March 30, 2023
*Disclaimer: the opinions herein are those of Bradley Greenman and John V. Giardinelli and not necessarily of California Association of REALTORS® or any other REALTOR® Association.
The California Association of REALTORS® (or “C.A.R”) appears to be making a calculated push to try and clarify and organize what can be one of the most contentious areas of real estate practice; procuring cause disputes. “Procuring cause” refers to “[t]he efforts of [an] agent or broker who effects the sale of realty and who is therefore entitled to [the] commission [from the sale].” (CAUSE, Black's Law Dictionary (11th ed. 2019).) Additionally, the National Association of Realtors® (or “NAR”) defines procuring cause as, “the uninterrupted series of causal events, which results in the successful transaction.” (California Association of REALTORS®, Procuring Cause Guidelines.) Essentially, procuring cause disputes center on deciding if and/or which broker involved in a real estate transaction is entitled to the buyer side commission from the sale of residential real property. In the often-complex back-and-forth between buyer-brokers (brokers acting as agents for the buyer of the real property) and seller-brokers (brokers who posted the property to the multiple listing service acting as an agent for the seller of the property), disputes over which broker actually initiated the chain of events which led to the final sale of the property also leads to disputes as to which broker is properly entitled to the commission.
By 2021, C.A.R. had begun to strategize how to encourage agents to use buyer-broker representation contracts as a standard of practice. By increasing the use of the buyer-broker contracts, C.A.R. hoped there would be more certainty in the relationships of buyer- and seller-brokers and that the resolution of procuring cause disputes would be more certain in arbitration. To accomplish this, C.A.R. has taken multiple steps. C.A.R. created the Buyer Broker Task Force (or “BBTF”) in 2021 to analyze the potential effect of making changes to historical practices governing broker relationships. As a result, C.A.R. revised its forms to reflect the changes it was pursuing in light of the findings of the BBTF. For example, after the BBTF released its findings and recommendations concerning procuring cause disputes (discussed more thoroughly infra), C.A.R. created a new form, the Buyer Representation and Broker Compensation Agreement (or “BRBC”). This new form was then incorporated into C.A.R.’s new guidance for arbitrators to use in deciding procuring cause disputes. (See Bradley Greenman & John V. Giardinelli, New and Revised C.A.R. Forms in 2023, https://www.tylerbursch.com/courtside-news/real-estate/new-and-revised-car-forms-in-2023. [discussing the implementation of the new BRBC form]; California Association of REALTORS®, Procuring Cause Guidelines [adding the BRBC form into the factors arbitration panels consider in procuring cause disputes].)
In 2022, the BBTF concluded that C.A.R. should successfully encourage more widespread use of its buyer-broker contract forms (such as the BRBC form), among other things, by changing how arbitration panels “weigh” the use of buyer-broker contract forms when deciding procuring cause disputes between brokers. The BBTF recommended, “[t]hat the procuring cause factors heavily weigh the factor of a written buyer broker agreement and require very strong alternative circumstances to overcome the lack of a buyer broker contract in order to prevail on a procuring cause claim.” (California Association of Realtors, Issues Briefing Paper: Buyer Broker Task Force Procuring Cause Recommendations [quoting BBTFs Referral to Professional Standards Committee] (emphasis added).) This new recommendation by BBTF had the practical effect of providing a more favorable evidentiary standard for brokers who utilized the buyer-broker contracts. This new standard favors brokers who use buyer-broker contracts, such as the BRBC form, because by requiring the arbitrators to “heavily weigh” the use of C.A.R. buyer-broker contracts, brokers who used the contracts walk into arbitration with at least one of the factors heavily favoring awarding the commission to them. In creating this more favorable consideration in arbitration, the BBTF believed this change would then motivate brokers to use the buyer-broker forms as a part of their regular practice.
Based on these findings and recommendations, on December 19, 2022, C.A.R. adopted the BBTFs recommendation and changed its procuring cause guidelines. Specifically, C.A.R. made changes to its “Factors Chart” (the chart of facts and circumstances that arbitration panels consider in determining which broker in a dispute procured cause). (See California Association of REALTORS®, Procuring Cause Guidelines [enumerating the various factors for consideration].) Incorporating the BBTFs recommendations, C.A.R. changed Factors 19–22 (among other changes). (Ibid.) Factors 19 and 20 concern exclusive and non-exclusive representation agreements between buyers and “Intro Brokers” (brokers who did not write the final contract), while Factors 21–22 concern exclusive and non-exclusive representation agreements between buyers and “Closing Brokers” (brokers who drafted the final contract and executed escrow). (Ibid.) In each of these scenarios, where a BRBC form or similar contract was used by the broker, that broker (whether the Intro or Closing broker) would be entitled to the arbitration panel giving “significant weight” to the existence of the “contract between the broker and the buyer[.]” (Ibid.) Practically, as noted previously, this means the broker who uses the BRBC agreement would start any procuring cause arbitration with one factor weighing significantly in favor of awarding them the commission on the sale. (See ibid. [noting the panels must still weigh all of the factors and circumstances of the transaction].)
In conclusion, it would be wise for any Intro or Closing brokers in California to make regular use of the BRBC form (or some other written contract intended to accomplish the same purpose). Doing so will help minimize the risk of losing a commission in a procuring cause dispute because it sets at least one factor “heavily” in favor of the broker who uses it and who has been significantly involved in the successful transaction. While the new guidance and guidelines being promulgated by C.A.R. accomplish the goals of seeing its forms used in more transactions, the guidelines can also work to the advantage of those brokers who utilize them well.
This marketing material is provided by Tyler Law, LLP for informational purposes only and is not intended to be legal advice or to create an attorney-client relationship. The information contained in this material is not guaranteed to be current or complete, and should not be relied upon as such. The material is not meant to provide any representation or warranty regarding the outcome of any legal matter. Any reliance on the information provided in this material is done at your own risk. If you require legal advice, please contact an attorney licensed to practice law in your jurisdiction. Nothing in this material shall be construed as a guarantee, warranty, or prediction regarding the outcome of any legal matter. Tyler Law, LLP is a California-based law firm authorized to practice law in California, Arizona, Oregon and Arkansas and is not licensed to practice law in any other jurisdiction.
September 28, 2023Record Retention Requirements for California Real Estate Brokers
Guidelines on record retention for California real estate brokers, detailing document types, retention duration, and best practices for record management and disposal.
July 31, 2023Resolving Co-Ownership Disputes: Unveiling the Uniform Partition of Heirs Property Act
If you own Heirs Property or are contemplating estate planning involving co-ownership, this article explores the Act's impact and the benefits it offers in fostering smoother co-ownership experiences.
June 30, 2023Important Updates to California Association of REALTORS® Forms: June 2023 Edition
Stay informed about the latest changes in California Real Estate Law. Discover the important updates to various forms that will impact professionals and clients alike. Find out what modifications have been made and how they may affect your real estate transactions.