The notion of procuring cause may seem like an arcane realtor concept that home buyers and sellers don’t need to worry about. The concept was defined as a way for Realtors to stake their claim on the all-valuable client. However, it turns out that consumers can actually get burned by it if they don’t understand how realtors use it to their own advantage. Keep in mind that I don’t just dream up blog posts like this one. This stuff actually happens to unsuspecting consumers who are not familiar with the peculiar conventions that real estate agents often play by. I know because I get calls from these people all the time.
It’s Not So Easy To Fire Your Real Estate Agent
Let’s start with one of the more outrageous consequences of the procuring cause concept. In this scenario you have been working with a realtor for a few weeks and they have been showing you some properties. However, you really don’t like them because they’re just not that smart and it takes them forever to get back to you. So you fire them and get another realtor. Two weeks later, after seeing 10 more properties, you decide to make an offer on one of the homes that the first realtor showed you.
Guess what? According to the realtor “rules” you have every right to fire realtor #1 and get another agent. And your new agent can indeed make the offer for you and take the deal to closing but, in the Alice In Wonderland world of real estate, that first agent could dispute the commission. They could take your new agent to a realtor arbitration panel, their argument being that they are the procuring cause of the transaction and therefore entitled to the commission. It’s impossible to say how any one decision would turn out but, since we often find ourselves in the position of the second realtor, I’ve had some in depth conversations with the Chicago Association of Realtors. They have told me that there is a decent chance that the first realtor could get the entire commission even though the second realtor did all the work and the first realtor only spent 20 minutes showing you the place.
There is actually a lot of written material out there about how these procuring cause issues should be decided but I think the best summary of the factors that would be considered is found on this procuring cause arbitration worksheet provided by the National Association of Realtors. Notice that it has 17 questions, many of which have numerous sub-questions. It’s complicated.
If the first realtor won in arbitration the second realtor would then get nothing from the seller and would look to you for payment. Whether or not you actually pay the second realtor out of your own pocket would depend upon your own ethics and the nature of the agreement you have with that realtor.
The Casual Encounter With A Real Estate Agent
Actually, this next scenario is pretty outrageous as well as it is a variation of the previous scenario. Let’s say that somehow you (a home buyer) hook up with some random real estate agent. You’re not sure you want them as your real estate agent but what’s the harm in having them show you a few properties? So they spend a couple of hours with you but then you decide to work with a different agent. Two weeks later you decide you are really interested in one of the properties realtor #1 showed you and you want to submit an offer.
Well, even though the real estate agent that originally showed you the property hasn’t really invested much time in you and you’ve long since selected another realtor to represent you, that first realtor can still claim procuring cause, denying your second realtor any commission. Strange but true.
The Dual Agency Trap
Home buyers can also find themselves surprisingly stuck in the middle of a procuring cause dispute when they decide to go look at a home without their own realtor. In this scenario the seller’s agent meets the home buyer at the property and shows them around. This simple act is often sufficient to establish a procuring cause claim by the seller’s agent if another realtor is brought in to submit an offer. The seller’s agent’s goal is to get both sides of the commission.
This scenario can get rather sticky because what exactly is the claimed relationship between the seller’s agent and the home buyer? If the seller’s agent is claiming they were acting as the buyer’s agent also then do they have a signed dual agency agreement by both parties? If not, then why is the seller’s agent entitled to the commission? I have no idea how an arbitration panel would handle a case without a dual agency agreement but I get the impression that it is not cut and dry.
Apparently, some seller’s agents are quite skilled in setting themselves up to capitalize on this scenario. I was recently contacted by a home buyer who was coerced into signing a dual agency agreement as a condition for viewing a property on his own. Supposedly he was only shown the signature page of the agreement so that he did not know what he was signing. The story was actually a bit more complicated than that but signing that agreement basically poisoned the waters for any other agent the buyer would want to use.
And buying new construction can be even worse. It’s a fairly common practice for home builders and their sales reps to put buyers’ agents on notice that if they do not show up for the initial showing there will be no commission paid to them. In this case the rules are so clear that you don’t even need arbitration to decide how the commission will be paid out.
In light of all these potential issues what should a home buyer do? Many just end up stuck with a realtor they are not happy with but that doesn’t have to be the outcome. In a subsequent post I explain how home buyers can avoid the procuring cause issue.
#Realtors #RealEstateAgents #ProcuringCause
Gary Lucido is the President of Lucid Realty, the Chicago area’s full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think he’s the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.