What establishes someone as the procuring cause of a transaction?
This may seem like a basic question, but, based on the number of arbitrations, it is not well understood. All procuring cause inquiries are fact-specific, depending on all the circumstances in a given situation. The procuring cause of a deal is the agent who sets in motion the unbroken chain of events that leads to procuring a buyer who is ready, willing, and able to purchase the property on terms acceptable to the seller.
It is not necessarily the agent who first shows the house, first brings the house to the buyer’s attention, writes the offer, or is the buyer’s agent. While these factors are relevant, the main focus is whose efforts set in motion the unbroken chain of events resulting in the deal.
The buyer’s agent submitted a purchase offer in which he increased his commission. Is that ethical?
No, this action is specifically prohibited by Article 16 of the Code of Ethics:
Standard of Practice 16-16:
REALTORS®, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker’s agreement to modify the offer of compensation. (Amended 1/04)
In summary, never use the terms of an offer or the threat of withholding an executed offer to increase your commission.
Must I agree to cut my commission to make a short sale deal happen?
No, you are not ethically or legally required to reduce the fee you and your client agreed upon.
What if the listing agent puts the wrong commission offer in the MLS? Consider the following example: The MLS shows an offer of X% to cooperating brokers, and the buyer’s agent responds by producing a buyer. The listing agreement stated that the listing firm’s compensation offer would be more than X%, the settlement statement actually showed more, and more was disbursed to the selling firm at closing. A month later, the listing firm called demanding the return of the difference between the X% and what was actually paid. Is the selling firm obligated to return the commission difference?
Yes. Virginia law is very clear that with open-ended offers (offers that are accepted by performance), the offer you respond to is binding.
The selling firm responded to an offer of X%, and that’s what it earned. Similarly, if the listing firm had offered more but had intended to offer less, it will owe the greater amount.
Another example: let’s say I lost my dog and I put a $500 reward poster up for her return. You see the poster, find my dog, and head over to my house. While you are on your way, I decide that my dog really isn’t worth that much to me and I change the poster to $350. What are you entitled to? The answer is $500, because that is the offer for which you performed.
An agent is licensed with a real estate firm and has pending transactions in which the agent is either the listing or selling agent. Prior to the closings, the agent has to return his license to DPOR. With the agent’s license now “inactive”, can the agent be paid the commission earned on the pending transactions when they close?
Yes. License status at the time of payment is not relevant. All that matters is license status at the time of the act giving rise to the payment. As long as the agent was licensed when the agent got the deals, it doesn’t matter his status at closing. He could have retired, died, lost or given up the license.
I was offered a low commission split as the selling agent. When I looked at the settlement statement I learned that the listing agent received more than half. When I demanded to see the listing agent’s agreement with his seller, he refused. What gives?
The listing agent and seller can agree to offer any cobroker fee they choose. Furthermore, the listing agent has no duty or right to turn over his agreement with his client to you.
The agreement contains confidential information, the seller may object to such action on the agent’s part. Sharing the listing agreement would require the client’s consent.
May we pay a nonlicensed company for real estate leads?
Section 8 of RESPA expressly prohibits this, unless the source of the referrals is licensed. Section 8 of RESPA provides that it is illegal to pay or to receive anything of value pursuant to an agreement that settlement services will be referred. Real estate brokerage is a settlement service. (This prohibition applies only if there is an institutional mortgage loan in the deal.) RESPA contains an exemption in the case of referrals by real estate licensees to each other.
This could also be a violation of VREB regulations, which provide that referral is a licensed activity. See section 18 VAC 135-20-280(1) which states that “[o]ffering to pay or paying a transaction-based fee, fees, or other valuable consideration to any person not licensed in this or any jurisdiction for services that require a real estate license. . .” results in an improper brokerage commission. The VREB regulation, 18 VAC 135-20-165, also states that negotiating or agreeing to any referral fee is as a licensed activity.
The landlord wants to pay a “finder’s fee” to tenants who bring in other renters. Can the landlord directly compensate his tenants in this fashion … even though a real estate firm is managing the property?
Section 54.1-2103A7 of the Code of Virginia gives the answer. This section deals with exemptions from the requirements of licensure, and exempts “any existing tenant of a residential dwelling unit who refers a prospective tenant to the owner of the unit or to the owner’s duly authorized agent or employee and for the referral receives, or is offered, a referral fee from the owner, agent or employee.”
May I pay a team directly or do I have to pay the individual licensees?
Brokers may only pay licensees, whether individuals or entities. So if agents in your firm form a team, but don’t secure a business entity salesperson’s license from the Real Estate Board, you continue to pay the team members individually. However, if they form an LLC or other business entity on the advice of their attorney, and get it licensed at DPOR as a business entity salesperson, you can then pay the entity, and the owners can distribute the payments according to their agreement.
Agent moves from one company to another and leaves pending deals. Can the former broker legally pay the former agent directly on those deals when they close - or does the payment have to flow through the new broker?
The agent’s former broker can pay the agent directly. The new firm is a stranger to the deal, has no relationship with the clients, or entitlement to any of the money. The “broker” to whom the regulation refers is the broker of the firm where the deal was handled and who was paid the commission. The obligation is to the agent, and not the other firm. So, pay the agent.
A builder makes an offer to local real estate agents. “Send me prospective clients, and I’ll pay you a referral fee.” Is this a violation of RESPA?
No. This is real estate brokerage. Bringing buyers to sellers of real estate is what your license permits you to do. What you call the fee is irrelevant. (Besides, selling houses you build is not a settlement service under RESPA.)
I am the listing agent and have had terrible experiences with another firm in my area. In fact, this firm has caused previous deals to fail due to incompetence and unethical behavior. Do I have to cooperate with it?
You should discuss your concerns with your client and if they consent you do not have to cooperate. Article 3 of the Code of Ethics clearly addresses this issue:
REALTORS® shall cooperate with other brokers except when cooperation is not in the client’s best interest. The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker. (Amended 1/95)