2009 Aug 3rd

Is “Procuring Cause” Cause for Trouble?

Going To Look at Some Open Houses This Weekend? Beware!

We all know the drill.  You’re not ready to commit to really start house hunting but you want to get a feel for the Hoboken condo market, so you decide to go to some open houses.  As you walk in, the hosting agent asks you  to “sign in”.  Not wanting to give your info for fear of being hounded by the agent and inundated with emails, you make up a name or email or just scribble illegibly.  No problem with any of that, but what happens when you see a place you really like?

On several occasions recently, I’ve had a potential buyer contact me because they found a property at an open house they were thinking about buying. You might think that, as a real estate agent, such a call would make me happy.  Wrong.  Too often, the buyer went to an open house, spoke at length with the hosting or listing agent, and maybe even told that agent that they wanted to make an offer.  Sometimes the buyer mentions that they have their own agent, sometimes they don’t.  Then the buyer calls me.  So what’s the problem?  It’s called procuring cause.  

Reasonable people can disagree about what is the procuring cause of a sale.  Would the buyers not have made an offer had they not seen the property at the open house?  Or did the buyers’ own agent convince them by providing advice, comps and/or by showing them other similar-but-inferior properties that the property was a good deal and worthy of making an actual offer?  The answer may be “it depends.”

Procuring cause is the sine qua non of the sale.  But for the efforts of the procuring agent, the sale would not have happened.  Whether an agent is the procuring cause of a sale must be factually determined on a case-by-case basis.  Many factors impact a determination of procuring cause, but no one factor is by itself determinative. 

Not surprisingly, the listing agent wants to sell her own listing (and get both halfs of the commission) so she is going to claim that the buyer is “her customer” and that she the procuring cause.  The other agent will say that the buyers walked into the open house on their own (or may even have been sent by their agent) but he or she did the groundwork, showings and educating that led to the offer. 

There is also a very valid debate whether it is a conflict of interest to be a seller’s agent and also work with the buyer (that’s worthy of a post of its own).  Nonetheless, doing both sides of a deal is allowed and legal in New Jersey.  So what should a buyer do if the buyer sees a nice property but does not want to deal with the seller’s agent?  Here are a few suggestions:

 

 

Recently, a buyer went to an open house and had some conversations with the listing agent.  The buyer then called me to make an offer on the property.  He had learned that the property was owned by the listing agent’s spouse.  The buyer felt that the listing agent couldn’t really represent him especially given the ownership issue, (which should have been disclosed in the listing, but wasn’t).  After asking many questions and explaining the procuring cause issue to the buyer, I guess the buyer went back to the listing agent to tell him he didn’t want to make the offer through him.  The listing agent told the buyer he would sue and that buyer would not get the property if he used a different agent.  I ran quickly in the other direction wanting nothing to do with the deal. 

As a buyer, if you wish to keep your options open and want to be able to use what ever agent you choose, take my advice – be very careful when you go to open houses or call about an ad or something you see on the internet.  You may find yourself working with an agent who is not in the best position to represent you since they work for the seller.

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  1. Mark

    Wow! Did that listing agent in your example at the end not want to sell the property or is the market that hot again?

  2. Andy

    Its unfortunate that NJ ethics and law don’t require the sellers agent to disclose these types of things. They try to abuse the would be buyer for their lack of knowledge. I know if an agent lied to me as the selling agent and then tried to sue so they would get the full commission I would pull the offer completely and walk away. Those types of realtors are scumbags even though they are “right” under the NJ law. Lying does not entice me to spend my money so that they can get paid.

  3. leafgreen99

    Thanks for postings like this, Lori. I am not a real estate guru and this kind of information will be helpful when I decide to purchase a property.

  4. Lori Turoff

    She supposedly had another offer (probably her own buyer, too) but who knows in a case like this what is really the truth.

    It is required that realtors disclose when they or an immediate family member have an interest in a property which they list.

    You would be amazed how often things like this happen! Or maybe not.

  5. David

    Very interesting. Very useful. The hassle of the potential lawsuit seems like sabre rattling (tho effective b/c no one wants to be sued). But honestly, this listing agent doesn’t have “clean hands” as she didn’t disclose she was the owner of the property.

    I don’t get these agents. They want both sides of the commission for doing 1/2 the work.

    It seems like the only rationale thing to do is to lie on the sign-in sheet. I think NJ should make clear that these sign in sheets are not contracts, and open house sign-in sheets should not be springing traps for the unwary consumer. I don’t see any other choice but to treat these agents like dirt, lie to them. In other words, treat the exact opposite as I would like to be treated in a professional environment. A consumer absolutely needs a way out of unethical contracts accidently entered into without written terms. We should never pay for a representative that works both sides; and the agent who holds a deal because of this should be professionally punished. There has to be a hard nosed way out.

