In the unique language of real estate, Procuring Cause, as defined by the National Association of Realtors, is “the unbroken series of causal events that leads to a successful transaction.” Simply put, it’s the way to determine who rightly deserves a real estate commission for making a sale. What this means for the home buyer or seller is that an agent with little or no involvement in a transaction can claim a commission from either the buyer or the seller or both. For example:
Comedian Jerry Seinfeld recently purchased a $3.95 million townhouse in Manhattan. Her realtor was unavailable to show her the house a second time due to her religious practice. Seinfeld then completed the transaction on his own, thinking he would save the $100,000 commission. He was later successfully sued because the agent had demonstrated that he had provided cause by first showing him the property and because Seinfeld had entered into an exclusive buyer representation agreement. Not understanding the dynamics of Procuring Cause had cost Seinfeld a hundred thousand dollars.
Seinfeld’s case was relatively clear. The agent had shown him the property and had an exclusive right to sell by contract with Seinfeld. However, commission claims can be based on much thinner grounds. In fact, any provable contact with an agent can theoretically constitute grounds for pimping. That’s why agents seem so eager to get a prospect to connect, whether online or in person. If this agent provides information about a property that the prospect ultimately purchases, the agent can view their efforts as the beginning of “the unbroken series of causal events that leads to a successful transaction.” Unfortunately, this sometimes happens.
Additionally, some agents present exclusive purchase agreements similar to the one made by Seinfeld with little or no understanding on the part of the buyer as to what exactly they are agreeing to.
All of this gives the impression that real estate agents are trying to entice buyers and sellers to pay large sums of money for which they have not worked. It’s rarely true. Procuring Cause is a definition relating to the Real Estate Agents’ Code of Ethics designed to protect agents from having their commissions stolen. It works like this:
An agent establishes an open and honest working relationship with a potential buyer, shows them properties – often for months or even years – works with them on their financing, negotiates the sale and is then excluded from the transaction either by the buyer (as Seinfeld tried to do) or a seller or other agent who comes at the last minute to draft the contract. In the latter case, this often happens not because buyers are unhappy with their agent but because they have a friend or relative who has a real estate license – often part-time or inactive* – whom they want to favor. giving them the commission, even if that agent has nothing to do with the process.
This is where the local association of estate agents steps in to ensure justice is served. Both sides of the issue are taken to a grievance committee and the real cause of pimping is determined. In the above case, it is obvious that the agent who stepped in at the last minute had no right to expect a commission. However, what if that johnny-come-lately agent who wrote the contract had an exclusive buyer agreement? In this case, the commission usually goes to the agent who not only has the signed contract but the exclusive written agreement.
Now here’s where it gets sticky and can cost both buyer and seller. An agent kicked out of a deal because they were uninformed or misinformed of the true situation can sue in civil court. Surely no one needs that kind of aggravation and expense, especially when moving house, which often stretches resources to the limit.
So here are some ways to avoid tangles with Procuring Cause:
- Don’t sign anything except the agency’s mandatory disclosure documents that are designed to inform you of the agent’s loyalty and nothing more. If you choose to enter into an exclusive buyer agreement, be aware that even if you buy through another agent or directly from an owner or builder, you will likely be required to pay a commission to the buyer. agent who registered you.
- Do not provide contact information, as this may invite further marketing efforts. Be aware that even a simple contact with an agent who provides information about a property can be grounds for claiming commission. If you are asked to register for an open house, give your name and nothing more.
- Choose an agent to work with and work exclusively with that agent, whether or not you have a contractual agreement. If you decide to change agents for any reason, officially end your relationship with your old agent. Keep a record of the termination, such as a signed and acknowledged letter. Do not contact the former agent after your relationship ends.
- If you receive registration information or are contacted by an agent you don’t work with, ask them to stop sending information and remove your name from their contact list.
That’s it. The vast majority of real estate agents and brokers are scrupulously honest. They deserve to be rewarded for their efforts as any professional would. But this only happens when they complete a transaction and receive a commission. It is their livelihood. A few moments of advance communication as to your intentions as a buyer or seller often avoid misunderstandings later. Tell them what you intend. Ask them to explain your obligations to you. Know who works for whom. And know how the agents of the transaction should be remunerated.
Contracts and other legally binding documents are often misunderstood. That’s why a lawyer knowledgeable in real estate matters is essential to your well-being. And while they are usually brought in to review the contract, prepare the documents, and oversee the closing, they should also be brought in before signing exclusive buyer contracts or listing agreements. The cost of this can usually be rolled into the fee for their services for closing. The price to pay for not doing so can be staggering.
In general, there is nothing to fear and a lot to gain from working with a real estate professional. Article 1 of the code of ethics of the real estate agent specifies it:
“When representing a buyer, seller, landlord, tenant or other client as an agent, real estate agents undertake to protect and promote the interests of their client. This obligation to the client is paramount , but it does not relieve Realtors of their obligation to treat all parties fairly.When serving a buyer, seller, landlord, tenant or other party in a non-agent capacity, Realtors remain obligated to treat all parties honestly.Click for full Estate Agent Code of Ethics
Agents found guilty of code violations have their realtor status suspended or revoked.
Home ownership is not only the American dream, but also the source of wealth for most Americans. An open and honest approach and a little common sense go a long way to a successful transaction by preventing problems before they arise.
*Everyone knows a real estate agent. And it’s a safe bet that this agent does not earn a good living by selling real estate: 10% of approved agents make 90% of sales. The others fight for the crumbs. Don’t get involved with any of them, even if they are a relative. Always work with the best professionals, either brokers or associate brokers. Statistically, we are more likely to end up in court for a real estate matter than for any other matter. You don’t have to be one of them.
Today, it is important to be aware of the potential risks and rewards associated with investing and other financial decisions, for “what you don’t know can cost you dearly.” Without proper research and due diligence, investments and financial decisions can have serious consequences, from loss of money to legal repercussions.
A good first step in researching any new investment is to understand the terms used, how complex the investment is, and if there are any potential risks associated with it. Additionally, it is important to ascertain whether the person or company offering the investment is legitimate and qualified to do so. If the risk is too great or if the person or company is unreliable then it is best not to enter into the investment.
Investor advisory services and publications, such as newsletters or magazines, are excellent tools to become informed on available opportunities and decisions. Additionally, a financial planner or other knowledgeable individual can be extremely helpful in making sure investments are sound and that investors understand their options.
Finally, searching for consumer complaints about the potential investment and consulting with a lawyer for a legal review are all worthy ideas. Such steps may seem laborious and tedious, but taking the time to find out the facts matters and is worth it in the long run.
Investing without sufficient knowledge can be a costly endeavor, and it is essential that informed decisions are made before committing to any investments or financial decisions. Although the process of researching investments may seem time consuming and cumbersome, it is essential for the safety of any potential investments and for the protection of personal resources.
Therefore, it is essential to keep in mind that in the investing world, “what you don’t know can cost you dearly.”