How is procuring cause related to a protection agreement in North Carolina
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Over the years of handling risk management matters, I invariably see disputes where the real estate agent who was not the listing or selling agent on a closed transaction makes a claim for real estate commissions claiming that he or she was the “procuring cause” for the transaction closing. Show
The typical “procuring cause” claim arises when a listing agreement expires, the seller decides to not re-list the property with the prior listing agent, and then a person who looked at the listed property when listed by the first listing agent makes an offer to buy when the parcel is listed by the second listing agent within six (6) months or so after the initial listing agreement ended. The initial listing agent then makes a claim for real estate commissions as “procuring cause” under his or her expired listing agreement which has a provision stating that if any person who viewed the property when it was for sale under his listing agreement makes an offer to purchase it within a certain period of his or her termination as the listing agent, a real estate commission is due. Such is an acceptable practice in California’s real estate industry. However, what does the current listing agent do when he or she has a listing, a potential buyer looks at the property with a potential selling agent, but the potential buyer then returns without the potential selling agent and wants the listing agent to write up an offer as the dual agent? The first thing the listing agent should inquire about and confirm in writing is whether there is a dated and signed buyer broker exclusive representation contract. If there is none, then there is less chance that the potential selling agent has a valid basis for a real estate commission claim as “procuring cause” for any later sale of the parcel to the particular buyer. On the flipside, if one foresees spending a significant amount of time with a potential buyer, he or she should attempt to have the buyer sign a buyer broker exclusive. Should the buyer refuse to do so, then the refusal could be deemed a reluctance by the buyer to commit to a particular real estate brokerage in the endeavor to purchase a property. In order to help prevent a claim against the listing agent by a former potential selling agent for real estate commissions upon the successful close of a transaction, the listing agent should call and e-mail the former potential selling agent about the prospective buyer wanting to write an offer on the listed property. Ask whether there is an existing client relationship in place, and if not, whether the brokerage that was assisting the prospective buyer would be making a claim for real estate commissions as “procuring cause” if the sale closes. By confirming any claim for real estate commissions or no claim for real estate commissions in writing with the broker of record for the buyer, who is representing that he or she has no real estate agent for the desired offer for the listed parcel, you can prevent misunderstandings and surprises. This type of proactive action is generally appreciated by all in the real estate industry. By contacting the buyer’s former real estate brokerage about the buyer wanting to make an offer on the listed property without its selling agent being involved, the listing agent can make written confirmation as to whether or not a claim for real estate commissions will be requested as “procuring cause” before close of escrow, which eliminates surprise and bad feelings. The recommended practice for a listing agent, who has concerns that a buyer who has a real estate agent now wants to write an offer without the agent, is to engage in good faith and ethical business practices to prevent being embroiled in a dispute over the “procuring cause” of a real estate sale. Litigation is expensive both in terms of time and money incurred with respect to attorneys’ time and can be avoided if the above guidelines are part of a brokerage’s business practice. About the Author B. Edward McCutchan, Jr. Sunderland | McCutchan, LLP Mr. McCutchan’s practice is primarily civil litigation with an emphasis in defending professionals and businesses in real estate, mortgage brokering, construction, banking and agricultural industries and all phases of dispute resolution through trial and appeal. His area of practice is also agricultural law (viticulture and wineries), trusts and estates, probate, real estate transactions, business law and elder abuse. B. Edward McCutchan, Jr. was admitted to the Bar in 1985 and is admitted and qualified to practice in all California courts and the U.S. District Court, Eastern and Northern Districts of California as well as the United States Tax Court. A safety protection clause entitles a real estate broker to a commission if a sale occurs after the listing agreement expires. This protects the broker from collusion between sellers and buyers to save the seller the cost of real estate commission. What Is a Safety Protection Clause?An exclusive right-to-sell listing agreement will often have a clause that entitles the real estate broker to a commission after the listing expires or is canceled. The safety protection clause applies in the event that a buyer who was brought by the listing broker later purchases the house after the listing has been withdrawn or expired. NoteA listing agreement is a type of employment contract between the broker and the seller which entitles the broker to fair compensation for their work. From the Broker's Point of ViewTo explain, suppose you are a broker, under contract with an owner to help sell their house. You agree to list it for a certain time, and to work with agents to show it to many people. After months, you end up finding a willing buyer, but there's a process of back and forth before landing on a final sale price. In the meantime, your listing contract with the owner reaches its end date. Two weeks later, the buyer agrees to a price, and the sale contract is signed. Without a safety clause, you'd lose out on seeing any money in this deal, in spite of your efforts. Luckily you have a safety protection clause in place. This clause allows you as the broker to receive payment if your work to sell the house was fruitful, even if that sale occurs after you stopped the listing. How the Safety Clause WorksEven though it may seem quite simple, the safety protection clause may be at play in a wide range of scenarios. Here are a few of the most common questions. Does the Safety Clause Have a Time Limit?The clause often includes a limit on the amount of time that the broker is able to collect a commission. The length of time can vary. In order to exact the safety protection clause when the listing agreement expires, the broker must send notice to the seller with each buyer's name within a certain number of days after the house is off the market. How Does the Safety Clause Prevent Fraud?The safety protection clause protects a broker in more ways than one. As well as getting paid after the time of the listing, it also helps brokers from fraud. The clause states that the seller still owes the broker a commission if a buyer tries to go around the broker and go directly to the seller. This protects the broker from bad dealings between sellers and buyers, such as if they collude to save the seller the cost of real estate commission. Will a Safety Clause Always Apply?There are a few cases when the safety clause will not apply. Most have to do with making sure you dot the i's and cross the t's. One reason a safety clause may fail is if it is not checked on the listing contract. The clause may also fail if the broker doesn't give written notice to the seller in a time, or in the manner as stated on the contract. Lastly, if the seller and buyer know each other as friends, or if they fell into contact without the broker's help, the clause will not apply. NoteThere are many other names for the safety clause. You might also hear it called a broker protection clause, extension clause, extender clause, broker safety clause, tail clause, or procuring clause. What if I Hire a Second Broker?If the seller enters into a new listing with a new broker right after the former listing contract ends, the clause should state that the seller will only owe a commission to the second broker. It must state that this is the case even if the house is sold to a buyer who was brought in by the first broker. If the original broker can show that they deserve credit for bringing in the buyer, they may be able to claim a portion of the commission. Either way, the seller should never have to pay two commissions. Do I Need a Safety Clause for an Open Listing?Open listings can be tricky for real estate agents because there is nothing in writing to bind the seller to any one agent. In this case, the seller agrees to pay the commission to the agent who brings an offer from a ready and willing buyer. An open listing is much like house that is for sale by owner (FSBO) when it comes to getting the seller to pay commission. A real estate agent should think about having the seller agree to a one-party showing listing agreement. This is a contract that will protect their commission if they find an open listing or an FSBO property they want to show. The agent and the seller can agree upon the number of days, weeks, or months that the clause will apply. Why You Should Include a Safety Protection ClauseIf you are a broker working with a seller, you will want to ensure that a safety protection clause is included in your listing contract. This ensures that you will be paid fairly for the work you did, even if a sale occurs after the listing contract expires. If you are a seller, your broker will most likely present you with a contract that includes a safety protection clause. Though its main goal is to protect the broker, rather than you, it does not harm your end of the bargain in any way. It simply ensures that the broker you work with will receive the payment they are owed for their work in finding a buyer. In fact, it may work in your favor as well to have a broker who trusts you and will feel safe in knowing that they'll be paid fairly in their work to sell your home. Key Takeaways
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