The following was approved by the C.A.R. Board of Directors, on October 20, 2001, for distribution to local Associations of REALTORS® and their members. These Procuring Cause Guidelines are intended to assist arbitration panelists in deciding which of multiple brokers is the procuring cause of a given transaction. Use of the Guidelines by any particular local association is strictly voluntary.
The offer of compensation from a listing broker to a cooperating/selling broker almost always has its source in the MLS rules. The California Model MLS rules provide that “In filing a property with the MLS, the broker participant makes a blanket unilateral contractual offer of compensation to the other MLS broker participants for their services in selling the property” Rule 7.12. “This broker participants contractual offer (with or without sub agency) is accepted by the participant/selling broker by procuring a buyer which ultimately results in the creation of a sales or lease contract. …” Rule 7.13. Therefore, the listing brokers contractual offer is accepted by the cooperating broker “procuring” the buyer. The term, “procuring cause” has taken on a life of its own, however, and many lists and memos have been developed to try to predict the outcome of a given dispute. There are a few key concepts that serve as a baseline, however.
- Procuring Cause is a factors test that doesnt necessarily have one triggering event that will give a sure result.
- N.A.R. Policy prohibits local associations from adopting a rule that “predetermines” outcomes in commission disputes.
- While a number of definitions of “procuring cause” exist, NAR urges that procuring cause be defined as the uninterrupted series of causal events, which results in the successful transaction.
The purpose of these Guidelines is to provide a framework with specific illustrations and guidance so that brokers can train their agents in a manner to minimize disputes and so that panelists hearing those disputes can be more consistent with similar fact patterns.
II. Presumptions and Burden of Proof
The broker who wrote the offer and closed the transaction is entitled to the presumption that he or she is the procuring cause of the transaction, UNLESS that broker did something to induce the buyer away from the first broker (because only brokers can offer and accept compensation under the MLS Rules, the term “broker” will be used throughout this paper to refer to both brokers and their agent salespeople in the proper context). These actions of the broker can include failure to inquire about the existence of a buyers relationships with other brokers early in the transaction, inappropriate interference with exclusive agency relationships, inappropriate instruction to use another brokers services and return to write up the contract, and other conduct. However, if the buyer leaves the first broker for good cause, it is not the new brokers job to force the buyer back to a broker in which he or she has lost confidence.
The complainant in an arbitration has the burden of proof to show, by a preponderance of the evidence, that he or she is entitled to the commission. Generally, the person bringing the arbitration did not write the contract that resulted in a closed transaction and did not receive the commission. In the highly unusual case in which the complainant did write the contract, but arbitration is needed to release funds from escrow, the broker who wrote the contract would still be entitled to the presumption, after simply putting forth facts to establish that he or she wrote the contract. The burden of proof would then shift to the responding party to show why he or she is entitled to the commission, which may be accomplished by showing that the other broker acted inappropriately or arguing other relevant factors.
The presumption is not a final determination: it is only the first step.
III. Factors Chart
The Factors Chart is a compilation of “facts” that are considered by an arbitration panel to determine whether the broker closing the transaction is, indeed, entitled to the commission as the procuring cause of the transaction. In some cases, the factors may so outweigh the presumption in favor of the closing broker that the panel decides the disputing broker is entitled to the commission. The factors chart contains factors gathered from many sources that have been used by arbitration panelists for years. It includes factors from NAR materials, CAR materials and case law, as well as general recurring patterns in transactions. The chart should NOT be used as a numerical system to give points to one side or the other. In given circumstances, some factors should be given more weight than others. Accordingly, the chart should serve as a guide to raise and consider relevant issues. For purposes of the chart, Intro Broker is the one who did not ultimately write the contract, and Closing Broker is the one who wrote the contract that was ultimately accepted and performed services through escrow to close the transaction. The chart is divided as follows:
- A. Connection to the Transaction. Factors 1-7 include the relationship of both brokers to the buyer in this particular transaction. Since a broker must be the procuring cause as it relates to the property and transaction in question, this series of factors focuses on the involvement of the broker.
