If you make contact with a real estate salesperson or broker who supplies you with information about a property,
they can make a claim to be paid a commission even though you purchase that property through another agent or even directly through the seller.
Welcome to a behind the scenes drama that plays out from time to time without buyers or sellers initially knowing what is happening.
- Have you signed-in and toured homes during open houses?
- Have you called real estate licensees for information about listings?
- Have you toured one or more homes with one or more salesperson or broker?
- Have you provided your e-mail address over the Internet to receive listing updates?
- Then you may have unknowingly gotten married to an agent!
Unbelievable You Say? Well, it’s true.
If you make contact with a real estate salesperson or broker who supplies you with information about a property or who shows you a property, they can make a claim to be paid a commission even though you purchase that property through another agent or even directly through the seller.
That’s right, even though you don’t use that agent for a purchase of the property they showed you or gave you information about, they have a right to make a claim for a commission. You in essence have “gotten married” to that agent after one date or maybe just a handshake.
I guess love really is blind.
Of course you are free to use anyone you choose or no one at all to help you buy a home. But, if the home you buy was listed in a REALTOR® operated Multiple Listing System and if you were working with an agent when you learned about that home or if an agent gave you information about the home or showed you the home, that agent can make a claim to be paid a commission.
They do this through REALTOR® arbitration but it could create a situation that results in you being sued for their commission plus legal costs.
How Can This Be, You Ask?
Blame it on the Realtor® Code of Ethics
Most real estate licensees are members of a REALTOR® Association and/or a REALTOR® run MLS (Multiple ListingService). The term REALTOR®
means a real estate licensee who is a member of NAR, the National Association of REALTORS®. As such they have to abide by the REALTOR® Code of Ethics.
This isn’t a bad thing, really, in that you should want to do business with a real estate licensee who is professional and ethical and who agrees to practice according to a strict Code of Ethics.
However, this same Code of Ethics makes it mandatory for members to arbitrate “business disputes”.
The National Association of REALTORS® (NAR) Code of Ethics and Arbitration Manual, Article 17, states: “In the event of contractual disputes or specific non-contractual disputes as defined in Standard of Practice 17-4 between REALTORS® (principals) associated with different firms, arising out of their relationship as REALTORS®, the REALTORS® shall submit the dispute to arbitration in accordance with the regulations of their Board or Boards rather than litigate the matter.”
When dealing with disputes having to do with real estate commissions, the method of determining who is entitled to the commission is a concept referred to as “Procuring Cause”. Or, in other words, who started the series of uninterrupted events that led to a successful transaction, i.e., a real estate transaction that closed?
“You can see how an agent who gives you information or shows you a home has a basis for a claim for commission. They feel that they alone “started the series of uninterrupted events that led to a successful transaction” and that they should be compensated for it regardless of whether or not they actually wrote the contract or did anything else to earn said commission.”
OK, so what?
How does that involve me?
Isn’t this a REALTOR® thing?
Well, not really, because…..
- You may not be able to find a buyer agent of your choice if you decide to be represented. A true buyer agent who is aware of the potential problems may not want to represent you because of the possibility that they may have their compensation taken away from them after the closing.
- You could be obligated to pay a buyer agent twice. If the previous licensee you contacted is awarded your buyer agent’s compensation through REALTOR® Arbitration, your current agent may sue you for the compensation that was taken away from or never given to them.
- You could be sued by the seller. This primarily happens where buyers purchase a property that is listed with a “limited services broker”. A limited services listing is one where the listing broker provides very limited services and many times only provides access to a local Realtor© multiple listing system at a discount but then provides no other services such as presenting or negotiating offers. With such a listing, the buyer negotiates directly with the seller rather than through the listing agent, unless they are represented by a buyer agent. If the buyer had contact with another agent previously, but who now is getting bypassed, that agent sometimes brings an arbitration action against the limited services broker to collect the compensation that was offered through the multiple listing system. If the listing broker loses, they will probably sue the seller to recover any money lost. These sellers then may turn around and sue you, the buyer, as you were the one who created the initial problem by not using the first agent to complete the sale.
What Should You Do?
Decide if you are going to use the services of a professional buyer’s agent to help you purchase a home. Because if you are, you absolutely should start doing so as early in the process as possible to prevent problems for that agent in working for you.
A professional buyer agent can:
- help you get pre-approved for a loan,
- review the home buying process with you,
- get you information about the current market and homes for sale,
- view homes with you that are of interest,
- negotiate on your behalf,
- and follow-up with the details so that you get into your home on time and with less hassle.
Be cautious about purchasing a home directly from the seller if it was for sale through an agent at the time you learned about it or saw it. It is possible that you will get caught up in an arbitration situation and end up having to pay a real estate commission later plus legal costs. It is possible that the agent you had contact with could also sue you directly claiming to be the procuring cause of your purchase of that home.
Fully disclose the extent of any contact or relationship that you have had or have with any other real estate agent, if you have already had contact with one or more real estate licensees and now want to use the services of a new agent. It is important for the new agent to know whether or not he or she may have a problem with regard to a particular property that you may be interested in purchasing if you found out about it or obtained information about it or was shown it by another real estate licensee. There are steps that your new agent may be able to take that will reduce the risk of another real estate licensee making a claim that they are due a commission.
