Procuring Cause Paradox
[Note to Readers: The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced. If you need legal advice, please consult an attorney.]
One of the more contentious, behind-the-scenes issues that can crop up in residential real estate is, “which agent is entitled to the pay-out commission?” (note: the part of the commission collected by the agent representing the Seller is called the “list-side commission”).
In the vast majority of cases, it’s the Buyer’s agent.
After all, it’s usually the Buyer’s agent who gets their client qualified with a lender; educates them about the market; shows their client “For Sale” homes; coaches them on writing an offer (make it offers these days, given the proliferation of bidding wars); analyzes the Comp’s; helps their client navigate the home inspection process (and any resultant issues), etc.
As counter-intuitive (and unfair) as it may seem, none of those roles entitles the Buyer’s agent to get paid.
Rather, the payout commission is technically payable to the agent who is most responsible for the Buyer’s decision to buy a specific home.
So, commission conflicts can arise if the Buyer finds the property on their own (like at a Sunday open house or Parade of Homes property), and effectively starts the purchase process with the hosting agent instead of their own.
How far is too far?
I liken it to a batter checking their swing.
Suffice to say, though, if the Buyer starts writing a Purchase Agreement with someone not their agent, the latter has a BIG problem.
When there’s a commission dispute, who wins?
Whichever agent can demonstrate — by a “preponderance of the evidence” — that they were most responsible for the sale.
–Which agent introduced the Buyer to the property?
–Which agent effectively had control of the Buyer?
–Did the agent purporting to represent the Buyer have a signed Representation agreement? (note: having one doesn’t clinch the agent’s case — but not having one is often fatal).
All of which gives rise to one of the odder paradoxes in real estate.
Namely, one of the best ways a Buyer’s agent can demonstrate that they are integral to a deal . . . is by nixing it.
They can do that by pointing out drawbacks about the home or neighborhood that the (emotional) Buyer may have overlooked; raising valuation issues; or by simply making the case for another, more attractive property (“heads up” to any overreaching listing agents out there).
Of course, in that case, there’s no commission to be divvied up, either.
Sort of like the test for determining whether someone was a witch in 17th century Salem: if they drowned . . . they weren’t.
Ounce of Prevention
Fortunately, procuring cause disputes can usually be prevented simply by properly coaching Buyers.
So, I instruct my clients to go through me (vs. the listing agent) to see any listed homes they’re interested in.
If my clients want to see a Sunday open house when I’m busy hosting my own, I try to connect with the listing agent beforehand to let them know my clients will be coming through.
When that’s not possible, I coach my clients to either hand the hosting agent my business card (I give clients a slug of them), or, simply announce to the hosting agent that they’re working with me.
P.S.: Just like most lawsuits settle before going to trial, most procuring cause disputes get settled by the quarrelling agents, who (grudgingly) agree on how to split the pay-out commission “baby.”