Understanding Compensation and Serving the Client:

Procuring Cause Concepts

Bruce H. Aydt, ABR, ABRM, CRB, SRS

© Copyright, 2004-2006

General Legal Definition:  Black’s Law Dictionary, Fifth Edition:

�¡          “The proximate cause; the cause originating a series of events which, without a break in their continuity, result in the accomplishment of the prime object.  The inducing cause; the direct or proximate cause.  Substantially synonymous with “efficient cause.”

�¡          Within this definition, the second phrase aptly summarizes the basic concept of procuring cause:  “the cause originating a series of events which, without a break in their continuity, result in the accomplishment of the prime object.”  In the REALTOR® system, the “prime object” is a sale or lease of property.

“Arbitration Guidelines (Suggested Factors for Consideration by a Hearing Panel in Arbitration)”, Appendix II to Part Ten of the National Association of REALTORS® Code of Ethics and Arbitration Manual (CEAM)

�¡          The NAR CEAM covers procuring cause extensively in the Arbitration Guidelines.

�¡          The Guidelines set out six “Factors” for panels to consider, as follows:

1.         Factor #1:  No predetermined rule of entitlement

Associations may not have a predetermined rule of entitlement to commission in a procuring cause case, whether written, unwritten or simply “understood.”  For example, before approximately 1970, some associations declared by “policy” that the “Threshold Rule” (first person to show the property) was the determining factor in a procuring cause dispute.  Today, an Association may not have such a rule.

2.         Factor #2:  Arbitrability and appropriate parties

This factor discusses what disputes are appropriate for arbitration and the necessary parties.  Since the Grievance Committee generally disposes of these issues, it is unlikely that issues about these matters will come up at a hearing.

3.         Factor #3:  Relevance and admissibility

This factor confirms the standard for admission of evidence as previously discussed.

4.         Factor #4:  Communication and contact – abandonment and estrangement

Abandonment and estrangement are two critical issues often brought up in procuring cause cases.  They will be discussed in more detail below.

5.         Factor #5:  Conformity with state law

This factor deals with the basic nature of arbitration matters as relying on underlying state law, primarily the concepts of the Uniform Arbitration Act as adopted in various states.

6.         Factor #6:  Consideration of the entire course of events (“The Questions”)

This factor is related to Factor #1.  Not only is there no predetermined rule of entitlement in a procuring cause case, the panel is directed to look at all of the facts and circumstances in the case and NOT decide the case on the basis of any one factor.  To that end, the Arbitration Guidelines include a detailed series of questions that the panel can ask and consider in its disposition of the case.

You should review the Arbitration Guidelines before you sit as a panel member in an arbitration case.  They are attached to these Tips.

Summary of General Procuring Cause Concepts

�¡          Uninterrupted series of events

            ÷         The concept of the “uninterrupted series of events” might be likened to an “unbroken chain of events.”  A chain has links.  Think of the basic nature of procuring cause as a chain in which no links have been broken.

            ÷         Links in the chain might be broken in a number of ways.  If a link is broken, then the person starting the chain in which the link was broken will not be the procuring cause of the sale.  Two of the important ways a link may be broken are abandonment and estrangement.

�¡          Abandonment

            ÷         Abandonment is characterized by some lack of contact by the agent with the buyer for some period of time.  The panel decides whether the conduct constitutes abandonment.  There is no set period of time of lack of contact that is considered abandonment.  The panel decides whether the lack of contact by the agent for the period of time in the case before them constitutes abandonment.

�¡          Estrangement

            ÷         Estrangement has a very specific focus.  If a buyer says only that he/she “prefers” to work with Agent A rather than Agent B, this statement of “preference,” is not automatically conclusive proof of estrangement.  While a buyer may choose to work with any agent, the buyer’s choice of agent is not necessarily determinative of which person claiming the commission is to be paid.

            ÷         Estrangement focuses on the conduct or lack of conduct of Agent B that “caused the purchaser to terminate the relationship.”  The key question is “what did Agent B do or fail to do that pushed the buyer to Agent A?”

Common Misconceptions about Procuring Cause

�¡          Through the years, several misconceptions about procuring cause have developed and often continue to be cited as the “rule” in deciding these cases.  Remember, no one rule determines the case.  The following three misconceptions are sometimes cited by parties in an arbitration hearing as being the “trump card” for their position.  They are NOT a “trump card!”

