agreement is the Exclusive Agency Agreement. It is defined as follows:
A contractual agreement under which the listing broker becomes the agent of the seller(s) and the seller(s) agrees to pay a commission to the listing broker if the property is sold through the efforts of any real estate broker. If the property is sold solely through the efforts of the seller(s), the seller(s) is not obligated to pay a commission to the listing broker.
In this type of arrangement, the seller is not obligated to pay a commission if he sells the property himself. On the other hand, if the property is sold through the efforts of the listing broker, or any other real estate broker, then the listing broker is entitled to a commission pursuant to the terms of the listing agreement. Procuring cause may become a factor in determining a right to a commission pursuant to this type of agreement in the event that there is a dispute between the seller and the listing broker as to who actually sold the property. In a dispute between the listing broker and the seller, if the broker is able to prove that he or another real estate broker was the procuring cause of the sale, then that broker is entitled to a commission. On the other hand, if the seller is able to prove that he was the procuring cause of the sale, then no commission is owed. Therefore, this type of arrangement can give rise to two types of procuring cause disputes. The first is a dispute between the seller and the listing broker as to who actually was responsible for the sale of the property. The second is between the listing broker and one or more selling brokers claiming to be the procuring cause of the sale when there is no question that the seller was not the procuring cause of the sale. Although hard to imagine, it is conceivable that there could be an arbitration between all of these parties where the seller claims he was the procuring cause of the sale, and therefore, no broker is entitled to a commission; the listing broker claims he was the procuring cause of the sale and is therefore entitled to the commission; and one or more selling brokers claim that they were the procuring cause of the sale and therefore have a right to share in the selling portion of the listing broker’s commission.
The third type of listing agreement is the Open Listing Agreement. It is defined as follows:
A contractual agreement under which the listing broker becomes the agent of the seller(s) and the seller(s) agrees to pay a commission to the listing broker only if the property is sold through the efforts of the listing broker.
This is the instance in which a seller agrees to pay a real estate commission to any broker who is able to establish that he is the procuring cause of the sale. It is the type of arrangement that is discussed in the case law most often because it frequently produces lawsuits between the seller and the broker. Since sellers are not required to submit disputes to arbitration at the local Board level, these cases usually find their way into the judicial system. Much of the case law defining “procuring cause” has been developed by courts which have attempted to determine whether or not the broker was the procuring cause of the sale pursuant to an Open Listing Agreement. This is also the type of contract involved when two brokers claim to have produced the buyer pursuant to an Open Listing and they each claim a right to the commission. Pursuant to SOP 17-4, an Arbitration Panel can now hear this commission dispute even though there is no contractual relationship between the two brokers (see above).
The last type of arrangement in which procuring cause is important is the one with which real estate brokers are most often involved. It is the “cooperation” agreement. In the traditional real estate transaction, the listing broker makes an offer of cooperation to a selling broker who accepts the offer of cooperation by producing a ready, willing and able buyer on terms acceptable to the seller. If the selling broker, whether he is a subagent or buyer’s agent, is the procuring cause of the sale, then he is entitled to share in the listing broker’s commission. Often two or more brokers claim to be the selling broker and the procuring cause of the sale. In these situations, each selling broker attempts to prove that he was the procuring cause of the sale, and, therefore, entitled to share in the commission. This is the most common type of commission dispute that Arbitration Panels face – probably because of the role the multiple listing services plays in the creation of “cooperation” agreements. The placement of a listing in the multiple listing service constitutes a blanket uniform offer of cooperation to all other participants in the multiple listing service. It most cases it is the vehicle for the creation of the “cooperation” agreement. However, there are other ways to create a “cooperation” agreement. It can be done by letter agreement outside the MLS, either a blanket letter to all or several brokers in the area or a letter describing a specific arrangement with any particular broker.
The important point to be made in this section is that there must be some underlying contractual right to a commission before the issue of procuring cause ever arises. The underlying contract may be any one of those types of agreements discussed above, but there must be some agreement to share a commission with a broker if the broker is able to establish that he is the procuring cause of the sale.11 If there is no such agreement, even if the broker is able to prove that he is the procuring cause of the sale, he is not entitled to a commission. Rather, the courts will say that the broker performed as a “volunteer,” and sellers and brokers are not required to compensate volunteers for their services, no matter how valuable.12
In Ohio it is not necessary for the underlying commission agreement to be in writing.13 It can be an oral contract since oral listing agreements and buyer agency agreements are presently enforceable in Ohio. It can also be an implied in fact contract based upon circumstantial evidence of the relationships between the parties.14 However, it is always recommended that such underlying agreements be in writing because a written contract eliminates much of the difficulty with proving the existence of the contractual relationship should the matter result in litigation.