  6. Tiger

    David, I think you said it right there. I think it should be illegal for an agent to be a seller / buyer agent on the same deal, but then it becomes a question as to who will get the other half of the deal if the buyer doesn’t have an agent of his own?

  7. Bill

    How about the buyer and the seller split it?

    Seller pays less in commissions and the buyer gets a small discount to the price

  8. Bill

    so for arguments sake, 6% commission on 500k condo

    If the buyer is unrepresented,

    Seller pays commission of 4% (as opposed to 6%)
    Buyer pays 495K instead of 500k

    I think this informally happens anyway

  9. Lori

    Except that technically, having the buyer and seller split the commission would be a “buyer’s rebate” which IS illegal in NJ. Welcome to the backwards state!

  10. dkzzzz

    That is how I would navigate “ethics” in NJ or in US generally.
    I would mention that I’d want half of their commission to cover my closing costs and see if they forget about “ethics” and let me make an offer through whichever agent I wish.
    If that does not work tell them that you will contact seller directly and wait for agent’s contract to expire to make a for sale by owner deal. After all sellers info is in Tax records online for everyone to access.

  11. David

    Even if the rebate is illegal, who would sue? Who was wronged? It sounds like 3 people cutting up a piece of pie. Why should 1 person take 2 slices of a quarter instead of 1 of a third? If all three agree to get 1/3, the only person getting hurt is an imaginary 4th person.

    Has anyone heard of anyone getting sued for this “rebate”? Has anyone ever gotten into trouble? (I can imagine the call the the real estate police: “Officer officer, my broker saved me money. Please arrest him!”)

  12. Andy

    David, it sorta happened to me but not exactly the same way. I went to an open house and the guy there tried to force the issue that I was his client instead of the broker I found to help me a week later. When I placed my offer thru my agent the guy holding the open house had the Broker of the agency call me up and threaten me. Then they went to some board of realtors to arbitrate the case for which my agent lost. So becasue they went to all that troubel I pulled my bid told the other agency to F off and that I would never do business w/ them again and found a beautiful unit in the same building 1 floor up for 30k less at the time. The agency that tried to threaten me was pissed and they have still not been able to sell that unit. (the sellers rented it instead). All worked out in the end and those being difficult got what they deserved.

  13. Randy

    Hi Lori,

    Good article.

    I have a question. I’m hoping to buy within the year. I read your blog, but not much else yet (I’ll be more serious by this winter). However, my girlfriend is excited about moving and goes to open houses by herself or with friends from time to time when she passes by an open house on a weekend.

    If my girlfriend goes to an openhouse and really likes the place. She then tells me about the place – am I bound to use the broker that showed her the place through the open house – or am I a seperate entity?

    Thanks.

    Randy

  14. Tiger

    dkzzz, seriously, wow. It’s one thing to negotiate a good deal, a killer deal, it is another to literally screw people completely for the sake of a couple of thousand dollars. Is it worth it? Why the negativity?

  15. David

    Andy – sounds like karma spun around fast. The broker got what he deserved. And if there is an arbitration case, what is messed up is that you (the consumer) was not there. Ultimately you were denied your choice of whom you want to do business with. Real estate should not be a hold-up. The agent should’ve been happy with the “tip” she got for baby-sitting the open house.

    What makes it worse is this: the showing agent, in her greed did a huge disservice to his real client – the seller. If things didn’t end so well for you, at least you can solace in the fact that instead of getting a just bad break, he has at least two people spreading the word around Hoboken about his crappy job.

    Can we have his name?

    Also, dkzzz, it’s not just a couple of thousand dollars: on a 500k apartment, we’re talking 15k. That’s 15k to do nothing because that broker represents nobody, and that “share” is for work done by an imaginary buyer’s broker. It’s a great gig if you can get it: 15k for imaginary work (The work that agent does is for the seller, not the buyer. Even if they overlap, there is no reason to pay twice for work done once.) And this 15k can be the difference between a good deal and a bad deal.

    All in all, a very very very enlightening blog entry that sheds light on how Hoboken real estate is done.

  16. Tania

    A good posting, about an often confusing topic Lori.

    I am an agent also…I do want to throw in one more thing for your readers to be aware of in case they didn’t realize, or aren’t viewing this angle.

    Often the agent at the open house isn’t the listing agent. They are there working, trying to sell the property as well to a potential buyer that comes in OR (more likely scenario) meet new buyers so that they can build a relationship to help them buy something else in the future. If you are in the market for an agent, its a good place to start a conversation with them and see if its someone you would want to do business with in the future. You can meet a whole bunch of agents in one day like that, and gauge who you like to work with as well as see the properties.

    I don’t think anyone should be tied/forced to work with someone they just met because they happen to walk into an open house.

  17. Lori Turoff

    I’ve been doing some research on the law surrounding procuring cause and have learned quite a bit about it. The most reassuring principal is that the consumer’s choice – who the buyer wants to work with – is quite controlling in these matters, as it should be. I’ll be writing and posting about it again quite soon.

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