- B. Buyers Choice. Factors 8-10 focus on why the buyer left the Intro Broker. Relevant factors here are examined to determine if the reason was so justified as to defeat the Intro Brokers procuring cause claim.
- C. Broker Conduct. Factors 11-18 focus on the conduct of the Closing Broker. Did the Closing Broker conduct him or herself in such a way that could have prevented the problem? Did the Closing Broker engage in inappropriate conduct that contributed to the “break” in the chain of events started by the Intro Broker that otherwise would not have occurred?
- D. Other. Factors 19-24 deal with contractual and other miscellaneous issues that are relevant to the ultimate decision.
The factors refer to three buyer representation contracts:
C.A.R. Form AAP-11 Exclusive Buyer Broker Compensation Contracts or other form used by brokers for the same purpose are similar to exclusive right to sell listings except that they describe the property needs of a buyer and give the broker the authority to locate property for the buyer. These contracts provide for payment even if the broker does not locate the property ultimately purchased.
C.A.R. Form NAP-11 Non Exclusive Buyer Broker Compensation Contracts or other form used by brokers for the same purpose define the agency relationship and provide for payment to the broker only if the broker introduces the successful buyer to the seller and the transaction is closed.
C.A.R. Form BR-11 Buyer Broker Representation Contracts or other form used by brokers for the same purpose define the agency relationship only and do not provide for any commission rights.
THIS CHART IS NOT A CHECKLIST. FACTORS ARE NOT ADDITIVE — SOME ARE ENTITLED TO MORE WEIGHT THAN OTHERS.
IV. Preventive Tips for Practitioners
Always ask a prospective buyer whether he or she is working with another broker.
- 1. If you find out that a prospective buyer is working with another broker, explore whether the first broker has an exclusive contractual agreement.
- 2. If you discover your client has been working with another broker on the same transaction, try to ascertain the reason why the client left the first broker and if appropriate, make immediate contact with the broker and try to resolve the issue. Failing to address it early on may result in you working through a difficult escrow, closing the transaction and not getting paid.
- 3. Give agency disclosures (C.A.R. Form AD-11) early in the transaction.
- 4. Use buyer representation agreements (with or without the brokers compensation element). This will help memorialize the relationship and help prompt the discussion about other relationships. If the contract includes a buyers commission obligation to the broker, it will also create an incentive for the buyer to come to you and terminate the contract prior to going to another broker
- 5. Never send your buyer client to other brokers with instructions to come back when the buyer is ready to write the offer.
- 6. Try to accompany your clients to open houses, but if you cant, give your clients your cards and instruct them to tell the agent sitting the open house that they are already working with you and present them your card. By not accompanying them, you take the risk that this explanation may not occur.
- 7. Stay in close contact with your client and be responsive during the transaction.
- 8. If you are conducting an open house, keep a registry of all prospective buyers including a note of whether there was a broker with the buyer. Also, keep a record that the agent sitting the open house asked the buyer if they were working with an agent.
- 9. If you have a listing where the property is being shown by brokers when you are not present, leave a sign-in sheet with buyers names and brokers names similar to those at a new home development. Include dates and times in the registry. This creates a record of who was shown the property and with which broker.
V. Fact Patterns
The following fact patterns are NOT to be construed as definitive outcomes for similar real-life situations. In truth, very few real-life fact patterns would exactly match the ones below, because real-life cases would have nuances and facts that are not and can not be addressed in this paper. All of the facts of a particular case must be considered by a panel to determine procuring cause. The fact situations here are merely a guide for panelists, to demonstrate how the factors are used in conjunction with the presumption in favor of Closing Broker.
“Intro Broker” refers to the one who did not ultimately write the offer.
“Closing Broker” refers to the one who wrote the offer that was ultimately accepted and performed services through escrow to close the transaction. Closing Broker also received the commission.
“Exclusive Buyers Agency Contract” refers to any contract that creates an exclusive agency between the buyer and the agent, such as the Exclusive Buyer Broker Compensation Contract (C.A.R. Form AAP-11) or other form used by brokers for the same purpose. The contract does not have to grant a commission to be exclusive.