�¡          The Threshold Rule

This “rule” might be loosely defined as bringing the buyer “across the threshold” of the property.  It also might be known as the “first showing rule.”  Parties who are not familiar with the procuring cause guidelines will sometimes overemphasize who showed the property first as being dispositive of the case.  Alternatively, parties sometimes argue that, because the opposing party didn’t show the property, the opposing party should not be entitled to the commission.  While showing is an important fact, whether a party did or did not show the property, and/or whether a party was first to show the property, are not the deciding facts in the case.

�¡          The Contract Rule

This “rule” argues that the person who writes the successful offer to purchase automatically is entitled to the commission.  Like the Threshold Rule, such is not the case.

�¡          The Agency Rule

The “Agency Rule” is usually presented as the person who has an agency agreement (usually exclusive) with the buyer is entitled to the commission.  The Arbitration Guidelines are very specific that “agency relationships, in and of themselves, do not determine entitlement to compensation.”  While an important fact to be considered, the existence of an agency agreement with the buyer is one of many facts to be considered.  The key learning in this area is that the commission in dispute in a REALTOR® association arbitration is based on the contract between the listing broker and the cooperating broker.  The buyer agency agreement is a completely separate contract between the buyer and buyer’s agent and does not control the conduct of the listing broker, who is NOT a party to the buyer agency agreement.  It is possible that a buyer’s agent may not be entitled to the commission in dispute in the procuring cause arbitration and still be paid a commission under the terms of the agency agreement that has been entered into by the buyer.

How Many Procuring Causes are there??

�¡          The short answer to this question is “one.”

�¡          The question and answer is intended to focus on the fact that arbitration hearing panels should not generally split awards between the parties.  In general, the panel should award the commission on an “all or nothing” basis.

�¡          The CEAM does permit a panel to split an award between the parties if the panel decides that the transaction would have occurred only because of the efforts of both parties.

Code Violations, License Law Violations and Procuring Cause

An issue that arises in arbitration hearings is whether possible violations of the Code of Ethics, the license law, the agency disclosure laws/rules of a state or other violations of law can be used in determining entitlement to the commission.

Factor #3 of the Arbitration Guidelines states:

“Arbitration Hearing Panels are called on to resolve contractual questions, not to determine whether the law or the Code of Ethics has been violated. An otherwise substantiated award cannot be withheld solely on the basis that the Hearing Panel looks with disfavor on the potential recipient’s manner of doing business or even that the panel believes that unethical conduct may have occurred. . . . At the same time, evidence or testimony is not inadmissible simply because it relates to potentially unethical conduct. While an award (or failure to make a deserved award) cannot be used to “punish” a perceived “wrongdoer”, it is equally true that Hearing Panels are entitled to (and fairness requires that they) consider all relevant evidence and testimony so that they will have a clear understanding of what transpired before determining entitlement to any award.”

A panel member should NOT make a decision to award the commission to a party based primarily on the fact that the other party potentially violated the Code.  An example of this is a potential violation of Article 16, Standard of Practice 16-13.  Standard of Practice 16-13 requires that, before providing a substantive service such as writing a purchase offer, the REALTOR® must ask the prospect whether the prospect has an exclusive representation agreement with another REALTOR®.  Assume a panel member votes to award a commission to REALTOR® B on the basis of this logic:  “REALTOR® A forgot to ask whether the buyer had a buyer agency agreement with another REALTOR® and therefore I will not award the commission to REALTOR® A but give it to REALTOR® B.”  This reasoning is flawed.  The panel member should NOT refuse to award the commission to REALTOR® A primarily on the basis of REALTOR® A’s failure to ask “the question.”

A similar situation arises with agency disclosure rules.  For example, assume REALTOR® A forgot to give a disclosure about dual agency that is required law.  It is incorrect for a panel member to vote to refuse to award the commission to REALTOR® A primarily because they failed to give a proper agency disclosure.  However, it is possible that REALTOR® A’s failure to give a proper agency disclosure may have caused the prospect to terminate their relationship with REALTOR® A and seek out REALTOR® B, with whom they wrote a purchase offer.  If this is the case, REALTOR® A’s conduct might be seen as an estrangement of the prospect and thus the panel member may decide not to award the commission to REALTOR® A because of the estrangement and NOT because of the potential violation of the agency disclosure laws/regulations.