A key element in the practice of real estate is the contract.
Experienced practitioners quickly become conversant with the
elements of contract formation. Inquiry, invitation, offer,
counteroffer, contingency, waiver, acceptance, rejection, execution,
breach, rescission, reformation, and other words of art become
integral parts of the broker's vocabulary. Given the significant
degree to which Article 3's mandate for cooperation - coupled
with everyday practicality, feasibility, and expediency - make
cooperative transactions facts of life, it quickly becomes apparent
that in virtually every real estate transaction there are actually
several contracts which come into play. Setting aside ancillary
but still important contracts for things such as mortgages,
appraisals, inspections, title insurance, etc., 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 inextricably intertwined with
the others.
First, there is the listing contract 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 or compensate (or both) cooperating brokers
who may be subagents, buyer agents, or acting in some other
capacity.
Second, there is the contract between the listing broker and
cooperating brokers. While this may be created through an offer
published through a multiple listing service or through some
other method of formalized cooperative effort, it need not be.
Unlike the bilateral listing contract (where generally the seller
agrees to pay a commission in return for the listing broker's
production of a ready, willing, and able purchaser), the contract
between the listing broker and the cooperating broker is unilateral
in nature. This simply means that the listing broker determines
the terms and conditions of the offer to potential cooperating
brokers (and this offer may vary as to different potential cooperating
brokers or as to cooperating brokers in different categories).
This type of contract differs from a bilateral contract also
in that there is no contract formed between the listing broker
and the potential cooperating brokers upon receipt of the listing
broker's offer. The contract is formed only when accepted by
the cooperating broker, and acceptance occurs only through performance
as the procuring cause of the successful transaction.
Third, there is the purchase contract - sometimes referred
to as the purchase and sale agreement. This bilateral contract
between the seller and the buyer establishes their respective
promises and obligations to each other, which may also impact
on third parties. The fact that someone other than the seller
or buyer is referenced in the purchase contract does not make
him/her 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 bilateral 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 bilateral
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). Each of these contracts is subject
to similar hazards in formation and afterward. The maker's (offeror's)
offer in any of these scenarios may be accepted or rejected.
The intended recipient of the offer (or offeree) may counteroffer.
There may be questions as to whether a contract was formed -
e.g., was there an offer, was it accepted, was the acceptance
on the terms and conditions specified by the maker of the offer
- or was the "acceptance" actually a counteroffer (which, by
definition, rejects the first offer). 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.
Another key contract is the one entered into when a real estate
professional joins a local board of REALTORS® and becomes
a REALTOR®. In return for the many benefits of membership,
a REALTOR® promises to abide by the duties of membership
including strict adherence to the Code of Ethics. Among the
Code's duties is the obligation to arbitrate, established in
Article 17. Article 17 is interpreted through four Standards
of Practice among which is Standard of Practice 17-4 which enumerates
four situations under which REALTORS® agree to arbitrate
specified non-contractual disputes.
Boards and Associations of REALTORS® provide arbitration
to resolve contractual issues and questions and specific non-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 four above-referenced contractual
relationships may be arbitrated, and the rules and procedures
of boards and associations of REALTORS® require that certain
types of disputes must be arbitrated if either party so requests.
(Information on "mandatory" and "voluntary" arbitration is found
elsewhere in the Code of Ethics and Arbitration Manual.)
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, in many cases such issues are resolved
in the courts or in other alternative dispute resolution forums
(which may also be administered by boards or associations of
REALTORS®). The majority of arbitration hearings conducted
by boards and associations involve questions of contracts between
REALTORS®, most frequently between listing and cooperating
brokers, or between two or more 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-1970s, the NATIONAL ASSOCIATION OF REALTORS®
established the Arbitration Guidelines to assist boards and
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. But, as broker-to-broker cooperation has
increasingly involved contracts between listing brokers and
buyer brokers and between listing brokers and brokers acting
in nonagency capacities, the time came to update the Guidelines
so they remained relevant and useful. It is to this end that
the following is intended.
