What Constitutes Procuring Cause in NYC Real Estate?

A broker is said to be the procuring cause of a real estate transaction if he or she brought about a “meeting of the minds” between the buyer and the seller, and was a direct cause of a sale being consummated.

In plain English, the broker should be able to show that he or she not only negotiated an accepted offer, but also materially participated in the transaction from the accepted offer stage all the way to closing.

What really counts as procuring cause in NYC?

Forget all the generic articles you’ll see online which warn buyers against visiting an open house without their buyer’s agent, for fear that the listing agent might start a dispute around procuring cause. That never happens in reality in New York City.

In order to be the procuring cause of a transaction, an agent has to truly demonstrate that he or she was the cause of an unbroken chain of events that led to a sale. Simply showing a property once or even twice to a buyer is insufficient.

Submitting an offer may not even be enough

Many people may think that an agent will be the procuring cause of sale if he or she submits an offer on behalf of the buyer. Unfortunately, that is not good enough if the offer isn’t accepted or if the buyer backs out.

Let’s say a buyer works with Rick as their buyer’s agent initially, and Rick submits an offer. The offer is rejected because either the seller felt it was too low, or that the buyer was not sufficiently qualified, or simply because the seller and listing agent felt that the documentation submitted was incomplete.

Regardless, the buyer is fed up and fires Rick. The buyer comes back some time later with a different buyer’s agent, James, who submits a new offer on behalf of the buyer. James receives a counter-offer and successfully negotiates an accepted offer.

In this situation, James would be the procuring cause of sale, and Rick would be ineligible to receive any commission, even though he initially introduced the client to the property.

Procuring cause in NYC real estate is negotiating an accepted offer and being materially involved until closing. Legal definition, disputes & more inside.

Negotiating an accepted offer is the determining factor

In NYC, procuring cause is generally determined by who successfully negotiates an accepted offer between the buyer and the seller.

If a listing agent negotiates an accepted offer directly with a buyer, even after the buyer was initially introduced by a buyer’s agent, then the listing agent is the procuring cause of sale.

This can happen if the buyer decides to fire the buyer’s agent, and work directly with the listing agent or seller. In this situation, it doesn’t matter if the buyer’s agent showed the buyer the property initially.

If the buyer’s agent didn’t submit an offer and negotiate an accepted offer, then he or she is not the procuring cause of sale.

Procuring cause resets if the accepted offer falls through

Negotiating an accepted offer doesn’t mean much if the offer falls through before a binding contract is signed. If either the buyer or the seller backs out of the accepted offer before a purchase contract is signed, then the deal is dead and no one is the procuring cause of anything.

In this situation, the buyer could come back some time later with a different agent who submits a new offer that is successfully negotiated and accepted. If the new deal goes through, then the new buyer’s agent would be the procuring cause of sale.

A Full Service Listing for 1%

Sell your home with a traditional full service listing for just one percent commission.

Switching buyer's agents without causing a procuring cause dispute

Switching buyer’s agents can be a tricky maneuver in the high stakes game of NYC real estate. A buyer’s agent who’s about to be looped out of a potential six figure payday is bound to fight for the commission, especially if the buyer’s agent who’s being fired thinks he or she had an instrumental role in procuring the sale.

Fire your old buyer’s agent by email

The first step is to formally document the dismissal of your former buyer’s agent. In NYC, buyers are typically “free agents” unbound by any sort of exclusive right to represent buyer agreements, and as a result you can freely dismiss your buyer’s agent at any time.

It’s important to send an email to your former buyer’s agent informing them of the termination of any relationship you have with them, and to ask them to confirm receipt of your email.

We understand that you may wish to soften the blow by laying them off in person, but it’s important to document when you fired them so they don’t try to come back and claim to be the procuring cause of the sale down the road.

Rescind any offers your old buyer’s agent submitted

It’s extremely important to rescind any offers your former buyer’s agent submitted, ideally right before you fire them. Since you will be firing them, you won’t be able to count on them to rescind any offers for you.

