LAYING DOWN THE LAW – PROCURING CAUSE AND THE LISTING AGREEMENT’S BROKER PROTECTION CLAUSE
June 1, 2020
Christopher J. Charles
Attorney, Provident Law
Real estate brokers work hard to earn their commissions. And they use specialized training and experience to secure the right buyer for the seller’s unique property. As a result, brokers deserve to be justly compensated for the value they bring to each transaction.
Most commonly, brokers negotiate with sellers to be paid through the standard exclusive right to sell listing agreement (the “listing agreement”). Put simply, the listing agreement requires the seller to pay a commission to the broker if the broker is the procuring cause of a sale during the listing term.
Per the National Association of REALTORS® (NAR), procuring cause is the “uninterrupted series of causal events, which results in a successful transaction.” Common law defines procuring cause as “a broker’s activity which originates a series of events which, without break in their continuity, result in accomplishment of the prime objective of employment of the broker-producing a purchaser ready, willing and able to buy real estate on the owner’s terms.” Hurley v. Kallof, 2 Ariz. App. 446, 449, 409 P.2d 730, 733 (1966) (quoting Clark v. Ellsworth, 66 Ariz. 119 at 122, 184, P.2d 821, at 822 (1947)). If a broker was the efficient, proximate, and procuring cause of the sale of real estate listed with him, he was entitled to his commission even though the transaction was handled and closed by another broker. Bowser v. Sandige, 74 Ariz. 397, 401, 250 P.2d 589, 591 (1952) (citing Fink v. Williamson, 62 Ariz. 379, 383, 158 P.2d 159, 161 (1945)). The court has also defined “procuring cause” with the terms: “One who is the immediate and efficient cause of the sale.” Fink, 62 Ariz. at 383, 158 P.2d at 161.
Importantly, whether a broker is the procuring cause of a sale of property listed with him or her is, usually a question of fact. Clark v. Ellsworth, 66 Ariz. 119, 122, 184 P.2d 821, 822 (1947). Three apparent factors in the factual analysis are:
- Whether the buyer was already an acquittance of the seller;
- Whether the agent was “first in point of time to introduce the purchaser to the property”; and
- Whether the transaction was “a mere subterfuge to defeat the broker of his “
Per statute, listing agreements must have a definite duration, including a definite expiration date. So, what happens if due to the broker’s marketing efforts, a buyer brings a full price offer to the seller just days or weeks after the listing expires? To protect brokers in this instance, most listing agreements have what is known as a “broker protection clause,” also known as an “extension clause” or “tail provision.” The broker protection clause provides that if the owner contracts to sell the property with a buyer who was procured by the broker within a specified period of time after the expiration of the listing (such as 90 days), then the full commission is owed. This prevents the unjust situation where due to the broker’s marketing efforts, a buyer contracts to purchase the property after the listing expires, and the broker receives no compensation for his or her services.
The broker protection clause, however, creates a potential economic problem for the seller who immediately enters into a new listing agreement with a second broker. In that case, the seller may expose himself or herself to payment of two commissions. To prevent this problem, most listing agreements provide the following important exception to payment of commission to the original broker: “unless the seller lists the property on an exclusive basis with another broker.”
Thus, per the above exception, if the seller enters into a new listing agreement with another broker, even if the seller contracts to sell the property to a buyer who was procured by the original broker, the seller will only owe a commission to the new broker and will have an affirmative defense to any claim for a commission brought by the original broker.
In the above situation, the original broker is not without remedy. As long as the original broker can show that he or she was the procuring cause of the buyer, then the original broker should have a claim for the co-broke commission offered by the new listing broker in the Multiple Listing Service (MLS). And per the MLS Clear Cooperation Policy, “Within one business day of marketing a property to the public, the listing broker must submit the listing to the MLS for cooperation with other MLS participants.” See www.nar.realtor/about-nar/policies/mls-clear-cooperation-policy. As a result, the original listing broker should be protected from forfeiting their commission even after the expiration of the listing agreement, as long as they can demonstrate that they were the procuring cause of the closing.
To avoid any confusion and to protect imperfect memories, at the conclusion of every listing term, the broker should provide the seller with a written list of all buyers whom the broker delivered to the seller during the listing term. And the broker should request in writing that the seller provide this list to any future brokers they decide to hire.
If you or anyone you know have questions concerning real estate listing agreements or commission issues, contact Mr. Charles At Provident Law. Our real estate attorneys represent parties on either side of real estate and financing transactions, including buyers, sellers, landlords, tenants, lenders, borrowers, trustees, guarantors, shareholders, partners, and others. We advise, structure, negotiate, and document a variety of real estate and financing transactions, including leases, purchase and sale agreements, financing agreements, and development agreements for a variety of commercial and residential projects. Contact us today and learn how we can help.
Christopher J. Charles is the founder and Managing Partner of Provident Law®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS® (the “AAR”). Mr. Charles holds the AV® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions.
Christopher is a licensed Real Estate Instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at Chris@ProvidentLawyers.com or at 480-388-3343