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Saturday
Jun252011

Whose Commission is it Any Way?

- A Procuring Cause Primer-

6.15.11 

By: Stephen J. Nash
Nash Law Firm
nash@nash-law.com

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Over the last fee years we have seen a dramatic increase in disputes over commissions.  Often the dispute originates when no agent accompanies the buyer on the buyers first viewing of the home yet an agent for the buyer later appears just in time to write the purchase agreement.  The listing agent feels blind-sided and the buyers’ agent is in for a fight for the commission.    

I.  The Process

When there is a commission dispute that cannot be resolved between the brokers/agents, a Fee Arbitration action can be brought by either broker/agent.  The Minnesota Association of Realtors (MAR) administers the Fee Arbitration process and each party to the Fee Arbitration process must pay a fee.

A Fee Arbitration Request is filled out by the broker/agent who starts the process and is filed with MAR together with the fee.  MAR then sends a copy of the request to the other party who has an opportunity to file a Response.  The responding agent must also send in the fee.  If both parties agree, they will be given the opportunity try to mediate the dispute with the help of MAR.  If the mediation does not work or the parties will not agree to it, an Arbitration Hearing date is sent out to the parties. 

At the hearing, the claimant is first allowed to give an opening statement stating his/her case and to present any evidence or witnesses that he/she may have.  Once finished, the other side then has the opportunity to question the Complainant or anyone who testified for the claimant.  The Arbitration Panel then has an opportunity to question the Complainant and/or any witness for the Complainant.  Once all of the questions have been asked, the Respondent is then allowed to give an opening statement stating his/her case and to present any evidence or witnesses that he/she may have.  Once finished, the other side has the opportunity to question the Respondent or anyone who testified for the Respondent.  The Arbitration Panel then has an opportunity to question the Respondent and/or any witness for the Respondent.  Once all of the questions have been asked, the Complaint and Respondent will be allowed to give final statements.

Each side will be notified in writing within 10 days of the hearing of the Arbitration Panels’ decision.  The decision can award all of the disputed commission to one of the parties or they can split it between the two.

II.  Who Wins and Why?

The standard used to determine who is entitled to a commission is referred to as Procuring Cause.  In fact, the Arbitration Panel members are given a copy of a guide entitled “Procuring Cause a Guidelines and Considerations By an Arbitration Hearing Panel”.  A copy of this guide will be put on the Company Intranet for you to review.  Any time you have a potential commission dispute it is extremely important that you read through this guide.  The guide sets forth 6 factors that will be considered when determining who is entitled to a commission. 

a.  The Six Factors

The six factors are as follows:

1.      What did each party do to earn a brokerage fee?

2.      Who had effective control of the buyer?

3.      Who/what caused the buyer to make the affirmative decision to buy the property?

4.      Whose/what actions led to the initial inspection of the property by the buyer?

5.      Before, during, and after the inspection(s) of the property by the buyer, whose actions and activities initiated a series of events which led to an acceptable offer?

6.      Was the action of any agent involved in the dispute an inappropriate intrusion on the other agents pursuit of a transaction?

III.  What Should We Learn From All Of This?

Everyone seems to think Procuring Cause is very simple concept and that they clearly should win.  Unfortunately, it is seldom that simple.  It is a balancing test that considers many different factors which different panels could weigh differently and come to a different result.  Often times the answer is not absolutely clear.  I believe that most people that I deal with sincerely believe that they should win because they just focus on the factors that favor them and ignore the other factors that may not favor them.  The process does not work that way.  When I look at all of the factors and look at the past arbitration panel decisions I often have to tell that agent that they are probably going to lose.  The most common response is, “Well, if that is the case, the system is unfair.”  While you may not agree with Procuring Cause, it is the standard that is used.  You must understand it to avoid getting into a dispute, to help decide when it is best to resolve a dispute or to put yourself in the best situation to win a dispute. 

With more frequent commission disputes arising, it is important to structure your business so as to avoid commission disputes, when possible, and to put yourself in the best position if a dispute is unavoidable.  When facing a commission dispute and considering whether to settle or whether to go to fee arbitration remember that with a settlement both sides get something, with fee arbitration it will generally result in an all-or-nothing decision.  

NOTICE

The foregoing is not intended to constitute legal advice for any specific circumstance, but is intended to reflect broadly applicable principles, under Minnesota law, relevant to a typical situation. Each set of facts and each contract is, or can be unique; the unique facts and specific language of the contract may require a different legal analysis and may result in a different outcome. Before proceeding in reliance upon this or any other general description of law, consult with an attorney competent in the field of practice relevant to your situation.

Copyright 2011 Nash Law Firm