Therefore, you should email listing agents directly with your buyer’s agent copied, informing them that not only will you no longer be working with said buyer’s agent, but that you are retracting your offer.

Remember that real estate offers are not binding in New York until a contract has been signed by both the buyer and the seller.

Wait a few days before looping in your new buyer’s agent

If you do wish to try again on the same property, but just with a different buyer’s agent, then you should wait a few days for things to cool down after you’ve fired your old agent and rescinded any outstanding offers.

This simply looks much better optically in any potential procuring cause dispute. In fact, the longer you wait, the better. You simply don’t want to give the appearance of an unscrupulous buyer who’s trying to screw a buyer’s agent out of a commission.

Make a new offer on different terms with your new agent

After you’ve waited a few days at least, then it’s time to move in and introduce the listing agent to your new buyer’s agent.

This step is crucial in order to prevent any confusion on the listing agent’s part as to who your buyer’s agent is. The last thing you’ll want is for the listing agent to reply all and copy your former buyer’s agent, asking who actually represents you.

Once you’ve introduced your new buyer’s agent in writing to the listing agent, let your buyer’s agent take it from there. Your new buyer’s agent will call the listing agent for color, submit a new offer on ideally different terms than your former offer, and negotiate an accepted offer on your behalf.

You’ll want to get out of the way so your new buyer’s agent can do his or her job, and also document the fact that he or she was truly the procuring cause of this new transaction.

Considerations for buyers receiving a commission rebate

One of the most common reasons for buyers to switch agents is because they’ve found out that they can receive a broker commission rebate. As a result, they’re typically furious that they’ve been working with a random friend agent who hasn’t offered them anything post-closing. So how should buyers in this situation go about switching agents without causing a big hullabaloo?

Work with a traditional broker who discreetly discounts

One of the biggest advantages of signing up for a Hauseit Buyer Closing Credit is the fact that you’ll be able to work with a reputable, established, traditional buyer’s broker instead of a discount broker.

Because our partner brokerages are traditional firms with good working relationships with other traditional brokers, you’ll experience less friction in the process vs working with a discount broker.

As you can imagine, traditional brokers may be resentful towards discount brokers who are out to “disrupt” the industry and take away their livelihoods. Think about it, how easy do you think it will be to simply loop in a discount broker who’s going to ask for half the listing broker’s commission?

Give your buyer’s agent some credit

When you introduce your buyer’s agent by email to the listing agent, assuming that you’re already in direct contact with the listing agent, make sure to give your buyer’s agent some acknowledgement and credit.

Ideally, you’re able to explain to the listing agent that you go way back with your buyer’s agent, and that you have a strong relationship.

At the very least, it’s nice to be able to explain that you met your buyer’s agent through a referral from a trusted source such as your lawyer.

What you don’t want is for the listing agent to think that the buyer’s agent is some random person you just met, perhaps through the internet.

Even worse is if the listing agent thinks your buyer’s agent is a completely random agent you just met, only because that agent is a discount broker who’s promised you part of the commission.

Fortunately for Hauseit Buyer Closing Credit customers, you’ll never have to deal with this issue because all of our partner brokerages are reputable, established, traditional brokerage firms based in the city. In essence, our partner brokerages are not discount brokers and they never openly discount their services.

Remember, the point of all of this is to establish that you’re very close to your buyer’s agent, and the listing agent should give up any hopes of working with you directly.

Insist that communications go through your buyer’s agent

Listing agents may be stubborn, especially if you’ve previously communicated directly, and may still try to call or email you directly even after you’ve looped in your buyer’s agent.

If this happens, you need to be very firm and stand up for your buyer’s agent. You need to reply back by email, ideally copying your buyer’s agent, asking the listing agent to deal with your buyer’s agent going forward.

