It ain't always as cut & dry as you might think.

By
Real Estate Agent with Coldwell Banker Residential

I am a member of the Grievance Committee on our North Shore/Barrington Board of Realtors. I spent the morning (along with our own Margaret Goss, who's been on the professional standards committee for years) at a training session for the Professional Standards committee.

I thought I was pretty sharp, and pretty on top of the Code of Ethics and the rules that regulate our profession.  Boy, these training sessions have a way of making you feel pretty darn stupid.

Let's take a brief example (Keep in mind the ruling is based on transactions in Illinois).

  • Bob showed his own listing (by appointment), to the same potential buyer... twice.  When the buyer decided they were ready to write an offer, Bob disclosed "agency" and asked the buyer to sign the Illinois Agency Disclosure form, and Consent to Dual Agency form.  The buyer did not want dual agency and turned to Zelda, a Realtor who is a friend of the family to write the offer.  Who will be considered procuring cause, should it come to a Professional Standards hearing?

Now, I'll give you the same speech that Terry Penza (the president of our board) gave us, prior to giving us these little sample problems.  You need to consider this from the law, not from your heart.  Or in other words, not from your true-life experience out there in the field.  It has to be based in Code of Ethics and NAR rules.

For the answer, lift your monitor, and hold it upside down and read the boxed-answer in red.

Posted by

 ALAN MAY, Realtor®   
Specializing in Evanston Real Estate and North Shore Real Estate

Coldwell Banker Residential Real Estate, 1710 Central Street, Evanston, IL 60201
847.425.3779      Cell: 847.924.3313      Email: Almay@aol.com

Evanston Real Estate & North Shore Real Estate
Licensed in Illinois

   

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Cal Yoder 11/19/2011 10:52 AM
  2. Kate Elim 11/19/2011 12:29 PM
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Ambassador
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Alan May
Coldwell Banker Residential - Evanston, IL
Helping you find your way home.

Brian - I would have argued that he "shouldn't" be... the buyer, after all, should get to work with the person they choose to work with...  but alas, I would be wrong.

Nov 19, 2011 03:15 AM #53
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Bryan Robertson
Intero Real Estate - Los Altos, CA
Broker, Author, Speaker

I'm a big fan of procurring cause because I've been helped and hurt by it.  I'm sorry, if I take the time to show a property, disclose agency, and discuss the terms of an offer then I've earned the commission.  While it may not be popular or "nice" it is business.

Nov 19, 2011 03:44 AM #54
Rainmaker
2,711,695
Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale-Probate & Trust Specialist

 

Alan, Seems like there are other issues hinging or related but not directly tied to the procuring cause. Thankfully for Bob, his breach of agency law did not cancel out his right to be paid. 

 

Nov 19, 2011 03:55 AM #55
Rainmaker
4,699,503
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

I think it would have been the same result in Florida, Alan.  But we don't have the disclosure issue as we are presumed to be transaction brokers by default, unless we choose single agency or a no-representation.

Nov 19, 2011 04:26 AM #56
Rainmaker
506,826
Cal Yoder
Keller Williams Elite - Lititz, PA
Homes For Sale in Lancaster PA - 717.413.0744

Sure I will explain, in fact you are inspiring a post for me. I will speak from PA law. You can answer from Illinois law

First, the listing agent broke the law. In fact, breaking the law strengthened his procuring cause. He passed over the threshold with the buyer without informing her of agency. He engaged her as an agent according to procuring cause and therefore gets the entire commission from the seller.

When this is disclosed, the buyer declines dual agency probably without knowing she is now liable for an extra commission. She asks friend of the family to write offer. If I am friend, I require her to sign a buyer agency agreement in which she is required to pay a commission to me.

Do the math. $500,000 house. 6% commission agree to by seller or $30,000. Now according to procuring cause, listing agent gets all of it. He is rewarded for breaking the law. It is not two separate issues or at least it should not be. Now the friend of the family after the fact and loosing the grievance hearing has a contractual right to a commission according to the buyer agency contract. Buying agent sues for that commission (this is what family friend most likely will not do). Most likely will win - and therefore the buyer now needs to fork over commission. Let's again assume 3% or $15,000.

You are correct that it is a lawsuit waiting to happen. And the buyer was indeed harmed by the illegal activity of the listing agent and by the ruling of the grievance committee which reinforced illegal and unethical behavior.

My question, "Are grievance committee members insulated from lawsuits?"