It is also clear in Ohio that the underlying contract, although it can be an implied contract, cannot be a contract that is implied solely based upon the custom and practice in the industry.15 In some Ohio cases, brokers have attempted to prove that they had a contractual right to a commission because “everyone” is familiar with the commission sharing practices common in real estate transactions. Brokers ask the court to find that this “familiarity” is a substitute for an actual agreement to share the commission with a broker who proves that he is the procuring cause of the sale. Ohio courts have uniformly rejected this approach and required proof of the existence of an actual agreement before they will award a commission to a broker who is able to establish that he is the procuring cause of the sale.
Although, Ohio courts will not imply the existence of a contract simply because a party produces evidence of the “custom and practice” in the industry, courts will look at all the facts to determine if there has been a “meeting of the minds” with respect to the obligation to pay a real estate commission. This is what is known as an “implied in fact” contract and can be the basis for the recovery of a real estate commission even if there is no proof of an express, written agreement or a direct oral agreement.16
Most recently, courts have been asked to accept a third kind of agreement as a basis for the award of a real estate commission – an “implied in law” contract. An “implied in law” contract differs from an “implied in fact” contract in that it is really not a contract at all. It is basically a legal fiction created by the courts to produce a fair and equitable result.17 Although it appears that no court has yet accepted an “implied in law” contract argument in the context of a real estate dispute, it may be an argument that will be made to Arbitration Panels. There is enough support for “implied in law” contracts in other kinds of Ohio judicial decisions that an Arbitration Panel could, in the right case, accept this theory as a basis for awarding a commission when there does not appear to be an express or implied in fact contract. This will be unusual though, and should be accepted only when absolutely necessary to reach a fair and just result.
This message, then, for Arbitration Panels is to first determine the basis for the commission claim and then turn to the issue of procuring cause. If there is no underlying agreement, then it is unnecessary to deal with the issue of procuring cause.
B. Proposed Definitions of “Procuring Cause”
There is no single definition of procuring cause which captures all aspects of this multi-faceted concept. Indeed, courts have consistently held that what is procuring cause is any particular case depends upon the facts unique to that case. Moreover, courts are required to take into consideration all of the facts in a particular case and look at the entire course of conduct involved, as opposed to concentrating upon any single fact as determinative of the outcome. In Bauman v. Worley, 166 Ohio St. 471 (1957), the seminal case in Ohio dealing with procuring cause, the Ohio Supreme Court wrote:
It is apparent that cases of the kind under review have factual differences and that whether a broker claiming a commission for the sale of real estate was the “procuring cause” thereof depends largely on the particular facts of the individual case. 166 Ohio St. at 473.
Therefore, it may be helpful to look at several different definitions of procuring cause, all fundamentally the same, but emphasizing different factors that may have special meaning when applied to a particular set of facts. Four proposed definitions are set forth below, and procuring cause is really a combination of all four. Nevertheless, looking at each definition separately demonstrates key factors that may be important in individual cases.
1. The definition most commonly discussed in Ohio case law is that which first appeared in Bauman v. Worley, supra. In Bauman, the Ohio Supreme Court defined procuring cause as follows:
The term ‘procuring cause’ as used in describing a broker’s activity, refers to a cause directly originating a series of events which without break in their continuity directly result in the accomplishment of the prime objective of the employment of the broker, namely, the producing of a purchaser ready, willing and able to buy real estate on the owner’s terms. 166 Ohio St. at 471.
There have been more than one hundred decisions of Ohio courts dealing with the concept of procuring cause, and the vast majority have referred to the Bauman definition. It has several aspects. It recognizes that there is no single event that is the procuring cause of a sale, but the court must look to the broker who originated the series of events which continued in motion and resulted in the production of ready, willing and able buyer. Incidentally, it also recognizes that only a broker, that is an individual holding an Ohio broker’s license, is entitled to collect a commission. Salespersons affiliated with brokers are not entitled to bring an action for a commission in their own name. Finally, implicit in this definition is the recognition that the broker was actually “employed” to find a ready, willing and able buyer. This is another way of saying that there must be some underlying contractual agreement that serves as the basis for the right to a commission, or it does not matter who originated the series of events which produced the buyer.
2. A second definition, which is not found verbatim in the case law, but which captures many aspects of the Bauman definition any may incorporate a few additional concepts is as follows:
Procuring cause is the origination and cultivation of a chain of events, which remaining unbroken, directly results in the production of a ready, willing and able buyer on the terms of the listing agreement or such other terms as are acceptable to the seller.