You can re-iterate that you’ve elected to work with a buyer’s agent, as is your right, and that your buyer’s agent represents you and will deal with the listing agent going forward.

Furthermore, for the avoidance of doubt, you can even insist that the listing agent pass all communications going forward through your buyer’s agent.

Confirm the commission that will be paid to your agent

If you really want to make sure things get done right, you can even ask your buyer’s agent to submit your offer to the listing agent with a caveat that a certain percentage of commission will be paid to your buyer’s agent.

This commission should of course be the co-broke that is listed in the REBNY RLS or other MLS system if you’re buying outside of NYC.

This maneuver can be  helpful for listings that aren’t co-broked in the MLS or RLS, in which case you want to make sure that the co-broke that the listing agent “mentioned” will actually be paid.

Our Discretion, Your Advantage

Our traditional partner brokers never openly discount which means less disruption and better execution for you.

What happens if there's a dispute on who is the procuring cause of sale

In NYC, since buyers are typically unbound by any sort of exclusivity agreement, and only sellers are liable to pay commission in the event of a sale, procuring cause disputes only happen between brokers.

REBNY requires arbitration

In the event of a dispute between brokers who are all members of REBNY, then REBNY rules generally require the brokers to submit their dispute to arbitration by a REBNY panel.

This essentially means members of REBNY are prohibited from engaging in costly litigation, and disputes are required to be submitted to REBNY for arbitration instead.

Brokers will need to compile and submit evidence to REBNY’s arbitration panel to support their claim as the procuring cause of sale.

What does REBNY have to say about procuring cause?

Here’s what Neil B. Garfinkel, REBNY Broker Counsel & Partner-in-charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP had to say about the topic:

Question: Is a buyer’s broker entitled to a commission by virtue of introducing the buyer to the property?

Answer: No, simply showing a buyer a property does not necessarily entitle a REBNY member to a commission. A broker is only entitled to a share of the commission if he or she is considered the “procuring cause” of the transaction.

Question: What is “procuring cause?”

Answer: There is no specific definition of “procuring cause.” However, case law suggests that in order to be considered the procuring cause, a real estate broker must show a “direct and proximate link between the bare introduction of the buyer and seller and the consummation [of a sale].” In other words, a REBNY member must bring together a meeting of the minds between the buyer and seller and show that he or she generated a chain of circumstances which led to the sale. The ultimate determination of whether or not the REBNY member procured the buyer, and thus can be considered the procuring cause, is a fact-sensitive inquiry that turns on the specific facts and circumstances of each case.

Question: May a buyer switch real estate brokers at any time during a transaction?

Answer: Yes, absent an exclusive representation agreement, a buyer may switch real estate brokers at any time during a transaction. However, the buyer’s decision to change brokers does not necessarily dictate which broker is the procuring cause of the buyer. For example, let’s assume that Broker A represented the buyer for the entire transaction and, on the night before closing, the buyer instructs Broker A not to come to the closing because the buyer wants to bring Broker Z to the closing. The buyer has the right to change to Broker Z, but doing so does not negate the fact that Broker A was the “procuring cause” of the buyer. In this case, Broker A would still be entitled to share in the commission even though the buyer has changed brokers. Once again, the determination of who is the procuring cause of the transaction is a fact-sensitive inquiry that turns on the specific facts and circumstances of each case.

What if the broker isn’t a REBNY member?

If one of the brokers is not a REBNY member, then the dispute is not required to be submitted for arbitration by REBNY, and either side will be free to pursue litigation.

As you can imagine, litigation is quite expensive in NYC and is not good for business. Brokers should carefully weigh the pros and cons of pursuing litigation vs trying to come to a settlement with the other party.

Save 2% On Your Home Purchase

Our partner brokers are some of the most experienced and reputable in the industry.

Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided. Hauseit LLC is a Licensed Real Estate Broker, licensed to do business in New York under license number 10991232340. Principal Office: 148 Lafayette Street, New York, NY 10013.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top