Cal

Nov 19, 2011 04:37 AM #57
Rainmaker
506,826
Cal Yoder
Keller Williams Elite - Lititz, PA
Homes For Sale in Lancaster PA - 717.413.0744

Now I also understand in rereading that you do not have subagency and you can be a buyer agent without a written contract. It is implied. Therefore the agent probably did not require a written buyer agency and therefore there was no harm done to the consumer. However, it is different in PA. We have subagency and no buyer agency is implied. No agency is implied without a written contract. Therefore the consumer is always harmed in PA.

Why is procuring cause important? If you did away with implied agency and procuring cause, it simplifies it for everyone. You do not get paid without a written contract. You decide as a business practice, I will not show homes to customers, except for maybe one time without meeting them in the office. In the office you go over the Consumer Notice as established by law and describe the benefits of exclusive buyer agency. You also prequalify the buyer to make sure he or she is qualified to even buy the home he or she is looking at. So for me it is very simple. The practice of even bothering with procuring cause in the end is a deterimate to the consumer, even in Illinois if buyer agents refused to write agreement of sales without a written contract. Or does that change the fact then in Illinois and change the ruling of the grievance committee?

Very thought provoking for me and a great learning tool.

Cal

Nov 19, 2011 04:56 AM #58
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Alan May
Coldwell Banker Residential - Evanston, IL
Helping you find your way home.

Bryan - I do believe that it has the ability to be abused... but you're right... it is a business model.

Kathleen - I don't know that I agree it's "thankful" that his breach didn't cost him the commission.

Gabe - with the presumption of 'transactional agency' (kinda like Illinois dual agency, except working for the transaction, not for either side) then disclosure would be un-necessary.

Cal - while I can see the scenario you're outlining... that's not what happened in this case.  Zelda lost out on her commission, the buyer wasn't harmed at all.

And to answer your question.  It's my understanding that "yes, grievance committee members are insultated from lawsuits" (presuming they follow the law in their rulings), but the Association is not. (as the committee members represent the association as a whole).

Nov 19, 2011 04:57 AM #59
Rainmaker
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Cal Yoder
Keller Williams Elite - Lititz, PA
Homes For Sale in Lancaster PA - 717.413.0744

Why would Zelda use implied agency to write a contract? Why would any agent? If you are going to write an agreement of sale does it not make best business practice to sign an exclusive buyer agency agreement?

Another question, you can see the possibility. If buyer had signed a contract with Zelda and harm was possible, would that have changed the grievance committee's decision or does the law make for an exception to procuring cause based upon an signed exclusive buyer agency contract?

Cal

Nov 19, 2011 06:06 AM #60
Rainmaker
592,735
Mitchell J Hall
The Corcoran Group - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

I believe my board would have ruled differently. Procuring cause is a state law that applies to licensees in Manhattan that do not belong to REBNY (Real Estate Board of NY) they have the right to peruse legal action in the courts. However members of our board (not affiliated with NAR) agree to the board rules and waive their right to a trial by jury.

Our board rule clearly states the consumer can bring in any agent to represent them at any time during the transaction prior to a fully executed contract. A listing agent doesn't necessarily have to pay a coop to a buyer's broker unless they are both members of REBNY or they have a co broke agreement.

Furthermore, Bob would not be a dual agent here unless the buyer requested a dual agency. Bob must disclose he is a seller's agent. He represents the seller. Buyer is an unrepresented buyer that has the right to their own representation. As a seller's agent Bob must treat buyer fair and honestly but his loyalty is to seller. That acknowlegement must be signed by buyer at first substantive contact. He did not treat buyer fair and honestly by not disclosing his agency relationship.

In the past, Bob would have easily won here. We all worked for sellers. If you signed in to an open house without a buyer broker that was enough for listing agent to claim buyer as their customer. It was all about who showed first.

But since our new disclosure law effective Jan 2011, both the state, our board, board attorney and brokers are very touchy about this. Most good listing agents are too and will usually reccomend a buyer's agent to buyer. It is no longer about who showed property to who first. The good old days of direct deals are few and far between here now.

Nov 19, 2011 06:59 AM #61
Rainmaker
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Terkel Sørensen
Real Estate Places - Temecula, CA
Realtor, 951.805.0773 , Bank owned and Short Sales

Alan,

great post and some great comments too.