FACT SITUATION 1 — WRITTEN AGREEMENT
FACT SITUATION 1A
Buyer is working with several agents and is shown the property by Intro Broker, but has no written agreement with him or her. Three days later Buyer is shown the same property by Closing Broker, who writes a successful offer and receives the commission.
In the absence of other material facts favoring Intro Broker, the factors favor Closing Broker as the procuring cause. Showing the property first is only one factor and is unlikely to overcome the presumption in favor of Closing Broker. According to the fact pattern, Intro Broker did not write an offer and may not have spent a significant amount of time with Buyer. Further, the absence of any agency agreement with Intro Broker is a factor that weighs against him. Given the facts in this scenario, a panel would likely conclude that Closing Broker is the procuring cause and entitled to the commission.
FACT SITUATION 1B
Same as 1A, and in addition, Intro Broker had Buyer sign a buyer representation agreement (C.A.R. Form BR-11 or other form used for the same purpose).
This case differs from 1A, in that Intro broker now has an agreement that weighs in his favor. The signed buyers representation agreement, by itself, however, does not resolve the issue. A panel would need to inquire whether Closing Broker asked Buyer about an agreement with another agent or engaged in other conduct that might create additional factors in Intro Brokers favor. Assuming, however, that no other factors favor Intro Broker, a panel could find that Intro Broker has not overcome the presumption in favor of Closing Broker, and that Closing Broker is the procuring cause.
FACT SITUATION 1C
Intro Broker had Buyer sign an exclusive buyer’s agency contract. Intro Broker showed some properties to Buyer, but not the one that Buyer ultimately purchased. Closing Broker asked Buyer before showing any property to Buyer whether Buyer had signed any buyer’s agency contracts or forms other than the agency disclosure form. Buyer replied, “Yes, I signed an exclusive buyer’s agency contract, but don’t worry about it, show me some property.” Closing Broker did so. Buyer liked one of the homes shown by the Closing Broker and asked Closing Broker to write an offer. Closing Broker then obtained Intro Broker’s agreement from Buyer and reviewed it. Closing Broker discussed the situation with Buyer: Closing Broker told Buyer the importance of the written agency agreement with Intro Broker and that Buyer was exposed to paying a commission to Intro Broker. Buyer none-the-less insisted on proceeding with Closing Broker and said, “I’ll take care of Intro Broker, don’t worry.” So Closing Broker wrote the offer, which was accepted.
Intro Broker files an arbitration for the commission, claiming Closing Broker interfered with his contract with Buyer. If the panels inquiry reveals that Closing Broker did everything necessary to protect both Intro Broker and Buyer, and there are no additional facts showing that Closing Broker lured Buyer away from Intro Broker or otherwise engaged in behavior that would create factors favoring Intro Broker, the panel would probably find that Closing Broker is the procuring cause. Their ultimate conclusion depends on how the panel weights the various factors. It appears that Buyer may be the culprit here, and if Intro Broker loses the procuring cause question with Closing Broker, Intro Broker still has a contract right to bring an action against Buyer for a commission.
FACT SITUATION 1D
Same facts as 1C, but also the property purchased was one that Intro Broker had previously shown Buyer.
This scenario is much more difficult because there are more factors in each brokers favor. The outcome here, however, depends not on the number of factors in a brokers favor, but, instead, on how much weight the panel gives each factor. While having shown the same house helps Intro Broker, depending on that factors weight with the panel, it still may not overcome the presumption in favor of Closing Broker, particularly in light of his careful process in dealing with the demanding Buyer.
FACT SITUATION 1E
Same facts as 1A, but Intro Broker has an exclusive buyer broker compensation agreement (such as C.A.R. Form AAP-11 or other form used for the same purpose) with Buyer. Also, Closing Broker fails to ask Buyer if any agency form or buyer broker agreement had been signed with a prior broker, and Buyer doesnt volunteer the information.
