Attorney Steve’s Commission College – Procuring Cause Checklist!
Commission disputes are no fun. Neither are “ethics complaints” that often accompany the commission dispute, and the BRE complaint that also may be filed in a commission dispute involving brokers and their buyers and sellers. Things can get messy if you do not GET YOUR AGREEMENTS AND UNDERSTANDINGS IN WRITING. To this day, I am not clear why some brokerages still work without a written agreements defining the agency and commissions expected to be paid if a property is sold. Buyers and sellers should carefully interview their agents before hiring, and the listing agreement as well as the buyer’s agency agreements should be put into writing up front in the transaction so everybody knows what’s going on and what’s expected in the transaction. When this doesn’t happen, issues of procuring cause can often arise and potential issues of interference with prospective business advantage can arise. This blog discusses some of these legal issues in California.
A good place to start would be to quickly review Buyer’s agreements from C.A.R. For more information visit our “Attorney Steve Commission College” to watch our online real estate videos. Make sure to click on the RED “V” to subscribe for free to our channel. We are over 1,000 viewers and 145,000 hits. We appreciate your support!
Click the picture to watch Attorney Steve explain “Procuring Cause” in this helpful video!
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A real estate broker needs a writing to earn a commission
The listing agent normally has a “listing contract” and this spells out the right to earn a commission, the sales price sought and the amount to offer in the MLS as an incentive for other brokers to bring their clients to see the property and ultimately make an offer.
But it’s the buyer’s agent that normally fails to get a written agreement. Sometimes the broker is scared to ask for it, and sometimes they know the buyer’s do not want to contractually bind themselves to a particular real estate agent or to commit to a contract while they are “just looking around.” This creates a challenge for buyer’s brokers because you need a contract in order to be able to enforce a right to a commission. This is often overlooked. For example, in King v. Tilden Park Estates, 156 Cal. App. 2d 824, 830, 320 P.2d 109, 113 (1958) the California court noted:
“It has long been held in this state that a real estate broker is presumed to know that contracts for real estate commissions are invalid and unenforceable unless put in writing. See Steiner v. Rowley, 35 Cal.2d 713, 221 P.2d 9; Marks v. Walter G. McCarty Corp., 33 Cal.2d 814, 205 P.2d 1025; Kroger v. Baur, 46 Cal.App.2d 801, 117 P.2d 50. The appellant here admitted that he had never signed an agreement with any of the respondents. He therefore assumed the risk of relying on oral promises and has no cause for complaint if his efforts go unrewarded. See also Augustine v. Trucco, 124 Cal.App.2d 229, 268 P.2d 780.”
“The courts have long had little sympathy for the broker who fails to adhere to the statute of frauds. In Marks v. Walter G. McCarty Corp., supra, 33 Cal.2d 814, 205 P.2d 1025, the plaintiff broker had dealt for several months with the owner of a hotel without obtaining a signed employment agreement. The hotel was eventually sold as a result of the broker’s efforts, but he was not paid a commission. This court accepted the trial court’s findings that the defendant had promised to pay the broker a commission and that the broker was the procuring cause of the sale, but decided that the broker was not entitled to recover a commission because his agreement did not comply with the statute of frauds. “The plaintiff, a man of experience in this line of business, knew how to protect himself in the transaction but failed to do so.” (Id., at p. 823, 205 P.2d 1025.). See Phillippe v. Shapell Indus., 43 Cal. 3d 1247, 1261, 743 P.2d 1279, 1286 (1987).
Again, listing brokers are usually well aware of this legal requirement, but many buyer’s brokers are not.
California Civil Code Section 1642 (“statute of frauds” for real estate commission agreements).
(a) The following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent:(4) An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate, or to lease real estate for a longer period than one year, or to procure, introduce, or find a purchaser or seller of real estate or a lessee or lessor of real estate where the lease is for a longer period than one year, for compensation.
What types of writings will constitute a contract with the buyer?
The Courts may not always require a detailed written agreement. The Court can look to writings between the parties and other evidence as noted in Phillippe v. Shapell Indus., 43 Cal. 3d 1247, 1258, 743 P.2d 1279, 1283-84 (1987) which held:
“A broker’s real estate commission agreement is invalid under section California Civil Code section 1624(d) unless the agreement “or some note or memorandum thereof, is in writing and subscribed by the party to be charged or by the party’s agent.” The writing must unequivocally show on its face the fact of employment of the broker seeking to recover a real estate commission. (Franklin v. Hansen (1963) 59 Cal.2d 570, 573, 30 Cal.Rptr. 530, 381 P.2d 386; Pac. etc. Dev. Corp. v. Western Pac. R.R. Co., supra, 47 Cal.2d 62, 68, 301 P.2d 825.) To satisfy this requirement, Phillippe relies on the considerable correspondence between Shapell and himself. “It is for the court to determine whether letters which have passed between parties constitute an agreement between them.”
“The purpose of the statute of frauds with respect to a listing contract between a broker and an owner of realty is to protect the owner from a claim for a commission from a person never authorized to act as the owner’s intermediary. (Lathrop v. Gauger (1954) 127 Cal.App.2d 754, 764, 274 P.2d 730.) The writing need not contain all the terms of the contract, and the principal requirements to satisfy the statute are that the memorandum shows the authority of the broker to act for the owner (id., at pp. 764–765, 274 P.2d 730), and is subscribed by or on behalf of the party to be charged (Marks v. Walter G. McCarty Corp. (1949) 33 Cal.2d 814, 820, 205 P.2d 1025).
Courts may allow “Parole Evidence” to explain what the terms of the agency and commission are
Normally, the Courts will not look to “extrinsic evidence” to determine what the terms of a contract are. However, in real estate transactions, the rule appears to be more relaxed and the Courts may look at evidence of phone calls, emails, MLS listings, text messages, facebook private messages and other evidence to show what the terms of the agreement between the buyers, sellers and their agents are. For example in Rader Co. v. Stone, 178 Cal. App. 3d 10, 21, 223 Cal. Rptr. 806, 810 (Ct. App. 1986) the Court held:
“When these requirements are met, the other terms, including the amount of commission, and even the agreement to pay the commission, may be shown by parole evidence. (Moore v. Borgfeldt (1929) 96 Cal.App. 306, 311, 273 P. 1114.) Further, while the sufficiency of a writing to satisfy the statute of frauds cannot be established by evidence which is extrinsic to the writing itself, where the writing is sufficient to satisfy the statute, parol is permissible to show the circumstances which attended its making, or to explain ambiguities on the face of the memorandum. (Franklin v. Hansen (1963) 59 Cal.2d 570, 573–574, 30 Cal.Rptr. 530, 381 P.2d 386.) Evidence of the telephone conversation between Mueller and Rader may be admitted to explain any ambiguity in the registration form’s purpose or function, and to show the circumstances which attended its making.”
If there is not a written real estate agreement the oral agreement is “voidable”
Zimmerman v. Bank of Am. Nat. Trust & Sav. Ass’n, 191 Cal. App. 2d 55, 57, 12 Cal. Rptr. 319, 320 (Ct. App. 1961) was a case that discussed what happens if the real estate agreement is not in writing:
“Since the instant agreement falls within the statute, it constitutes, without doubt, a voidable contract. Section 1624 of the Civil Code provides: ‘The following contracts are invalid, unless the same, or some note or memorandum thereof, is in writing and subscribed by the party to be charged or by his agent:An agreement authorizing or employing an agent or broker to purchase or sell real estate for compensation or a commission.The courts have held that the word ‘invalid’ as used in the statute means voidable. See Buckley v. Savage, 1960, 184 Cal.App.2d 18, 7 Cal.Rptr. 328; Peyton v. Cly, 1960, 184 Cal.App.2d 193, 7 Cal.Rptr. 504. Once a defendant raises the defense of the statute against the contract, the broker cannot recover upon it. Lane v. Davis, 1959, 172 Cal.App.2d 302, 306, 342 P.2d 267; Augustine v. Trucco, 1954, 124 Cal.App.2d 229, 237–238, 268 P.2d 780; Colburn v. Sessin, 1949, 94 Cal.App.2d 4, 6, 209 P.2d 989.”
“The tort of interference with an advantageous relationship, or with a contract, does not, however, disintegrate because it relates to a contract not written or an advantageous relation not articulated into a contract. The nature of the tort does not vary with the legal strength, or enforceability, of the relation disrupted. The actionable wrong lies in the inducement to break the contract or to sever the relationship, not in the kind of contract or relationship so disrupted, whether it is written or oral, enforceable or not enforceable. The history of the tort discloses its essence. It contemplates, basically, a disruption of a relationship, not necessarily the breach of a contract.”
For example, we are working on a case where a law firm interfered with the real estate transaction and induced the buyer to breach the contract (and to basically “dump” the buyer’s broker, and then trying to force the buyer to take a 1.5% commission even though a 2.5% commission was listed in the MLS). This is a prime example of interference with prospective business advantage notwithstanding the law firm’s argument “we are allowed to give legal advice.”
In some circumstances, the buyer who hires the agent to negotiate the sale of a piece of residential or commercial property (or even a business opportunity, lot, oil and gas, or cemetery plot in Arizona), the buyer who engages their broker then “changes their mind” may still be held liable for interference and to pay the broker’s commission. This is especially true if the buyer and their agent had previous dealings together such that it was reasonable for the buyer’s agent to rely on the buyer’s instruction. For example, see DeVoto v. Pac. Fid. Life Ins. Co., 618 F.2d 1340, 1349 (9th Cir. 1980) which held”
“We have identified one class of cases in which recovery appears to have been allowed even though there is no improper purpose or advantage-taking by the defendant in relation to an interest owned or protected by the plaintiff. These involve a prospective purchaser who has asked a broker to negotiate the sale of property to him on specified terms, the broker’s commission to be paid by the vendor.The purchaser in these circumstances has been held liable for tortious interference with the contract or relation between the vendor and the broker when he decides at the last minute not to buy the property, even when this contract breach is based upon an understandable reason, such as financial difficulty. The following cases comprise the evolution of this somewhat obscure line of authority: Buono Sales, Inc. v. Chrysler Motors Corp., 363 F.2d 43, 49 (3d Cir.) (en banc), cert. denied, 385 U.S. 971, 87 S.Ct. 510, 17 L.Ed.435 (1966); Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528, 236 A.2d 843, 859-61 (1967); Tanner Associates, Inc. v. Ciraldo, 58 N.J.Super. 398, 156 A.2d 289, 290 (1959), rev’d, 33 N.J. 51, 161 A.2d 725 (1960); McKnight v. McGuire, 117 Misc.Rep. 306, 191 N.Y.S. 323 (Sup.Ct. 1921) (Lehman, J.); James v. Home of the Sons and Daughters of Israel, 153 N.Y.S. 169 (Sup.Ct. 1915); Livermore v. Crane, 26 Wash. 529, 67 P. 221 (1901). In these instances, however, there has been a prior relation between the plaintiff and the defendant leading the former to rely upon the latter, and we think recovery is explained as easily by contract as by tortious interference, although concededly it is the latter ground which is the explicit rationale given in the opinions.”
Where does “procuring cause” come in?
Sometimes a buyer is introduced to a property through a buyer’s agent. The buyer’s agent is expecting a real estate commission (basically the amount that is offered through the MLS, assuming the property was listed in the MLS). So say a buyer’s agent who DOES NOT HAVE A WRITTEN EXCLUSIVE AGENCY AGREEMENT shows the buyer the property, pulls comps, sends over listing information, prepares a listing, etc. Then, the buyers decide they want to fire the agent (or otherwise cut them out of the deal for some of the reasons listed above), the question arises whether they BUYER will owe the buyer’s “agent” a commission. If there was not an agreement to pay commissions between a buyer and a seller (and assuming the buyer does wind up purchasing the property that the agent showed them), then in these circumstances they buyer’s agent might still sue the seller (or their agent or both), or file arbitration against them if they are confident they can show they are the “procuring cause.” Sometimes a new broker (let’s call them broker #2) may claim the commission as well and perhaps the buyer wanted to work with a new agent and fire the old one. In these circumstances there is a risk that broker#1 will take legal action against the seller’s seeking their commission. The arbitrator (if both are Realtors bound by Article 17 and the duty to arbitrate) will weigh and consider the checklist of procuring cause factors.
So although contracts are required to force a commission to be paid (see buyers exclusive agency agreement), if a buyer’s agent does not have a contract, they can still enforce the commission against the seller if they are “procuring cause” of the sale. Some of the factors looked to are:
- Who initially found the property? (did the procuring cause agent inspire or spark the decision to buy)?
- Who initially showed the property?
- Did the buyer’s agent do something wrong to force the buyer’s to get rid of them?
- Did the buyer’s agent “abandon” the client due to non-performance or failure to communicate?
- Did the buyer’s broker make an offer to purchase the property?
- Were there any subsequent actions taken by the agent claiming procuring cause (ex. scheduling inspections, showing the property a second or third time, preparing grant deeds, researching and providing comps, negotiating with the buyers agent, etc.
- Did they buyer seek to “freeze out” the buyer broker? (or did a third party such as a law firm that advised the buyer they could get a better deal without using a broker or negotiate a lower sales price)? SEE OUR DISCUSSION ON INTENTIONAL OR NEGLIGENT INTERFERENCE WITH PROSPECTIVE BUSINESS ADVANTAGE.
- Did the buyer’s agent set in motion a process that resulted in an unbroken chain of events leading to the sale?
- Was the agent interfered with and not allowed to complete their work?
This is only a sample of the factors that the Courts or arbitrators will be required to look at. Here is a good discussion group on what happens when a buyer wants to fire their real estate agent.
Procuring cause checklists
- National Association of Realtors procuring cause worksheet
- California Association of Realtors (C.A.R.)
- Pacific West Association of Realtors procuring cause guidelines
- NSDCAR procuring cause tips
Contact a real estate arbitration, ethics and litigation law firm
If you are facing an arbitration dispute over procuring cause, or a real estate complaint, accusation, civil lawsuit (we represent both Plaintiff’s and Defendants), or ethics complaint, contact us to discuss your legal rights. Many people are tempted to try to “work it out” which is fine, but for the fact that they often start writing letters and emails and leaving phone messages that come back to burn them. Before you open your mouth and lock yourself into a position by sending a document, contact one of our real estate lawyers to discuss. We can be reached at (877) 276-5084. We offer low flat rate fees for many cases, contingency fee on SOME cases, and competitive low hourly rates in other cases. You may also fill out the contact form below and we will reach out to you. Please make sure to LEAVE YOUR PHONE NUMBER. Thank you.
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