This definition adds to the “origination” concept in the Bauman definition the concept of “cultivation.” In cases where two brokers are claiming to be the procuring cause of the sale, it is sometimes insufficient to simply “originate” a series of events. Rather, there has to be something in addition to origination and that is referred to as cultivation. A broker claiming a commission helps his case by being able to demonstrate that, not only did he originate the series of events, but that he also continued throughout the transaction to cultivate that series of events, thereby bringing about the sale. Perhaps there are some cases in which a single event, which originated the series of events, may be enough to establish procuring cause, but the case law seems to suggest that most cases require more. How much more a broker must do to establish his right to a commission is, once again, dependent upon the particular facts of the case. Nevertheless, Arbitration Panels may be able to resolve procuring cause disputes more easily if they look not only for the originating event but also to the broker’s activity subsequent to the originating event.
This definition also recognizes that a broker may be entitled to a real estate commission even if the property is not transferred. Most listing agreements and “cooperation” agreements provide that a broker is entitled to a commission if he produces a ready, willing and able buyer on the terms of the listing agreement or such other terms acceptable to the owner. Therefore, if the broker produces a buyer who is willing to buy the real estate precisely on the owner’s terms as set forth in the listing agreement, then the broker is arguably entitled to a commission even if the owner changes his mind and decides not to sell. In such a situation, the owner would have no obligation to sell the property, and the buyer could not compel the owner to sell; however, the owner would still owe a commission to the broker.
3. A third proposed definition, which more specifically injects the concept of “abandonment” into the procuring cause definition, is as follows:
Procuring cause is the initiation of an uninterrupted series of events which is directly responsible for the presentation of an offer to purchase that is accepted by the seller or accords with the terms of the listing agreement, or if the series of events is interrupted, such interruption is not the fault of the broker claiming the commission, which broker continued to act fairly and professionally to bring about the sale to the extent permitted by the circumstances.
This definition focuses more directly on the circumstances surrounding the appearance of a second selling broker in the transaction. As stated above, most commission disputes involve two brokers both of whom claim to be the procuring cause of the sale. Both brokers ask the listing broker to share his commission with them pursuant to the terms of the listing broker’s offer of cooperation. In most cases, the first broker claims that he initiated the series of events resulting in the sale, and the second broker claims that he came along after the first broker’s claimed origination and commenced a new series of events which was the true cause for the sale. In other words, the second broker claims that the first broker’s series of events terminated because the first broker “abandoned” the prospect before the decision to purchase was made. In these situations, the Arbitration Panel, or the courts in some cases, should look at how the second broker injected himself into the transaction. Does the second broker’s activity constitute an intrusion upon the services of the first broker, or, in fact, had the first broker neglected the prospect to the point of abandonment such that the second broker did commence a new chain of events.
This proposed definition also suggests that an Arbitration Panel should consider not only how the second broker became involved in the transaction, but also how the two brokers acted when the second broker’s involvement became apparent. Did the two brokers, or neither one of them, continue to act professionally to bring about the sale? It must be remembered that both brokers, to the extent that they are claiming a right to share in the listing broker’s commission pursuant to a “cooperation” agreement, owe to their clients a fiduciary duty to conduct themselves in the best interests of their clients. This means that the two brokers should reserve their dispute for resolution after the closing, as opposed to allowing their dispute to interfere with the seller’s best interests.
As can be seen, this proposed definition, more than the others, focuses upon the behavior of the brokers at the time a controversy arises. It should bring to an arbitrator’s mind the following kinds of questions:
(1) Did the second broker know of the activities of the first broker?
(2) If the second broker knew of the first broker’s activities, how did the second broker communicate with the first broker about his new involvement?
(3) How did the first broker respond when he learned of the second broker’s involvement?
(4) Did the brokers continue to place the seller’s interests paramount, perhaps requiring one of the brokers to stop working on the transaction, even though he knows that the second broker may subsequently claim that he abandoned the prospect?
(5) What discussion did the second broker have with the prospect at the time the second broker learned that the prospect had had some contact earlier with another broker?
It is possible that the answers to some of these questions may give rise to ethical considerations. If the brokers are REALTORS, they have pledged to conduct themselves in accordance with the Code of Ethics promulgated by the National Association of REALTORS, and their acts, or failures to act, may give rise to an ethical complaint. However, an ethical violation, standing alone, is not conclusive of a broker’s right to a commission pursuant to procuring cause concepts. This explains why the National Association of REALTORS requires that the commission dispute be heard by an Arbitration Panel first before an ethical complaint is heard by a professional standards panel when the same transaction gives rise to both types of claims. Nevertheless, although ethical complaints are not conclusive on the issue of procuring cause, they are clearly one factor that an Arbitration Panel can take into consideration when looking at the whole course of conduct involved in the determination of procuring cause.
