What exactly is procuring cause?
When asked on the WRA Legal Hotline whether you are procuring cause or not is not a question the hotline attorney can answer. The hotline caller typically receives this answer: the issue is deciding who caused the buyer to make the offer that resulted in the sale of the property. There is no single act that determines procuring cause — it can only be answered by a full, knowledgeable consideration of all the facts of the case. If the firms cannot negotiate an acceptable settlement, the dispute should be submitted to local board arbitration for resolution.
Generally, procuring cause is a standard of performance to the entitlement of cooperative compensation established between brokers by the Multiple Listing Service (MLS).
Procuring cause is also commonly used as the standard of performance in standing policy letters between brokers and companies, compensation agreements pertaining to single transactions, or a combination of these. The real trick with procuring cause: no single act determines procuring cause. Therefore, there is not an activity “X” that always creates procuring cause.
The first and most important thing is to serve the buyer and seller by closing the transaction. Basically, licensees cannot place their commission issues and needs before the needs of the parties. There is plenty of time afterward to determine who gets what part of the commission.
MLS vs. Non-MLS transactions
Procuring cause is not the universal standard of performance in all real estate transactions as licensees often assume. Procuring cause is the automatic standard in MLS transactions. If a property is not listed in the MLS and sold by another MLS participant, then the listing and cooperating firm must affirmatively agree on cooperative commission and select a performance standard whereby the cooperating firm may earn that commission. That standard of performance may or may not be procuring cause.
The issue of procuring cause comes down to one concept: who caused the sale of the property? Determination of procuring cause is a conclusion drawn from a full, knowledgeable consideration of all of the facts of the case.
Procuring cause looks at the uninterrupted series of events that result in the sale of the property to the buyer. There are no black-and-white rules that determine entitlement to commission.
Therefore the privilege of automatic procuring cause is not granted to the broker who drafts the offer or the broker who first shows the property, commonly called the threshold rule.
There are no actions that in and of themselves preclude a firm from being procuring cause. For instance, the fact that no agency disclosure is given or signed, or that the broker did not inspect the property, does not necessarily mean the broker is not procuring cause. A case-by-case review of all facts and circumstances must be conducted to determine who is procuring cause.
REALTOR® Code of Ethics and Arbitration Manual
The preeminent written authority explaining procuring cause, as applied in REALTOR® arbitration hearings, is the Code of Ethics and Arbitration Manual, specifically “Appendix II to Part Ten — Arbitration Guidelines (Suggested Factors for Consideration by a Hearing Panel in Arbitration),” which can be viewed at www.realtor.org/CEAM.nsf/1ea4bd9041b3346c862569a6006f7c75/448362d102506f1086257234006f6ea6?OpenDocument.
If the brokers cannot agree to the entitlement and/or division of the selling commission, the dispute should be submitted to the local REALTOR® association for resolution. According to Article 17 of the Code of Ethics, REALTORS® agree to arbitrate their contractual disputes arising out of their relationship as REALTORS®.
Under the circumstances and in accord with local custom and practice, arbitration panels will consider the following:
- Did the broker make reasonable efforts to develop and maintain an ongoing relationship with the purchaser?
- Did the first cooperating broker actively maintain ongoing contact with the purchaser?
- Did the broker’s inactivity, or perceived inactivity, cause the purchaser to reasonably conclude that the broker had lost interest or disengaged from the transaction, known as abandonment?
How can REALTORS® avoid procuring cause disputes?
- When procuring cause is involved, understand and appreciate that there are no predetermined entitlements to compensation.
- Understand the basics of procuring cause.
- Don’t forget about your buyers; avoid an abandonment or estrangement argument.
- Confirm you were offered compensation either in the MLS, where procuring cause is the standard, or via a compensation agreement where procuring cause is stated as the standard.
- Educate your buyers!
- Communicate with the listing agent! Try to head off any dispute.
- The transaction must successfully close. A successful transaction is a prerequisite to any award of compensation.
Procuring cause is property-specific: common procuring cause scenario
An agent talked to a couple last week about a home they wanted to see. The agent got back to them several times during the week and spent over an hour at the property with them. The agent called the buyers again today with answers to some of their questions. In the meantime, the buyers wrote an offer with an agent who never showed them the property. The other agent, though, says he is procuring cause because he wrote the offer and has worked with the buyers for a long time, which included looking at a number of other properties. Who is procuring cause?
The analysis for procuring cause entitlement is primarily concerned with what actions were taken to create an interest in writing an offer on the subject property during the term of the listing contract. There is no such thing as an automatic rule that whoever writes the offer becomes procuring cause. Previous activities with the buyer on other properties are not relevant.
Procuring cause resources
• April 2010 Legal Update, “Cooperative Commissions and Procuring Cause” at www.wra.org/LU1004.
• April 2002 Legal Update, “What is Procuring Cause?” at www.wra.org/LU0204.
• “Uncovering the Truth: Procuring Cause,” in the April 2012 issue of Wisconsin Real Estate Magazine at www.wra.org/WREM/Apr12/ProcuringCause.
Cori Lamont is Director of Corporate and Regulatory Affairs for the WRA.