The outcome you have is actually what I expected, and I'm reading on a tablet, so upside down was a minor issue...;-) 

Nov 19, 2011 08:28 AM #62
Rainmaker
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Kathy Clulow
RE/MAX All-Stars Realty Inc. Brokerage - Uxbridge, ON
Trusted For Experience - Respected For Results

Alan - and the same does not apply everywhere as rules, regulations and laws very from state to state or in our case province to province.

Nov 19, 2011 09:45 AM #63
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Kate Elim
Dockside Realty - Spotsylvania, VA
Realtor 540-226-1964, Selling Homes & Land a

Hi Alan...I'm wondering.  If the buyer had requested that Bob agree to relinquish his "procuring cause" in writing prior to writing a contract with a buyer agent and Bob agreed would that have eliminated Bob's ability to then try to receive compensation for the buyer's side?

I cannot imagine Bob not agreeing if the possibility of the buyer walking away puts the sale of his listing in jeopardy.  How could he explain that to the seller if the seller found out.

Hopefully you can understand my wordy question.

Kate

Nov 19, 2011 12:05 PM #64
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Doug Rogers
Bayou Properties - Alexandria, LA
Your Alexandria Louisiana Agent

Sorry Alan you are wrong. Neither agent wins...

Bob forget to get the buyer to a lender before showing homes. Come to find out the buyer declared bankruptcy just after labor day due to her livein boyfriend's love of all things credit related.

Nov 19, 2011 12:08 PM #65
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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
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Alan - This seems like some of my law school tests where we had to find all of the different issues and right about each of them.  One didn't necessarily effect another though it did add to the complication of trying to figure out everything.

Nov 19, 2011 12:53 PM #66
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Mimi Foster
FALCON PROPERTY SOLUTIONS - Colorado Springs, CO
Voted Colorado Springs Best Realtor

P.S.  I, for one, happen to love your header :)  That's the prettiest picture of Kristen Stewart I've ever seen.  Total camp

Nov 19, 2011 04:23 PM #67
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Alan May
Coldwell Banker Residential - Evanston, IL
Helping you find your way home.

Cal - implied agency is every bit as effective when writing an offer. 

Mitchell - it's fascinating how the rules and laws change from State to state. 

Terkel - it's been illuminating. 

Kathy - you're right about that. 

Kate - I don't know for sure... But suspect you're correct. 

Doug  - d'oh!

Christine - it's pretty complicated. 

Mimi - I knew you'd like it!  I created it just for you!

 

Nov 20, 2011 01:48 AM #68
Rainmaker
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Kasey & John Boles
Jon Gosche Real Estate, LLC - BoiseMeridianRealEstate.com - Boise, ID
Boise & Meridian, ID Ada/Canyon/Gem/Boise Counties

I am also on the Grievance Committee for my local board.  I would have guess Bob, but I agree with what Lenn said. 

Also, I didn't notice your header until I read Mimi's comment.  Haha, hilarious! -Kasey

Nov 20, 2011 05:12 PM #69
Rainer
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Coral Gundlach
Compass - Arlington, VA
Real Lives. Not Just Real Estate.

I was Bob this year (except I disclosed agency right away), and let Zelda sell the house and did not say a thing.   I don't think it's my place to punish a buyer's agent for not being the first one to let them in the door.  My job is to sell the house at the best price and terms for my sellers, and if these buyers felt they needed an agent to write an offer, so be it.  If I had of crammed procuring cause down their throat, I could have jeopardized the sale.   

Nov 20, 2011 11:46 PM #70
Rainmaker
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Curtis Van Carter
Better Homes & Gardens Wine Country Group - Yountville, CA
Your Napa Valley Broker Extraordinaire

Alan

In reading your post and this thread, granted I read only about half of the comments, the simple thing was to ask the question upfront, if I show you one of my listings, this is dual agency and will 6you agree to this and sign the form. Unfortunately after the fact and after a battle over who gets what commission, are we not all losers in the eyes of the clients involved and whoever they will tell in the future.

Nov 21, 2011 04:49 AM #71
Ambassador
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Alan May
Coldwell Banker Residential - Evanston, IL
Helping you find your way home.

Kasey - you can't imagine how disconcerting it is for me to hear someone say "they didn't notice my header".

Coral - I think your sellers would be happy with you that you didn't become an impediment to the sale.

Curtis - yep, that would resolve the "disclosure" issue.

Nov 21, 2011 05:37 AM #72
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