Procuring Cause
As discussed earlier, one type of contract frequently entered
into by REALTORS® is the listing contract between sellers
and listing brokers. Procuring cause disputes between sellers
and listing brokers are often decided in court. The reasoning
relied on by the courts in resolving such claims is articulated
in Black's Law Dictionary, Fifth Edition, definition
of procuring cause:
"The proximate cause; the cause originating a series of
events which, without break in their continuity, result in the
accomplishment of the prime object. The inducing cause; the
direct or proximate cause. Substantially synonymous with "efficient
cause."
A broker will be regarded as the "procuring cause" of a sale,
so as to be entitled to commission, if his efforts are the foundation
on which the negotiations resulting in a sale are begun. A cause
originating a series of events which, without break in their
continuity, result in accomplishment of prime objective of the
employment of the broker who is producing a purchaser ready,
willing, and able to buy real estate on the owner's terms. Mohamed
v. Robbins, 23 Ariz. App. 195, 531 p.2d 928, 930.
Also see Producing cause; Proximate cause.
Disputes concerning the contracts between listing brokers and
cooperating brokers, however, are addressed by the National
Association's Arbitration Guidelines promulgated pursuant to
Article 17 of the Code of Ethics. While guidance can be taken
from judicial determination of disputes between sellers and
listing brokers, procuring cause disputes between listing and
cooperating brokers, or between two cooperating brokers, can
be resolved based on similar though not identical principles.
While a number of definitions of procuring cause exist, and
a myriad of factors may ultimately enter into any determination
of procuring cause, for purposes of arbitration conducted by
boards and associations of REALTORS®, procuring cause in
broker to broker disputes can be readily understood as the uninterrupted
series of causal events which results in the successful transaction.
Or, in other words, what "caused" the successful transaction
to come about. "Successful transactions," as used in these Arbitration
Guidelines, is defined as "a sale that closes or a lease that
is executed." Many REALTORS®, executive officers, lawyers
and others have tried, albeit unsuccessfully, to develop a single,
comprehensive template that could be used in all procuring cause
disputes to determine entitlement to the sought-after award
without the need for a comprehensive analysis of all relevant
details of the underlying transaction. Such efforts, while well-intentioned,
were doomed to failure in view of the fact that there is no
"typical" real estate transaction any more than there is "typical"
real estate or a "typical" REALTOR®. In light of the unique
nature of real property and real estate transactions, and acknowledging
that fair and equitable decisions could be reached only with
a comprehensive understanding of the events that led to the
transaction, the National Association's Board of Directors,
in 1973, adopted Official Interpretation 31 of Article I, Section
2 of the Bylaws. Subsequently amended in 1977, Interpretation
31 establishes that:
A Board rule or a rule of a Multiple Listing Service owned
by, operated by, or affiliated with a Board, which establishes,
limits or restricts the REALTOR® in his relations with a
potential purchaser, affecting recognition periods or purporting
to predetermine entitlement to any award in arbitration, is
an inequitable limitation on its membership.
The explanation of Interpretation 31 goes on to provide, in
part:
[T]he Board or its MLS may not establish a rule or regulation
which purports to predetermine entitlement to any awards in
a real estate transaction. If controversy arises as to entitlement
to any awards, it shall be determined by a hearing in arbitration
on the merits of all ascertainable facts in the context of the
specific case of controversy.