In California today, a buyer’s broker should always inquire if Buyer has signed any agreement with a prior agent, and if the answer is “yes,” find out what that agreement is. While the fact that Closing Broker closed the deal entitles him to the presumption, the conduct of Closing Broker, and his behavior in determining the existence of the contract, will probably have sufficient weight to tip the procuring cause decision in favor of Intro Broker.
FACT SITUATION 2 — OPEN HOUSES
FACT SITUATION 2A
Buyer has been shown property by Intro Broker, and Intro Broker has no agency agreement with Buyer. Buyer goes alone to Closing Broker’s open house, which was previously shown by Intro Broker. Buyer asks Closing Broker to write an offer for Buyer. Closing Broker successfully does so, without inquiring about any prior agency relationship with other agents.
In the absence of other material facts favoring Intro Broker, it appears that the factors in favor of Intro Broker are not sufficient to overcome the presumption that Closing Broker is the procuring cause. Showing the property first is only one factor. According to the fact pattern, Intro Broker did not write an offer and may not have spent a significant amount of time with Buyer. Further, the absence of any agency agreement with Intro Broker is a factor that weighs against him. Given the facts in this scenario, a panel would likely conclude that Closing Broker is the procuring cause and entitled to the commission. Closing Broker is fortunate that Intro Broker did not have an exclusive agency agreement with Buyer, so Closing Brokers failure to ask was not detrimental.
FACT SITUATION 2B
Same facts as 2A, but Closing Broker does inquire if Buyer has been working with another agent, and Buyer says” yes,” but never mentions that she has seen the house before. Closing Broker determines that Buyer signed C.A.R.’s Buyer Representation Agreement (C.A.R. Form BR-11) with Intro Broker. Buyer asks Closing Broker to write an offer on the property, and Closing Broker successfully does so.
Closing Broker has determined that there is no exclusive agency with Intro Broker and does not know Buyer has seen the property before. Absent other material facts favoring Intro Broker, Closing Broker probably prevails. Of course, the ultimate outcome depends on any other factors present and the weight given to them by the panel.
Note, a question here is whether Closing Broker should have asked Buyer if she had seen the property before. While Closing Brokers knowledge that Buyer had seen the property with Intro Broker is a factor in favor of Intro Broker, the panel will have to decide if it outweighs the presumption in favor of Closing Broker. In the limited facts of this scenario, it probably would not. Closing Broker has determined that Buyer had no exclusive agency with Intro Broker, and showing the property first is only one factor to consider.
FACT SITUATION 2C
Buyer has worked only with Intro Broker and has signed an exclusive buyer broker compensation agreement (such as C.A.R. Form AAP-11 or other form used for the same purpose) with Intro Broker. Buyer goes alone to Closing Broker’s open house, which Buyer had not seen before. Closing Broker never inquires if Buyer has a prior agency relationship with another agent. Buyer makes an offer on the same property through Closing Broker.
In California today, a buyer’s broker should always inquire if Buyer has signed any agreement with a prior agent, and if the answer is “yes,” find out what that agreement is. While the fact that Closing Broker closed the deal entitles him to the presumption, the conduct of Closing Broker, and his behavior in determining the existence of the contract, should have sufficient weight to tip the procuring cause decision in favor of Intro Broker.
FACT SITUATION 2D
Same as 2C, but Closing Broker inquires and Buyer tells Closing Broker that he/she has not signed any exclusive agency agreement.
Intro Broker files an arbitration for the commission, claiming Closing Broker interfered with his contract with Buyer. If the panels inquiry reveals that Closing Broker did everything necessary to protect both Intro Broker and Buyer, and there are no additional material facts favoring Intro Broker, the panel would probably find that Closing Broker is the procuring cause. It appears that Buyer has lied intentionally to Closing Broker, which could weigh heavily in favor of Closing Broker. If Intro Broker loses the procuring cause question with Closing Broker, Intro Broker still has the right to bring an action against Buyer for a commission.
