Procuring Cause? What You Don’t Know Can Cost You Big

Procuring Cause? What You Don’t Know Can Cost You Big

In the rare language of real estate, Procuring Cause, as defined by the National Association of Realtors, 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 method to the home buyer or seller is that an agent with little or no involvement in a transaction can claim a commission from either the buyer or seller or both. for example:

The comedian Jerry Seinfeld recently purchased a $3.95 million dollar townhouse in Manhattan. His real estate agent was unavailable to show him the home for a second time due to her religious observance. Seinfeld then entered into the transaction alone thinking to save the $100,000 commission. He was later successfully sued because the agent had demonstrated Procuring Cause in first showing him the character and because Seinfeld had entered into an exclusive buyer representation agreement. Not understanding the dynamics of Procuring Cause had cost Seinfeld a cool hundred thousand dollars.

Seinfeld’s case was comparatively clear cut. The agent had shown him the character and had an exclusive right to sell contract with Seinfeld. However, commission claims can be based on much thinner grounds. In fact, any provable contact with an agent can theoretically provide grounds for procuring cause. It’s why agents seem so eager to get a prospect to sign in, either online or in person. If that agent supplies information about a character that the prospect ultimately 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 sometimes happens.

In addition, some agents present exclusive buyer agreements similar to the one Seinfeld entered into with little or no understanding on the part of the buyer as to exactly what they are agreeing to.

All this sounds like real estate agents are out to trick buyers and sellers into paying large sums of money they did not work to earn. This is rarely true. Procuring Cause is a definition pertaining to the Realtors Code of Ethics designed to protect agents from having their commissions stolen. It works like this:

One agent establishes an open and honest working relationship with a prospective buyer, shows them similarities–often for months or already years–works with them on their financing, negotiates the sale and is then cut out of the deal either by the buyer (as Seinfeld tried to do) or seller or another agent who comes in at the last minute to write the contract. In the latter case, this often happens not because the buyers are unhappy with their agent but because they have a friend or relative who has a real estate license–often part time or idle*–that they want to favor by giving them the commission, already though this agent had nothing to do with the time of action.

This is where the local Realtor association steps in to see justice done. Both sides of the issue are brought before a grievance board and the true procuring cause is determined. In the above case, it is apparent that the agent that stepped in at the last minute had no right to expect a commission. However, what if this johnny-come-lately agent that wrote the contract had an exclusive buyer agreement? In this case, the commission generally goes to the agent who has not only the signed contract but the exclusive agreement in writing.

Now here’s where it gets sticky and can cost both buyer and seller serious money. An agent cut out of a deal because they were either not informed 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 entanglements with Procuring Cause:

  • Don’t sign anything except mandatory agency disclosure documents which are designed to inform you where the agent’s loyalties lie and nothing more. If you do choose to go into into an exclusive buyer agreement be aware that already if you buy by another agent or directly from an owner or builder you will likely be obligated to pay a commission to the agent who signed you up.
  • Do not provide contact information, as this may invite continuing marketing efforts. Be aware that already casual contact with an agent that supplies information about a character might constitute grounds for a commission claim. If you are asked to sign in at an open house give your name and no more.
  • Decide on an agent to work with and work with that agent exclusively, whether or not you have a contractual agreement. If you decide to switch agents for any reason formally terminate your relationship with your former agent. Keep a record of the termination such as a signed and acknowledged letter. Do not contact the former agent after your relationship is terminated.
  • If you receive listing information or are contacted by an agent you are not working with ask them to stop sending information and remove your name from their contact list.

That’s it. The great majority of real estate agents and brokers are scrupulously honest. They deserve to be compensated for their efforts as would any specialized. But this only happens when they bring about a transaction and receive a commission. This is their livelihood. A few moments of communication beforehand as to your intentions as a buyer or seller often avoids later misunderstandings. Tell them what you intend. Have them explain your obligations. Know who is working for whom. And know how agents to the transaction are to be compensated.

Contracts and other legally binding documents are often misunderstood. This is why an attorney versed in real estate matters is basic to your wellbeing. And though they are usually brought in to review the contract, prepare documents, and supervise the closing, they should also be brought in before exclusive buyer contracts or listing agreements are signed. The cost of this can generally be folded into the fee for their sets for the closing. The price for not doing so can be staggering.

In general, there is nothing to be afraid of and much to be attained when working with a real estate specialized. The Realtor Code of Ethics Article 1 spells it out:

“When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors potential themselves to protect and promote the interests of their client. This obligation to the client is dominant, 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 keep obligated to treat all parties honestly.” Click for complete Realtor Code of Ethics

Agents found guilty of code violations have their Realtor position 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 shared sense go a long way towards successful transaction by preventing problems before they happen.

*Everyone knows a real estate agent. And odds are that this agent is 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 them already if it’s a relative. Always work with top 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.

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