written by Dennis J. Maier reprinted by permission from: eZine Articles
In the unique language of real estate, “Procuring Cause”, as defined by the National Association of Realtors (NAR) is “the uninterrupted series of causal events that leads to a successful transaction.” In plain English, it's the method to determine who rightfully deserves a real estate commission for bringing about a sale. What it means to the home buyer or seller is that a real estate sales person with little or no participation in a deal can claim a commission from either the buyer or seller or both.
For instance: a celebrity recently purchased a $4M townhouse in New York City. The real estate broker was unavailable to view the home for a second showing. The celebrity then entered into the transaction alone perhaps thinking to legitimately save the $100,000 brokerage fee that would be owed the agent. The celebrity was later successfully sued because the agent could demonstrated that because the agent had shown the property initially and because the celebrity had entered into an exclusive buyer representation agreement. Because the celebrity apparently hadn't understood this, rather than any nefarious intent on their part, it had cost him a cool $100,000.
This case appears comparatively straightforward. the broker had shown the celebrity the property and had an exclusive right to sell contract. However, commission claims can be based on much less. In fact, any verifiable contact with a broker can hypothetically provide grounds. It's why brokers are often eager to get a prospect to sign in, either online or in person. If that agent supplies information about a property that the client eventually buys the agent might consider their efforts as the start of “the uninterrupted series of causal events that leads to a successful transaction.” Unfortunately, this can happen.
In addition, some agents require exclusive buyer agreements like the one the celebrity had entered into with little or no understanding on the part of the buyer as to exactly what they are legally binding themselves to.
All this sounds like real brokers are out to swindle buyers and sellers into paying hefty commissions the agent did not work to earn. This is seldom true. The standard is used by the National Association of Realtors to protect agents from having their commissions stolen. It functions like this:
An agent establishes a working relationship with a buyer, shows them homes—often for months and years—helps them with their mortgage, brings about the sale and is then cut out of the transaction either by the buyer or owner or another broker who shows up at the last minute to prepare the contract. This often happens not because the buyers are unhappy with their broker but because they have a friend or relative who has a real estate license—often part time or inactive*—that they want to help by giving them the commission, even though this person had nothing to do with the transaction.
This is where the local Realtor association steps in to see the right thing is done. All the Realtors involved in the issue (not the buyers or sellers) appear before a grievance committee and the true cause is judged. In the above situation, it is likely that the agent that stepped in at the last minute had no claim to the commission. However, what if this last minute ringer that wrote the contract had an exclusive buyer agreement? In that case, the commission generally goes to the agent who has not only the signed contract but the signed exclusive agent agreement as well.
Now here's where it gets sticky and can cost both buyer and seller greatly. An agent unfairly cut out of a deal because they were either deceived or misinformed of the true situation can bring suit in a civil court of law. Certainly, no one needs this sort of aggravation and expense, especially during a move, which often stretches resources to the limit.
Here then are a few ways to avoid problems:
Contracts and other legally binding documents are often misunderstood. This is why an attorney versed in real estate transactions is an essential ingredient to your well being. And though attorneys are usually brought in to review the contract, prepare documents, and oversee the closing, they should also be brought in before exclusive buyer agreements or listing agreements are signed. The cost of this can generally be folded into the fee for their services for the closing so there is often no additional cost. The price for not doing so can be staggering.
In general, there is nothing to be anxious about and much to be gained when dealing with a real estate professional. The Realtor Code of Ethics Article One spells it out:
“When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve Realtors of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, Realtors remain obligated to treat all parties honestly.” Click for entire Realtor Code of Ethics
Agents found guilty of code violations have their Realtor status suspended or revoked.
Home ownership is not only the American dream but also the source off most American's wealth. An open, honest approach and a little common sense go a long way towards successful transaction by preventing problems before they happen.
Principal Realtor Broker
Real Estate New York group
First licensed in Chicago 1972, co-founder Landmark Realty; Founded The Albany Professional Team, inc 1994; Founder and CEO Real Estate New York group 1999
*Everyone knows a real estate agent. Unfortunately, this agent is often not making a good living selling real estate: 10% of licensed agents make 90% of the sales. The rest fight over the scraps. Don't get involved with one of these marginal agents even if it's a relative. Take them to dinner, buy them a nice present; you'll end up thousands of dollars ahead. Always work with experienced professionals, either brokers or associate brokers. Statistically, one is more likely to end up in court over a real estate matter than any other issue. You need not be one of them.