I am contacted several times a year by buyers who are upset that they are not able to act as their own agent and claim the portion of the real estate sales commission allocated to the buyer’s agent. These buyers have usually seen the property with the listing agent or another agent in the same company and sometimes have already made an offer on the property. They are expecting that they will receive the 2.4 to 3% commission offered to the buyer’s agent either in cash or as a concession on the price of the property. They find me because once they are informed they are not getting paid the buyer’s agent commission, they start searching on line for agents that offer alternate compensation plans. Often these buyers become even more upset when I explain to them that, while I can act as their agent, I may not be able to claim the buyer’s agent commission either and they may need to pay me out of pocket if they want buyer representation.
While I am sympathetic to these buyers for their misunderstanding about how real estate commissions work (after all, shouldn’t the buyer have some say so over who gets paid the buyer’s agent commission), it is indeed true that the buyer is not necessarily the one who decides who gets the buyer’s agent commission offered on property listed on the MLS. How real estate commissions work on properties listed on MLS can seem bizarre and confusing, even to many seasoned real estate agents.
In our current system, sellers list properties with agents and agree to pay a total commission often in the 5 – 6% of the sales price range. Listing agreements will also specify how much of that total commission will be paid to the agent working with the buyer, usually 2.4 – 3% in this area. Once the property is listed in MLS, rules that all agents agree to abide by as a prerequisite for participating in MLS will determine who is entitled to the part of the commission allocated to the agent working with the buyer. This where the arcane principle known as procuring cause comes into play. What constitutes procuring cause ? Good luck figuring that one out. The short answer from the NAR Code of Ethics is that procuring cause is “the uninterrupted series of causal events which results in the successful transaction.” A longer answer is that there is no one action or series of actions that defines which agent will be determined to have procuring cause, but all agents agree that, in the event of a dispute, an arbitration hearing will determine the result based on evidence presented, and all agents involved agree to abide by that determination.
What does this mean to buyers? First of all it means that the buyer’s agent commission offered through the MLS listing is agreed upon in a contract the buyer is not a party to – the listing agreement between the seller and the listing agent, and the buyer does not determine who is entitled to it, an agreement all agents who participate in MLS must abide by does. Secondly it means that buyers can innocently and without their knowledge do things like inquire about a property for sale, visit an open house, ask a listing agent to show them a property, etc. that can compromise their ability to have the buyer’s agent they choose to represent them compensated through the buyer’s agent commission and may end up having to pay their agent out of pocket. Thirdly it means that a buyer will have a hard time representing themselves in a real estate transaction and reaping any benefit from not having their own agent.
Confused? Join the crowd. The concept of procuring cause was developed a long time ago when it may have made some sense. Back then, there were no such things as buyer’s agents. All agents worked for the seller and procuring cause was designed to keep buyers from using one agent to show them houses then going to their cousin, neighbor, best friend’s husband or wife, etc. to complete the sale and collect the commission. Agents rarely discussed commissions with buyers and did not have buyer agency agreements with them because there were no buyer’s agents. Today’s real estate market is very different, but all agents who participate in MLS are required to agree to abide by any arbitration decision handed down regarding procuring cause. Goddin Real Estate has developed programs that allow us to offer buyers true agency (we look out for your best interest) services for reasonable fees determined up front by your needs and often rebate to the buyer some or all of the buyer’s agent commission, but we can only do that if we can claim the buyer’s agent commission. The bottom line to all of that is please contact us early in the process before you may have done something to compromise our ability to be considered procuring cause. We are happy to discuss your situation and advise you on what your options are and the best way for you to get top notch service and advice and probably save a significant amount of money in the process.