Procuring Cause (excerpt from a letter to the Attorney General's Office)
Another serious problem to real estate consumers is the method used by real estate agents to resolve commission disputes called "procuring cause." Commission disputes resolved using "procuring cause" interfere with the buyer's right to choose a real estate agent and the seller's ability to sell to whomever they wish. Currently, these disputes are typically resolved by an Arbitration Panel composed exclusively of Realtors. The question asked by the panel is always, "who procured the sale?" Rather, the question should be, "Who has a valid Buyer Broker Agreement with the buyer?" By ignoring the contractual rights of their clients, and focusing on the contractual relationships between brokers, the broker commission disputes have some absurd results.
For example, consider the common practice of Realtors advertising open houses. It is standard practice for Realtors to solicit potential home buyers to come visit their sellers' open houses. Consumers are encouraged to attend the open houses and are not encouraged to attend with the aid of a buyer agent. The buyers are asked to "sign-in" and will be shown the house as many times as they like. The buyer is enticed to believe that there is no obligation and will assume that the seller's agent is simply doing their job in trying to sell the house for their client, the seller. However, if the buyer decides that they want to buy the house and that they want to hire a buyer agent to represent their interests, it is then that they discover that that "they" have created a commission issue that will probably deter a buyer agent from representing them in the purchase of that house. Despite the fact that the buyer hasn't signed a contract, despite the fact that the buyer had no intention of "hiring" the seller's agent, despite the fact that it is not in the buyers' or sellers' best interests, the seller's agent will always prevail in a "procuring cause" case like this one (the current Minnesota Realtor publication outlines such a case in an article entitled, "Commission Disputes Who Gets Paid?" Minnesota Realtor, December, 1999). As a result, the buyer may feel forced into purchasing open houses without the aid of buyer representation.
The source of the problem is that the Arbitration Panel focuses only on the contractual relationships between the brokers. Talk about a conspiracy, these contractual relationships are dictated by the Multiple Listing Service ("MLS"), which is wholly owned by the Realtor Association, which is controlled by the larger real estate companies. It is the larger real estate companies that have most of the listings and benefit the most financially from utilizing the "procuring cause" resolution method. The MLS contract provides an offer of compensation from the listing broker to any broker (Realtor members only) who procures a ready, willing and able buyer. It is my position that the terms of compensation being offered to cooperative brokers should be negotiated by the seller and broker, not dictated by the MLS. How many sellers would knowingly agree that their broker has the right to do the following: 1. Interfere with a buyer's ability to hire an agent to purchase their house; 2. Refuse to pay a buyer's agent a commission split because the listing broker initially showed their house to the buyer in an open house; 3. Refuse to pay a buyer's agent a commission split because the agent is not a member of the MLS or Realtor Association; 4. Offer a sub-standard compensation to cooperating brokers essentially discouraging other brokers from showing their house so as to increase the likelihood of a dual agency transaction (this is still going on today). These are all material terms that the seller should be made aware of and permitted to negotiate with their listing broker, however, they are never allowed that right.
I believe that there are several solutions to the problem. First, the terms and amounts of compensation offered to cooperating brokers should be negotiated at the time of the Listing Contract between the seller and broker. Currently, this important term is not included in the Listing Contract. In fact, there are some brokers who take who take advantage of this "un-negotiated" and undisclosed term to offer sub-standard compensation to cooperating brokers. Second, the MLS should be prohibited from imposing any "rules" on the offer of compensation, such as excluding licensed brokers who are not members of the Realtor Association. Third, commission disputes should be determined by an arbitration source outside the Realtor Association; Fourth, no sellers' broker should be permitted to bring a commission action unless they have a signed contract with the buyer in which the buyer acknowledges that they understand that they have given up their right to select their own representative; Fifth and most important, a buyer should be permitted to hire their "own" agent at any time, and that agent should be entitled to collect the entire commission split being offered - even if the seller's agent has worked extensively with that buyer (there can be no substitution for buyer representation).