FACT SITUATION 3 — CLOSING BROKER INDUCES BUYER TO LEAVE INTRO BROKER
FACT SITUATION 3A
Buyer is working with Intro Broker and is very interested in a house shown by Intro Broker. Buyer discusses the home with a friend, Closing Broker, who happens to be licensed. Closing Broker says he can get Buyer a better deal, by rebating 1% of his commission to Buyer. Closing Broker shows the property again, and then writes the offer. Closing Broker has no written agency agreement with Buyer.
Absent other material facts favoring Closing Broker, it appears that Intro Broker is entitled to the commission. Closing Broker intentionally interfered with Intro Broker’s agency relationship, which is a heavy factor in favor of Intro Broker. Such intentional interference probably overcomes the presumption in favor of Closing Broker, and carries the burden of proof for Intro Broker. Whether Closing Broker shows the property again is not a material fact in and of itself.
FACT SITUATION 3B
Buyer has been working with Intro Broker, who has shown numerous houses over a period of several weeks. However, Buyer is dissatisfied with Intro Broker’s efforts, especially because Intro Broker fails to return phone calls promptly. While looking at open houses, Buyer meets Closing Broker. Closing Broker inquires of Buyer whether Buyer is working with any other agents. Buyer says yes, and also says, “but I’m not really happy with Intro Broker,” and goes on to state why. Closing Broker also ascertains that Buyer has not signed an exclusive buyer’s agency agreement. Buyer is uncertain whether Buyer can in good conscience abandon Intro Broker, but Closing Broker convinces Buyer that it’s OK. Closing Broker shows Buyer several homes, but none are appealing, so Buyer asks to see a home previously shown by Intro Broker. Closing Broker successfully writes an offer on that home for Buyer.
Intro Broker has no exclusive agency agreement, which Closing Broker ascertained. Further, Buyer’s dissatisfaction with Intro Broker is a material fact in this case. If the panels inquiry reveals that Closing Broker did everything necessary to protect both Intro Broker and Buyer, and there are no additional material facts favoring Intro Broker, the panel would likely find that Closing Broker is the procuring cause.
FACT SITUATION 3C
Same facts as 3B, but there is an exclusive buyer broker compensation agreement (such as C.A.R. Form AAP-11 or other form used for the same purpose) with Intro Broker, and Closing Broker counseled Buyer as to its meaning and importance.
While Intro Broker did have an exclusive buyer’s agency agreement, Closing Broker made the proper inquiry and counseled Buyer as in Fact Situation 1C. Buyer’s dissatisfaction with Intro Broker remains a key. If the panels inquiry reveals that Closing Broker did everything necessary to protect both Intro Broker and Buyer, and there are no additional material facts favoring Intro Broker, the panel would probably find that Closing Broker is the procuring cause. If Intro Broker loses the question of procuring cause to Closing Broker, he or she still may have a contract right against Buyer.
FACT SITUATION 4 — INTRO BROKERS PRIOR OFFER FAILED
FACT SITUATION 4A
Intro Broker has written an offer for Buyer, but it failed and all negotiations on the property were terminated, because Buyer thought the sellers counteroffer was too high. Buyer consults with Closing Broker, who, after determining that Buyer does not wish to work with Intro Broker any longer, convinces Buyer that the seller was not asking too much in light of current market conditions. Closing Broker rewrites the same offer, and when seller counters at a price Closing Broker believes is good, Closing Broker convinces Buyer it is a fair price and successfully writes a counteroffer.
Intro Broker has no exclusive agency agreement, which Closing Broker ascertained. Further, Closing Broker asked the right questions and learned that Buyer no longer wanted to work with Intro Broker a factor in Closing Brokers favor. Showing the property first is only one factor here. Although Intro Broker also receives a factor for the prior offer on the property, Intro Broker may not be able to overcome the presumption in favor of Closing Broker. If the panels inquiry reveals that Closing Broker did everything necessary to protect both Intro Broker and Buyer, and there are no additional material facts favoring Intro Broker, the panel would likely find that Closing Broker is the procuring cause.
