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Arbitration Process

 

Professional Standards: Arbitration Process

 


A key element in the practice of real estate is the contract. Experienced practitioners quickly become familiar with the elements of contract writing. Offer, counter-offer, contingency, waiver, acceptance, rejection, execution, breach, rescission, reformation, and other words of art become integral parts of the broker's vocabulary.

Article three (3) mandates cooperation and together with everyday variables and circumstances many transactions produce several contracts which come into play. Contracts for things such as mortgages, appraisals, inspections, title insurance, etc., are now standard in a typical residential transaction and the same will be true in many commercial transactions as well. There are at least three (and often four) contracts involved and each, while established independently of the others, soon appears to be intertwined with the others.

The listing contract is between the seller and the listing broker. This contract creates the relationship between these parties, establishes the duties of each, and the terms under which the listing broker will be deemed to have earned a commission, and frequently will authorize the listing broker to cooperate with and/or compensate (or both) cooperating brokers who may be subagents, buyer agents, or who may be acting in some other capacity.

Second, there is the contract between the listing broker and cooperating brokers. This may be created through an offer published through a multiple listing service or through some other method of formalized cooperative effort. The contract is formed only when accepted by the cooperating broker, and acceptance only occurs through performance, that is, through production of a purchaser pursuant to the terms and conditions previously established by the listing broker.

Third, there is the purchase contract sometimes referred to as the purchase and/or sales agreement. This contract is between the seller and the buyer, establishing their obligations to each other, which may also impact third parties. The fact that someone other than the seller or buyer is referenced in the purchase contract does not make them a party to that contract though it may create rights or entitlements which may be enforceable against a party (the buyer or seller).

Fourth, there may be a buyer broker agreement in effect between the purchaser and a broker. Similar in many ways to the listing contract, this contract establishes the duties of the purchaser and the broker as well as the terms and conditions of the broker's compensation.

These contracts are similar in that they are created through offer and acceptance. They vary in that acceptance of a contract is through a reciprocal promise, e.g., the purchaser's promise to pay the agreed price in return for the seller's promise to convey good title; while acceptance of a unilateral contract is through performance, e.g., in producing (or procuring) a ready, willing and able purchaser.

A contract, once formed, may be breached. These and other questions of contract formation arise on a daily basis. There are several methods by which contractual questions (or "issues" or "disputes") are resolved. These include civil lawsuits, arbitration, and mediation.

Associations of REALTORS® provide arbitration to resolve contractual issues and questions that arise between members, between members and their clients and, in some cases, between parties to a transaction brought about through the efforts of REALTORS®. Disputes arising out of any of the above-referenced contractual relationships may be arbitrated and the rules and procedures of Associations of REALTORS® require that certain types of disputes must be arbitrated if either party so requests.  While issues between REALTORS® and their clients, e.g. listing broker/seller (or landlord) or buyer broker/buyer (or tenant), are subject to mandatory arbitration (at the client's request), and issues between sellers and buyers may be arbitrated at their mutual agreement. The majority of arbitration hearings conducted by Associations involve questions of contracts between REALTORS®, most frequently between listing and cooperating brokers. These generally involve questions of procuring cause where the panel is called on to determine which of the contesting parties is entitled to the funds in dispute. While awards are generally for the full amount in question (which may be required by state law), in exceptional cases, awards may be split between the parties (again, except where prohibited by state law). Split awards are the exception rather than the rule and should be utilized only when hearing panels determine that the transaction would have resulted only through the combined efforts of both parties. It should also be considered that questions of representation and entitlement to compensation are separate issues.

In the mid-1970's, the NATIONAL ASSOCIATION OF REALTORS® established the ARBITRATION GUIDELINES to assist Associations in reaching fair and equitable decisions in arbitration to prevent the establishment of any one, single rule or standard by which arbitrable issues would be decided and to ensure that arbitrable questions would be decided by knowledgeable panels taking into careful consideration all relevant facts and circumstances.

The ARBITRATION GUIDELINES have served the industry well for nearly two decades. If you find it necessary to file for Arbitration with the Williamsburg Area Association of REALTORS® please use the required forms below.

Downloads:

pdf WAAR Arbitration Request Packet (4.92 MB)