Brokers must keep their fiduciary duty in mind when they have a dispute with another broker over commissions. Put the client’s interest above your own. If there is a dispute over broker compensation, the brokers should agree to disagree and close the transaction. To hold up a closing over a commission dispute would potentially violate TREC rules as well as the Code of Ethics. Some title companies will hold commissions in escrow until the dispute can be mediated, arbitrated, or otherwise resolved.
What Is Procuring Cause?
When a property is listed in an MLS, the listing broker must specify the cooperative compensation being offered to cooperating brokers. (Note: An MLS is prohibited from setting the rates of compensation.)
Contractual disputes between REALTORS® associated with different firms must be submitted to arbitration rather than pursued through the courts.
Cooperative compensation in an MLS listing is a blanket unilateral offer to compensate the cooperating broker. Acceptance of this unilateral offer occurs when the cooperating broker is the procuring cause of the sale. The cooperating broker will be regarded as the procuring cause of a sale if her efforts are the foundation on which the negotiations resulting in a sale are begun. There must be a successful transaction (closing of a sale or execution of a lease) for the cooperating broker to be the procuring cause.
The listing broker may be excused from her obligation to pay if, through no fault of her own and in the exercise of good faith and reasonable care, it was impossible or financially unfeasible to collect her compensation from the seller.
If a separate written agreement for compensation is executed between the listing and cooperating brokers, the terms of that agreement determine the cooperating broker’s entitlement to compensation.
Who Was The Procuring Cause?
Disputes over whether a cooperating broker is the procuring cause of a sale in a particular transaction may be resolved through Texas Realtors® arbitration. Article 17 of the Code of Ethics provides that contractual disputes between Realtors® associated with different firms must be submitted to arbitration rather than pursued through the courts. If the dispute is with a non-member, between Realtors® in the same firm, or between a broker and a sponsored agent, arbitration is voluntary.
Disputes over commissions often revolve around the meaning of procuring cause. Procuring cause is defined as “the uninterrupted series of causal events which results in the successful transaction.”
Whether a broker is the procuring cause in any given transaction must be determined by looking at all the facts on a case-by-case basis. There is no rule of thumb or singular factor that determines procuring cause. Many factors should be considered, including:
- Who first introduced the buyer to the property, and how was the introduction made?
- Was the series of events starting with the original introduction of the buyer to the property and ending with the sale hindered or interrupted in any way?
- If there was an interruption or break in the original series of events, how was it caused and by whom?
- Did the action or inaction of the original broker cause the buyer or tenant to seek the services of a second broker?
- Did the second broker unnecessarily intervene or intrude into an existing relationship between the buyer or tenant and the original broker?
Procuring Cause vs. Agency
Under MLS rules, the listing broker is only obligated to pay the offered compensation to the procuring cause broker, not necessarily to the broker that has a buyer representation agreement.
Agency relationships do not automatically determine procuring cause. In a case where a broker has a buyer’s representation agreement but the buyer uses a second broker to submit an offer, the listing broker still pays whichever broker is the procuring cause of the sale. If the second broker interfered with the exclusive representation of the first broker, there may be a violation of Article 16 of the Code of Ethics, and interference is one factor in determining procuring cause. Additionally, the buyer’s broker may have a cause of action against the buyer for breach of their representation agreement.