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Arbitration

 

As a professional trade association, ORRA offers its members and the public a distinct service regarding disagreements over the details of a real estate transaction – filing an ethics complaint against a REALTOR®.

Only a principal REALTOR® member may request to arbitrate with a fellow principal member. Complaints are governed by a strict set of guidelines.


Request arbitration

Arbitration is a process by which only principal REALTOR® (only with contractual matters arising out of their relationship) may come to the association and request a hearing before the Professional Standards Committee.

Abitration is mandatory prior to seeking litigation. An impartial panel hears the evidence and makes a decision based on testimony presented at the arbitration hearing.

Filing fee: $500



Arbitration—a duty and a privilege

The duty of REALTORS® to arbitrate is based in the Code of Ethics, specifically Article 17 which provides:

In the event of contractual disputes or specific non-contractual disputes as defined in Standard of Practice 17-4 between REALTORS® (principals) associated with different firms, arising out of their relationship as REALTORS®, the REALTORS® shall submit the dispute to arbitration in accordance with the regulations of their Board or Boards rather than litigate the matter.

In the event clients of REALTORS® wish to arbitrate contractual disputes arising out of real estate transactions, REALTORS® shall arbitrate those disputes in accordance with the regulations of their Board, provided the clients agree to be bound by the decision.

The obligation to participate in arbitration contemplated by this Article includes the obligation of REALTORS® (principals) to cause their firms to arbitrate and be bound by any award. (Amended 1/01)

While many disputes that arise between REALTORS® will involve contractual questions, under certain circumstances there also may be related "non-contractual" issues or questions that arise. For that reason, the duty to arbitrate encompasses not only contractual issues, but also a number of specific non-contractual issues enumerated in Standard of Practice 17-4 which provides:

Standard of Practice 17-4

Specific non-contractual disputes that are subject to arbitration pursuant to Article 17 are:

  1. Where a listing broker has compensated a cooperating broker and another cooperating broker subsequently claims to be the procuring cause of the sale or lease. In such cases the complainant may name the first cooperating broker as respondent and may proceed without the listing broker being named as a respondent. Alternatively, if the complaint is brought against the listing broker, the listing broker may name the first cooperating broker as a third-party respondent. In either instance the decision of the hearing panel as to procuring cause shall be conclusive with respect to all current or subsequent claims of the parties for compensation arising out of the underlying cooperative transaction. (Adopted 1/97)
  2. Where a buyer or tenant representative is compensated by the seller or landlord, and not by the listing broker, and the listing broker, as a result, reduces the commission owed by the seller or landlord and, subsequent to such actions, another cooperating broker claims to be the procuring cause of sale or lease. In such cases the complainant may name the first cooperating broker as respondent and may proceed without the listing broker being named as a respondent. Alternatively, if the complaint is brought against the listing broker, the listing broker may name the first cooperating broker as a third-party respondent. In either instance the decision of the hearing panel as to procuring cause shall be conclusive with respect to all current or subsequent claims of the parties for compensation arising out of the underlying cooperative transaction. (Adopted 1/97)
  3. Where a buyer or tenant representative is compensated by the buyer or tenant and, as a result, the listing broker reduces the commission owed by the seller or landlord and, subsequent to such actions, another cooperating broker claims to be the procuring cause of sale or lease. In such cases the complainant may name the first cooperating broker as respondent and may proceed without the listing broker being named as a respondent. Alternatively, if the complaint is brought against the listing broker, the listing broker may name the first cooperating broker as a third-party respondent. In either instance the decision of the hearing panel as to procuring cause shall be conclusive with respect to all current or subsequent claims of the parties for compensation arising out of the underlying cooperative transaction. (Adopted 1/97)
  4. Where two or more listing brokers claim entitlement to compensation pursuant to open listings with a seller or landlord who agrees to participate in (or who requests arbitration) and who agrees to be bound by the decision. In cases where one of the listing brokers has been compensated by the seller or landlord, the other listing broker, as complainant, may name the first listing broker as respondent and arbitration may proceed between the brokers. (Adopted 1/97)

It should be understood that "non-contractual" issues that can be arbitrated by hearing panels of board/association professional standards committees are limited to those referenced in Standard of Practice 17-4.

While the duty to arbitrate is shared by all REALTORS®, as a practical matter most arbitration hearings take place between REALTORS® who are principals in their firms or who "stand in the shoes" of principals (often branch office managers). An important point to remember is that REALTOR® membership and the duty to abide by the Code of Ethics is personal to each REALTOR®. The same is true for the duty to arbitrate which is personal though it includes the duty to "cause” REALTORS®' firms to arbitrate.

The National Association of REALTORS® Code of Ethics and Arbitration Manual includes all of the policies established by the NAR Board of Directors that relate to arbitration. These policies require that real estate-related disputes between REALTORS® (principals) in different firms, and disputes between REALTORS® (principals) and their clients must be arbitrated if arbitration is requested by any appropriate party and it is subsequently determined that an arbitrable dispute exists.


Arbitration: required or voluntary?

Arbitration is voluntary in instances where a dispute involves a REALTORS® (principal) and a REALTORS® (nonprincipal) who are or were members of the same firm at the time the dispute arose; between REALTORS® (principals) and nonmember brokers; and between REALTORS® (principals) and their customers. Definitions of key terms, including "principal," "client," and "customer" are found in the Manual. It is important to note that in those circumstances defined as "voluntary" in the Manual, arbitration can take place only if each party to the dispute voluntarily agrees to submit to arbitration and to be bound by the decision of the arbitration hearing panel.

A frequently asked question is whether all disagreements or disputes (particularly those between principal brokers in different firms) must be arbitrated? The simple answer is no.

Arbitration of disputes, including those that fall under the "mandatory" category is required only when a party with standing invokes the arbitration process and it is determined by the Grievance Committee that an arbitrable dispute exists and that arbitration of the dispute is mandatory.

For example, if two REALTORS® who are principal brokers in two different firms have a dispute, either may request arbitration. However if neither REALTOR® requests arbitration, a board/association cannot inject itself into their dispute and compel arbitration. If one of the REALTORS® pursues another remedy, e.g. litigation, and the other REALTOR® does not request arbitration, the REALTOR® who filed litigation is not in violation of the Code of Ethics.

If, on the other hand, the second REALTOR® does request arbitration and the matter is found to be subject to mandatory arbitration by the Grievance Committee, the REALTOR® who brought the litigation must then terminate the lawsuit and submit to arbitration. This principle is established in Standard of Practice 17-1 which provides:

Standard of Practice 17-1

The filing of litigation and refusal to withdraw from it by REALTORS® in an arbitrable matter constitutes a refusal to arbitrate. (Adopted 2/86)


Why arbitration can be required

Another frequently asked question is why require arbitration under any circumstances? Why shouldn't arbitration be entirely voluntary?

The answer is simple and straightforward. The foundation for the Code of Ethics is the protection it affords the public - those who take advantage of and rely on the services REALTORS® provide to their clients and customers. The Code is premised on the principle that cooperation advances the best interests of those clients and customers.

If cooperation is the norm which is not only expected but demanded of REALTORS®, if REALTORS® are going to work closely and cooperatively with others who are at the same time their competitors, then there must be an efficient, economical, and reliable method to resolve the disagreements that will inevitably arise.

Litigation is cumbersome, adversarial, time-consuming, and expensive. In comparison, arbitration is less formal, faster, less expensive and, if conducted in an appropriate atmosphere, less contentious and confrontational. Put plainly, arbitration is the "grease" that makes the "wheels" of cooperation between REALTORS® turn smoothly.

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