4. The last proposed definition is the simplest. It reads as follows:
Procuring cause is the predominate contributing cause of the sale of real estate.
This definition recognizes that there is only one procuring cause of the sale. Therefore, in most cases, the Arbitration Panel cannot find that both brokers, claiming a right to a commission, are the procuring cause of the sale. On the contrary, the Arbitration Panel must look at the actions of both brokers and determine which of the broker’s actions were the most important, or most predominate in bringing about the sale. There need not be only one cause of the sale, but the Arbitration Panel should endeavor to find the most important cause. Stated otherwise, the Arbitration Panel should determine that act without which the sale would not have occurred, or, if there is more than one act, the act that was most important in contributing to the sale. Then it is a simple matter to determine which broker performed the key act and that broker is the procuring cause.
This is not to say that an Arbitration Panel, in some rare instance, is not entitled to split the disputed portion of the commission between two brokers claiming to be the procuring cause. Technically, it can be argued that such a result is not consistent with Ohio law, but the concept of procuring cause is sufficiently broad to permit this kind of result in an unusual case. Moreover, Ohio courts give great deference to results produced by duly constituted Arbitration Panels, and, in fact, courts consistently affirm the decision of arbitrators even if the courts have a different opinion of the facts or believe that the arbitrators misapplied Ohio law. Therefore, though not to be encouraged, in an unusual case an Arbitration Panel can find that both brokers contributed so significantly to the sale that each should be entitled to share in the commission.
C. No Predetermined Rule or Regulation
With respect to commission disputes submitted to arbitration pursuant to Article 17 of the Code of Ethics, it is absolutely clear that there should be no predetermined rule or regulation that conclusively determines procuring cause in all cases. On the contrary, the arbitrators must look at the entire course of conduct and determine procuring cause on a case by case basis depending upon the particular facts presented. No one fact should be entitled to greater weight in all cases.
Admittedly, this eliminates some degree of certainty and predictability in commission disputes, but the price for this elimination is hopefully a fair and just result in each and every case. For example, some have advocated the application of a threshold rule. If such a rule were applied, then the broker who took the prospect over the threshold would automatically be the procuring cause in all instances. In some cases this would produce a fair result, but in many cases it would produce an unfair result. Another rule advocated by some is one that would automatically award the commission to the broker who “prepared and presented the contract.” Still others have advocated a rule which adopts a “protection period.” Under a “protection period” rule, the broker who first meets with a prospect would have a specified period of time to bring about the sale, and if the purchase contract was executed during this period, then that broker is automatically the procuring cause of the sale, regardless of what he actually contributed to the sale or other brokers contributed to the sale.
Once again, in some cases these rules would produce a fair result and in other cases they would not. The National Association of REALTORS, consistent with Ohio law, has determined that justice is more important that certainty and predictability. The justification for certainty and predictability, that is, that it will all even out in the end with the broker winning some he should lose and losing some he should win, has been rejected. In its place is the concept that no predetermined rule should be utilized by arbitrators, and brokers should win those that they should win and lose those that they should lose without reference to some arbitrary rule which may not fit the particular facts in a particular case. In fact, the National Association of REALTORS( requires local Boards to subscribe to a policy which forbids the use of predetermined rules when determining issues of procuring cause. The use of a predetermined rule is considered an inequitable limitation on REALTOR membership. See Interpretation No. 31, Official Interpretations of Article I, Section 2, Bylaws of the National Association of REALTORS, adopted May 8, 1973 and revised January 31, 1977. Once again, Arbitration Panels must look at the whole course of conduct and not focus as a matter of routine on any one aspect of a transaction.
Procuring cause is a flexible doctrine which endeavors to allocate justly and fairly rights to real estate commissions on a case by case basis in light of the particular facts presented. Its applicability requires first the presence of an underlying contractual right to a commission, and second, activities which constitute the predominate cause of bringing together a seller and a ready, willing and able buyer on terms acceptable to the seller. Clearly, the real estate broker claiming the commission need not be the sole cause of the sale, but he must be the primary cause. Moreover, procuring cause is not a question of how much work a broker does, rather a question of how effective the broker’s work was in fulfilling the object of the agency.
Most importantly, there can be no predetermined rule or regulation which answers the procuring cause question in all commission disputes. To the contrary, arbitrators must look to the whole course of conduct in determining a broker’s entitlement to share in a real estate commission.