Question Details

Cameron Piper, Real Estate Pro in Minnesota

Continuation of off topic discussion involving procuring cause and reduced service buyer agency.

Asked by Cameron Piper, Minnesota Wed Jul 2, 2008

The original question can be found out at:

http://www.trulia.com/voices/Home_Buying/Handling_dispute_wi…

The conversation slowly turned into an off topic discussion of the applicability of procuring cause and the risks a buyer takes when signing up with a "buyer does the work for a reduced buyer's agent commission." The discussion was moved to a new thread to avoid offending any agents that may feel the conversation wasn't on topic.

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Answers

7
I guess my response should have been on the first thread- sorry! :)
Web Reference: http://OPTIONSREALTY.COM
0 votes Thank Flag Link Fri Jul 4, 2008
I didn't read the responses on the first thread- just the question. If you have in writing a guarantee of a rebate, check your paperwork- it needs to be on your HUD-1 (DISCLOSED TO LENDER, SELLER, ETC.). Anything outside of those parameters demonstrate a kick back, and that's illegal in most, if not all, states. The fact that it was your Realtor that likely erred (in the absence of properly putting together a rebate) should give you leverage. The problem is that if the act itself is illegal, recouping the funds outside of an agreement with the broker might pose a problem (sort of like suing a drug dealer for illegal drugs that didn't meet your expectations- it's generally not possible to recover an illegal issue). Talk with a lawyer, and let them find ways that will get you your rebate legally. If the rebate WAS legal, why was it not offered at closing? I'd think that your Realtors broker would want this to go away a.s.a.p., and can likely offer you a refund out of the commission in a way that is acceptable and not considered a kick back, but I'd certainly have a quick consult with a lawyer so that this is facilitated in a way that does not create problems for you. Good for you for getting it in writing- as a Realtor, I hope that this agent covered bases and did things in a way that is legal. If not...could be big trouble for her if you have to pursue it (WHICH I WOULD).
Web Reference: http://OPTIONSREALTY.COM
0 votes Thank Flag Link Fri Jul 4, 2008
Jed,

“Procuring cause shall be the primary determining factor in entitlement to compensation. Agency relationships, in and of themselves, do not determine entitlement to compensation. The agency relationship with the client and entitlement to compensation are separate issues. A relationship with the client, or lack of one, should only be considered in accordance with the guidelines established to assist panel members in determining procuring cause. (Adopted 4/95)”

This quote is taken directly from the 2008 Code of Ethics and Arbitration Manual. It is found in Appendix II, Factor #1. I sent you a PDF of the document; you can look it up for yourself. (I’m sorry to the public reading this, but access to the document requires membership in the NAR, their website rules, not mine)

I really don’t know what else I can say about it. You can stick your head in the sand and say it isn’t so, and you can quote CAR all you want (I’ll look forward to reading your PDF). However, the panel that will oversee each and every commission dispute will have been given the directive that “The agency relationship with the client and entitlement to compensation are separate issues.” I don’t know that it could be stated any clearer than that.

Here is another article that touches on the subject from 5/1/2008 in Realtor Magazine.

http://www.realtor.org/archives/feat3200805?presentationtemp…

Again you will note that the author clearly states “Neither showing the property nor having a buyer’s representation agreement with the purchaser automatically demonstrates procuring cause.”

I hope that we can now put this issue to bed and move on to the real issue of whether or not the Redfin types create a problem for their buyers in asserting that they will give money back that they may or may not hold procuring cause to. One last time to reiterate the point directly from the NAR Manual, representation and procuring cause are separate issues. I hope I wasn’t unclear.

Have a great fourth of July, we'll pick up the debate after the holiday. I look forward to talking to you about why these companies are places their buyers in a very tenuous position financialy with promising something to them that is likely they didn't earn.

Cameron Piper
Web Reference: http://www.campiper.com
0 votes Thank Flag Link Fri Jul 4, 2008
Cameron,

In your original post you postulated that the open house agent could be the procuring cause in the transcation.

In the scenario of your last post; Agent 1 is working with the buyer advising on neighborhoods, answering questions ect. The buyer goes to an open house held open by agent 2, the listing agent. Buyer likes the house, contacts agent 1 a contract is written and the the transaction closed. Agent 1 never showed the property.
You think that agent 2 is entitled to the brokerage fee or could prove to you that they should be entitled. The buyer chose agent 1, it's one of the factors that has to be weighed. So the choice of representation is material to procuring cause.
You feel that agent 2 holding the house open could make a case that they were the procuring cause. I don't think so. To follow the above example agent 1 is now the complaintant and they are to appear before you to argue the situation. Agent 2 argues that "if I had been home watching TV like agent 1 was the buyer never would have seen the house. I'm entitled to commission. We, the lisitng brokerage don't have to pay them"

The arbitration panel would have to weigh the prior relationship of agent 1 and the buyer in favor of agent 1. They would have to weigh the choice of the buyer to be represented by agent 1 in favor of agent 1. They would have to weigh the fact that agent 2 is the listing agent in favor of agent 1 according to our guidelines.

Now let's take another situation. A person likes to go to open houses. One Sunday she see's one that she really likes and on Monday she calls her friend or a cousin, whatever an agent she knows. An offer is generated and transaction closed. Who procured the offer? Wasn't it the agent she chose to represent her. The other agent showed the house but she didn't procure the offer. Did the chain of events start with the open house or with the phone call?

The representational (agency) choice of the principal is a very important factor in weighing who is entitled to the brokerage fee.