FACT SITUATION 4B
Same as 4A and, in addition, Intro Broker had an exclusive buyer broker compensation agreement (such as C.A.R. Form AAP-11 or other form used for the same purpose) with Buyer, which had not expired at the time of Closing Broker’s writing the offer for Buyer. Buyer did disclose the agency agreement to Closing Broker.
Although Intro Broker did have an exclusive buyer’s agency agreement, Closing Broker made the proper inquiry. In addition, while Intro Brokers prior offer on the property is a factor in his or her favor, the reason Buyer decided to leave Intro Broker is also a factor. If the panels inquiry reveals that Closing Broker did everything necessary to protect both Intro Broker and Buyer, and there are no additional material facts favoring Intro Broker, the panel would probably find that Closing Broker is the procuring cause. If Intro Broker loses the question of procuring cause to Closing Broker, he or she still may have a contract right against Buyer.
VI. Frequently Asked Questions
Q: 1. Does the arbitration always result in an “all or nothing” award or may arbitrators split the award between the two disputing brokers?
A: In most cases, sound analysis will lead arbitrators to conclude that only one broker was the procuring cause, and that broker should get the entire commission. Further, arbitrators should not avoid the “all or nothing” decision, just because it is a hard one to make. Nonetheless, after all factors have been weighed, under some fact patterns, arbitrators may decide to split the commission.
Q: 2. Must a listing broker be named as a party to an arbitration complaint when he or she has contractually offered the commission to other brokers through the MLS?
A: Although the listing broker offered the compensation, generally, only the disputing cooperating brokers are parties to the arbitration. A listing broker can be named, however, and it is up to the complainant to determine the proper parties to the complaint.
Q: 3. Must the respective responsible brokers for the agents in a commission dispute be named in the arbitration complaint?
A: California Code of Ethics and Arbitration Manual require that the responsible broker be named as a complainant to an arbitration complaint. There is no similar requirement for the respondent, but it is advisable to have the responsible brokers on both sides of the dispute.
Q: 4. Does a broker with an exclusive buyer broker compensation agreement (such as C.A.R. Form AAP-11 or other form used for the same purpose) with the buyer need to go through arbitration?
A: Yes. There are factors, which taken together, can outweigh the exclusive buyer broker contract.
Q: 5. Are these guidelines a “predetermination of entitlement” to a commission, which is prohibited under NAR policy?
A: No. The guidelines are merely factors to be considered in light of built-in presumptions.
Q: 6. Where can additional information regarding the topics discussed in this memorandum be obtained?
A: This memorandum is one of the many Legal Briefs, Legal Q&As, and other free legal publications made available to REALTORS by C.A.R. These publications are available at many local Associations/Boards of REALTORS, and are automatically distributed to subscribers of PreventionExpress, C.A.R.s suite of products and services designed to help REALTORS stay abreast of legal developments affecting the real estate industry. For information on PreventionExpress, contact Real Estate Business Services, Inc., a C.A.R. subsidiary, at 213.739.8227. In addition, many C.A.R. publications are available through C.A.R.s website at or CARFAX, C.A.R.s fax-on-demand system. To access CARFAX, call 213.739.8329 and request the CARFAX catalogue.
For free recorded messages on more than 200 real estate-related topics, C.A.R. members can call C.A.R.s Automated Legal Information System, or ALIS, 24 hours a day. To access ALIS, simply call 213.739.8205 from a touch-tone phone and follow the prompts.
Readers who require specific advice should review their facts with an attorney. C.A.R. members requiring legal assistance may contact C.A.R.’s Member Legal Hotline at 213.739.8282, Monday through Friday, 9:00 A.M. to 6:00 P.M. C.A.R. members who are broker-owners, office managers, Designated REALTORS or PreventionExpress subscribers may contact the Member Legal Hotline at 213.739.8350 to receive expedited service. Members may also fax or e-mail their questions to the Member Legal Hotline at 213.480.7724 or firstname.lastname@example.org. Written correspondence should be addressed to:
California Association of REALTORS
Member Legal Services
525 South Virgil Avenue
Los Angeles, California 90020
The information contained herein is believed accurate as of October 20, 2001. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney.