Wednesday, October 21, 2020

Procuring Cause

Law Matters

Real estate sales are big business in Southwest Florida. Although buyers and sellers are often in the market to make money, the person in the real estate transaction that is invariably oriented toward profit is the broker. Real estate brokers are compensated based on services provided to the customer. The customer most often paying a real estate broker is the seller.

The contract between broker and seller sets the terms under which the broker is compensated. Most Southwest Florida brokers utilize an exclusive right to sell listing agreement form published by Florida Realtors or a local real estate association. The forms are favorable to the broker, as one might expect, since they are generally produced by trade associations or organizations comprised primarily of Realtors. The forms are not inherently unfair to sellers. In fact, by addressing matters required by law and details that might not be otherwise addressed, the forms are quite useful. Buyers can have a contract with sales agents to pay compensation too.

An exclusive right to sell listing agreement provides that the seller will pay a commission to the listing broker if the property is sold during the term of the listing. The listing broker does not have to even be involved with the sale to be entitled to a commission. These listing contracts also generally include a provision that the commission will be paid if the property is sold after the listing expires to a buyer who was introduced to the property during the term of the listing, unless the property is listed with another licensed real estate broker. The rationale for this type of listing is that the broker will expend time and energy marketing the property and should be paid a commission if the property sells.

The exclusive right to sell listing is not the only type of listing that might be available to a seller. Some brokers will agree to an exclusive agency listing. Under the exclusive agency listing, the broker is entitled to a commission of the property is sold by the reference of any real estate broker, but not if the property is sold by the seller to someone who does not go through a broker. Some brokers will also accept what is known as an open listing, under which the broker is paid a commission only if the property is sold by the effort of the listing broker.

The listing contract determines when a commission is earned by the broker and how it is paid. A listing contract does not obligate the seller to pay a different broker if a different broker brings a buyer who ultimately purchases the property. The listing broker usually pays the other broker a portion of the commission. The obligation to pay the other broker arises from a separate contract. That separate contract is almost always created when the listing broker places the property into a Real Estate Association’s Multiple Listing Service (MLS) as the rules of those services require the listing broker to include a commission payment arrangement to a selling broker as part of listing with the MLS. That can mean a broker who is not a member of that MLS may not be entitled to a commission even if the broker brings a buyer who purchases the property. Although most listing brokers will share the commission with other brokers who are not members of their MLS, there may be no legal obligation to do so. That can be a surprise to a broker who is not a member of the MLS.

Commission arguments usually focus on the concept of procuring cause. The dispute can be between seller and broker when the broker starts the ball rolling but the seller moves ahead without the broker. Sometimes the seller simply waits until the listing is expired. In other cases, the dispute is between two brokers, one of whom may have introduced the buyer and another who got involved later who was used by the buyer to prepare the offer that was accepted by the seller. Under most listing agreements, the commission is earned at the time a ready willing and able buyer is procured. That means a seller can owe a commission if the sale does not close as long as the failure was due to the seller.

Unless the listing contract provides some other criteria, the broker is entitled to the commission when the broker is procuring cause of a sale. Florida courts have made it clear that procuring cause almost always means something more than merely drawing the attention of the buyer to the property. The broker must also establish that it was through the broker’s efforts that a sale was consummated. The broker must continue working on the transaction until it is concluded. The requirement that the broker continues work on the transaction is often a problem for the broker who initially introduces the buyer to the property and later seeks a commission.

When a buyer chooses to work with a second broker after introduction to property, the introducing broker may be out of luck. A case on point is one in which I represented the second broker in that fact pattern. In that case, buyers were shown a property by a sales agent but decided they did not like working with that agent. The buyers said the first agent seemed more interested in complaining about the heat, and other issues than helping them buy property. They sought the services of another real estate sales agent in a different brokerage firm and that agent showed them various properties, including the one they had been shown by the first agent. The second agent wrote an offer, negotiated the transaction and worked with the buyer through closing. When the case went to court, the jury agreed that the first broker was not procuring cause. The first broker did nothing to affect a sale, even though the first broker initially introduced the buyer to the property.

All of these issues presuppose the existence of an agreement to pay a commission. Although a contract for the sale of real estate must be in writing to be enforceable in Florida, agreement to pay a commission for the sale of real estate can be oral. However, without an agreement, the effort by a real estate agent to sell property may not generate the expected commission even if that effort results in a sale.

Florida cases have confirmed that the absence of an agreement can be fatal to a commission claim. In some of those cases, the broker argued the seller knew the broker was working to sell the property and that the broker expected to be paid. Under those facts, the brokers argue that there was an implied contract. In the alternative, brokers in that situation have argued the seller is unjustly enriched by the broker’s efforts and should not be allowed to retain the benefit of those efforts without paying reasonable compensation. Those arguments have not been generally successful in suit for a sales commission involving residential real estate.

Liability for payment of commission in real estate sales is based on the contract. When the contract does not state to the contrary, procuring cause will be the focus in any commission dispute. Procuring cause generally requires a real estate sales agent to be responsible for a contract between seller and buyer. Procuring cause also requires the agent to be continuously involved in negotiation which resulted in that contract. A contract between owner and broker may create liability for the commission under other circumstances and that means owners should carefully read the listing agreement before it is signed. The easiest way to avoid a dispute is to understand the contract before signing.

William G. Morris is the principal of William G. Morris, P.A. William G. Morris and his firm have represented clients in Collier County for over 30 years. His practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and not intended as legal advice.

Leave a Reply

Your email address will not be published. Required fields are marked *