I've made a pdf of the CAR guidelines and will send them to you.
0 votes Thank Flag Link Thu Jul 3, 2008
Jed Lane; Fog…, Real Estate Pro in San Francisco, CA
MVP'08
Contact
Jed,

With regard to your assertion that agency representation is somehow material to procuring cause, I would encourage you to read the article (link) that I provided in my last post. The author quotes directly from the arbitration manual and states the following. I will pull out my manual tonight and verify that this hasn't changed but I am 99% certain that it hasn't.

"Agency and entitlement to compensation are addressed in Factor No. 1, “No predetermined rule of entitlement,” Appendix II, Arbitration Guidelines, Code of Ethics and Arbitration Manual:

“Agency relationships, in and of themselves, do not determine entitlement to compensation. The agency relationship with the client and entitlement to compensation are separate issues. A relationship with the client, or lack of one, should only be considered in accordance with the guidelines established to assist panel members in determining procuring cause.”

Look at it this way. Your contract entitles you to compensation to be paid by the buyer. I could write a representation contract with a buyer and then do absolutely nothing for them. After they find a house write an offer and close, am I entitled to a commission? Yes, but only because my contract stipulates that the buyer must pay me if they buy a house. Only the person who has performed as the procuring cause in the transaction is entitled to the unilateral offer of compensation published in the MLS. If I haven't done anything for them I don't hold the procuring cause in the transaction even though I have a representation contract signed with the buyer.

The CAR document was password protected so I wasn’t able to review it but I would be shocked if California has rewritten the entire arbitration manual and procuring cause process and theory. Something about reinventing the wheel I guess. The only way to be sure is to call your Professional Standards Coordinator and ask them if they use the NAR published arbitration manual and interpretation of procuring cause.

Some arbitration lingo for you: Complainant – the person requesting the arbitration. Respondent - the opposing party named in the arbitration.

In a procuring cause arbitration the listing broker holds the money. After a statute of limitations (I believe 6 months, but don’t quote me on that) expires there is no longer standing to bring a procuring cause suit. So if the listing broker doesn’t pay the buyer’s agent and after the statute of limitations expires, he/she can disburse funds to the listing agent and move on. For this reason it doesn’t make sense that the listing agent would ever be the complainant (person bringing suit) unless they just want to get it over with.

I agree with the CAR guidelines that state generally that the person without the money will have to prove that they deserve the money. You state that the listing agent will have to prove that the buyer’s agent didn’t send the buyer through, but I would submit that the listing agent is the person with the money. Regardless the rule doesn’t read “he who has the money…” The arbitration manual places the burden of proof on the person requesting the suit, regardless of who holds the money. It doesn’t make a lot of sense for the reasons stated above but if the listing agent were to request the arbitration that would have to prove their case.

Does that clear things up a bit?

Cameron Piper
Web Reference: http://www.campiper.com
0 votes Thank Flag Link Wed Jul 2, 2008
Cameron,
I in no way want this to be argumentative and I don't endorse any one speaking on my behalf. I learn from exchanges of information and we may end up finding out that we are governed by different cultural interpretations. And if you don't have the time or the desire to continue the conversation that's fine also.

In my reading on the subject from the CAR site, and I admit I haven't gone to the NAR site, I would say that the clients choice of representation would figure heavily in the conflict resolution procedure. It is factored in the CAR guidlines as weighted towards the closing agent. The only area that countermands that is if there was some coercion by the closing agent such as a rebate.
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You say " . . . in fact the complaintant carries the burden of proof in an arbitration."
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In the CAR guidelines it states that the broker without the money has to prove that they deserved the money. Obviously I would not be the complaintant if I had the money. Therefore you who lost out on the fee would indeed have to prove that I didn't tell her to go to open houses.

As a managing broker I appreciate the exchange and the fact that it forces me to thnk. So I thank you for your time and appreciate the fact that you are involved in your local.
0 votes Thank Flag Link Wed Jul 2, 2008
Jed Lane; Fog…, Real Estate Pro in San Francisco, CA
MVP'08
Contact
Jed,

I don't have a lot of time to get to a response but there are a couple of items I want to get to in more detail at later time.

Your article touches on one point that I was trying to make earlier. There are no defined rules and each arbitration panel will weigh the facts and make a decision based on what is presented them. I was not attempting to say that I was certain that Mandy's agent was involved in a dispute. I was simply trying to point out to her that it could be a possibility. Furthermore I was hoping to highlight that this very likely could be an issue faced by a buyer when working with these types of companies.

Agency representation is imaterial to procuring cause. A buyer can choose whoever they like to represent them but that decision functions seperately from the actions that create procuring cause.

http://rodomino.realtor.org/rmomag.nsf/pages/AgencyandpNanAr…

I acknowledge that this article is also almost 10 years old but I assure you that the concepts really do hold true. The arbitration manual is updated every year (I think) but to access that required NAR membership and since this is a public forum...well you get the point.

You stated that I would have to prove that you didn't tell her to go to the open house, while in fact the complaintant carries the burden of proof in an arbitration. You would have to prove that you did, and I can tell you from experience that a board is going question you very strongly about why you didn't simply show the house rather than sending them to an open.

The most important thing to keep in mind when thinking about the concept of procuring cause is that at the end of the day it is intended to reward the agent who did the work. If a house was sold as the result of an open house, the person holding the open house should be rewarded for doing the work not the person sitting at home. Simply stated - he who does the work earns the paycheck.

Cameron Piper
Web Reference: http://www.campiper.com
0 votes Thank Flag Link Wed Jul 2, 2008
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