Let the seller and their agent, if any, know about your contact with another agent if you decide to purchase a home working directly with a seller, who has or had the home listed with a limited services broker. This may help them avoid potential arbitration actions by the previous broker and lawsuits as noted previously.
Protect Your Interest
You must take certain steps to protect your interest.
If there is a home you actually are interested in purchasing, that you saw or found out about from a previous agent, who you do not want to use now to buy that home, you must proceed with caution. This requires that you must protect your new agent’s ability to keep their commission. Or, in the event you are buying directly from a seller, protect the seller’s ability to work with you without being liable for a commission.
You would need to inform the previous agent (verbally and in writing) that you no longer wish to use their services. There is a provision in the NAR Code of Ethics Arbitration Procedures that refutes the first agent’s claim if it can be shown that there was either an “abandonment” or “estrangement” by the first agent. Abandonment would mean that the agent didn’t follow up with you or that a lot of time goes by since the agent communicated with you. Estrangement would mean that the agent, through their actions or words, made you decide not to use them.
You should make one last contact with the previous agent to end the “relationship” with them. I know, you may not have signed anything and thus feel that you have no obligation to the previous agent and technically no actual relationship. It doesn’t matter, that agent may think you are his buyer and that a relationship exists. End it nicely but firmly. Tell them in writing why you don’t want to use their services. Make sure to give your new agent or the seller, if you are buying direct, a copy of the letter and make sure you don’t have any further contact with the previous agent.
There are legitimate reasons why buyers do not or may not want to work with a particular agent after seeing one or more homes with them or getting information about various homes from them.
- Perhaps the agent shows incompetence or inexperience.
- Perhaps they just don’t seem attuned to your needs.
- Or maybe their personalities just plain clash with yours or they said or did something that you didn’t like.
If that is the case, document such situations and keep a record of them for future reference just in case a problem does arise, end the relationship as noted above and go on.
However, where money is involved, sometimes greed takes over where common sense and fair play should be the norm.
Think long and hard before taking such a route. If it is legitimate, document and end the relationship. If it is not, follow your moral instincts and do what is right. Either complete the deal with that agent or tell them what you are planning and compensate the agent in some way.
Do’s and Don’ts
If you do plan on being in contact with several real estate agents:
- Do share confidential information about you and your ability to purchase a home only with the licensee whom you choose to represent you as a buyer’s agent. If you share this information with other real estate licensees, they potentially could use this information against you if they represent the seller of a home that you want to buy.
- Don’t get too involved with any real estate license until you are sure that is the person you wish to use to represent you in purchasing a home. The more deeply involved you get and the more homes you see with one real estate licensee, the easier it becomes for that licensee to claim to be the “procuring cause” on a future purchase by you of a property that you learned about or saw through that licensee, whether you purchase that home through another agent or directly from the seller.
- Don’t sign any written documents, except mandatory agency disclosures, with any real estate licensee except the one you choose to be your buyer agent.
- Do make it very clear from the beginning that you are interviewing several agents before deciding to use the services of one exclusively. Sellers generally interview two or three or more listing agents asking for proposals and marketing plans before they choose which agent to use. You can do the same, as long as you do so cautiously.
- Don’t leave your e-mail address, phone number, or mailing address with any real estate company or licensee. To do so invites more aggressive and potentially irritating marketing efforts by such companies or licensees and potentially begins the process of a real estate licensee being able to claim “procuring cause”. If you are asked to “sign-in” at an open house, give your name, but don’t leave your address or phone number. Take the licensee’s business card and say that if you are interested further you will contact them.
- Don’t continue or encourage the development of a relationship with a real estate salesperson who you probably don’t want to actually buy your home from in the future. It is unfair to the agent and may lead to problems later for you or your new agent. If you are contacted by a real estate licensee that you are pretty sure you don’t want to use as your buyer agent, politely but firmly ask them to stop contacting you. Ask them to remove your phone number or e-mail address from their records. The more you encourage the development of a relationship with one real estate licensee, the more difficult it becomes for you in the future if you decide to hire another licensee as your buyer agent.
Additional Information is Available
Purchasing a home really is a complex process. Understanding real estate relationships is even more confusing. I hope that this behind-the-scene look hasn’t confused you even more. Please email Tom Wemett or call him toll-free at 800-383-8322. Most real estate agents don’t understand it so why should you? Don’t be afraid to ask for further explanation or example if you don’t quite understand it.
The author, Tom Wemett, is a nationally known homebuyer advocate, educator and exclusive buyer agent. He is a founding member of NAEBA, the National Association of Exclusive Buyer Agents, the national President of NAEBA in 2003 and currently serves on the NAEBA Board of Directors. He also is the Founder/Manager/Lic. R.E. Broker of Record for Homebuyer Advisors LLC, a real estate brokerage that represents homebuyers only in Florida, Massachusetts and New York State. Tom can be reached at 800-383-8322 or firstname.lastname@example.org.