The handsome groom lifts his lovely bride into his manly arms, she nudges open the front door with her stocking feet, and they cross the threshold together, giggling. A marriage made in heaven.
Some early Realtors fell in love with this scene when they first viewed it in a nickelodeon on North Michigan Avenue. They decided to replicate it by adopting The Threshold Rule: whichever agent shows the buyer a home and crosses the threshold with the buyer, is the one that gets paid, if and when the buyer closes escrow. HE could be Ramon Novarro or Ronald Coleman all over again. And SHE could be Clara Bow or Mary Astor.
However - what if the buyer strayed? What if the buyer crossed the threshold with one broker, but then decided to retain, formally, in writing, another broker?. What if the buyer went back to take another look at the home and crossed the threshold with the second broker! So the buyer makes an offer through the second broker, it's accepted, and eventually escrow closes. Who gets paid? Broker one? Broker two?
Welcome to the World of Procuring Cause. Buyer. Buyer. Who procured the buyer? It's Realtor arbitration time!
Over the course of time the Threshold Rule has been "refined" so that the broker who can demonstrate a continuous sequence of events leading to the buyer's decision to purchase, gets paid. In other words, it is supposedly not enough to just cross the threshold. But despite it's fancy new suit it is nothing more than Threshold Rule Plus.
What do YOU have to say about your own broker's compensation? Not much.
Should you care? I think so.
Please follow this.
After working with a broker for some time, you decide to work with a different broker. Why would you do so? Some cynics claim that it is to benefit a licensed relative,
like Aunt Rose, after pumping Broker One for much valuable information. Certainly that could happen. But there are many reasons why you might prefer a change from a broker to whom you owe no contractual allegiance - including loss of confidence, personality conflict, poor communication. In any and all events, in America it is no one's business but your own as to why you choose to do business with one individual instead of another. It is certainly not the business of the local Realtor arbitration panel.
So you make the change to Broker Two, who may be better than Broker One, OR NOT. Again, it's your perception, your decision. You may have made a terrible decision. But it is your call. And let's say that you even formalize your decision by executing a Buyer Broker Agreement with Broker Two.
With Broker Two you look again at the home that interests you, to which you were introduced by Broker One. With the assistance and advise of Broker Two you prepare a purchase contract. It specifies that Broker Two is your Broker, and that Broker Two will be compensated by a commission split or by you - again, your preference. Then the seller, with the advise of the listing broker, accepts your offer.
Throughout the transaction you, your mortgage broker, the seller, the listing broker, the title insurance company, the home inspector, the insurance agent, the escrow, everyone understands that Broker Two is representing you. At close of escrow YOUR broker, Broker Two, is paid pursuant TO THE AGREEMENT OF THE PARTIES AND OF THE LISTING BROKER.
Then comes the dreaded knock on the door. Broker One shows up, moaning about how much time and energy was expended on you, and how much advise you received. Which may be true, but not relevant. Unless otherwise agreed, real estate licensees are NOT paid by the hour, by the word, or by the gallon of gas. One, they work on a contingency. That contingency is shepherding a transaction from preparation of an offer through to close of escrow. Two, they are included in the transaction by the parties, and the listing broker. Folks wandering around without a client are not entitled to anything - in America.
May I repeat? Folks wandering around without a client are not entitled to anything - in America.
Listen to Broker One's incredible plaintive/plaintiff cry:
"That SHOULD have been my name on the purchase contract. That SHOULD have been me coordinating with the mortgage broker. That SHOULD have been me arranging the inspections. That SHOULD have been me negotiating a price reduction. That SHOULD have been me preparing escrow instructions. That SHOULD have been me arranging for closing of escrow.
"WHERE IS MY MONEY?"
The horror is that the National Association will not only listen to the guy, if it agrees that he SHOULD have been your broker, it will take away your broker's commission and give it to Broker One. Your choice of broker is of no consequence. The law of Contracts is of no consequence. Procuring Cause - what a hideous concept!
YOU should be concerned for two reasons.
One is the ugliness of being involved in Arbitration.
Two, and most important, YOU are tainted from day you cross the threshold with Broker One. This is dreadful. You should have the right to change brokers without fear of negative consequences - assuming you are not under contract with that broker. The negative consequence of being tainted is that another broker may choose to not work with you.
I am not aware of the number of PC arbitrations in San Francisco because the Association considers it confidential information. I suspect it is a very small number. In Marin there was only one PC arbitration in 2001.
Chicago? Oh, that's home to the National Association of Realtors. No, it's not a legislative body or a judicial panel. It is a trade association, a mere trade association.