It is not uncommon for procuring cause disputes to arise out
of offers by listing brokers to compensate cooperating brokers
made through a multiple listing service. A multiple listing
service is defined as a facility for the orderly correlation
and dissemination of listing information among participants
so that they may better serve their clients and customers and
the public; is a means by which authorized participants make
blanket unilateral offers of compensation to other participants
(acting as subagents, buyer agents, or in other agency or nonagency
capacities defined by law); is a means by which information
is accumulated and disseminated to enable authorized participants
to prepare appraisals and other valuations of real property;
and is a means by which participants engaging in real estate
appraisal contribute to common databases. Entitlement to compensation
is determined by the cooperating broker's performance as procuring
cause of the sale (or lease). While offers of compensation made
by listing brokers to cooperating brokers through MLS are unconditional,
the definition of MLS and the offers of compensation made through
the MLS provide that a listing broker's obligation to compensate
a cooperating broker who was the procuring cause of sale (or
lease) may be excused if it is determined through arbitration
that, through no fault of the listing broker and in the exercise
of good faith and reasonable care, it was impossible or financially
unfeasible for the listing broker to collect a commission pursuant
to the listing agreement. In such instances, entitlement to
cooperative compensation offered through MLS would be a question
to be determined by an arbitration hearing panel based on all
relevant facts and circumstances including, but not limited
to, why it was impossible or financially unfeasible for the
listing broker to collect some or all of the commission established
in the listing agreement; at what point in the transaction did
the listing broker know (or should have known) that some or
all of the commission established in the listing agreement might
not be paid; and how promptly had the listing broker communicated
to cooperating brokers that the commission established in the
listing agreement might not be paid.
Factors for Consideration by
Arbitration Hearing Panels
The following factors are recommended for consideration by
hearing panels convened to arbitrate disputes between brokers,
or between brokers and their clients or their customers. This
list is not all-inclusive nor can it be. Not every factor will
be applicable in every instance. The purpose is to guide panels
as to facts, issues, and relevant questions that may aid them
in reaching fair, equitable, and reasoned decisions.
Factor #1. No predetermined rule of entitlement
Every arbitration hearing is considered in light of all of
the relevant facts and circumstances as presented by the parties
and their witnesses. "Rules of thumb," prior decisions by
other panels in other matters, and other predeterminants are
to be disregarded.
Procuring cause shall be the primary determining factor in
entitlement to compensation. Agency relationships, in and
of themselves, do not determine entitlement to compensation.
The agency relationship with the client and entitlement to
compensation are separate issues. A relationship with the
client, or lack of one, should only be considered in accordance
with the guidelines established to assist panel members in
determining procuring cause. (Adopted 4/95)
Factor #2. Arbitrability and appropriate
parties
While primarily the responsibility of the grievance committee,
arbitration hearing panels may consider questions of whether
an arbitrable issue actually exists and whether the parties
named are appropriate to arbitration. A detailed discussion
of these questions can be found in Appendix I to Part Ten,
Arbitrable Issues.
Factor #3. Relevance and admissibility
Frequently, hearing panels are asked to rule on questions
of admissibility and relevancy. While state law, if applicable,
controls, the general rule is that anything the hearing panel
believes may assist it in reaching a fair, equitable, and
knowledgeable decision is admissible.
Arbitration hearing panels are called on to resolve contractual
questions, not to determine whether the law or the Code of
Ethics has been violated. An otherwise substantiated award
cannot be withheld solely on the basis that the hearing panel
looks with disfavor on the potential recipient's manner of
doing business or even that the panel believes that unethical
conduct may have occurred. To prevent any appearance of bias,
arbitration hearing panels and procedural review panels shall
make no referrals of ethical concerns to the grievance committee.
This is based on the premise that the fundamental right and
primary responsibility to bring potentially unethical conduct
to the attention of the grievance committee rests with the
parties and others with firsthand knowledge. At the same time,
evidence or testimony is not inadmissible simply because it
relates to potentially unethical conduct. While an award (or
failure to make a deserved award) cannot be used to "punish"
a perceived "wrongdoer", it is equally true that hearing panels
are entitled to (and fairness requires that they) consider
all relevant evidence and testimony so that they will have
a clear understanding of what transpired before determining
entitlement to any award.
Factor #4. Communication and contact
- abandonment and estrangement
Many arbitrable disputes will turn on the relationship (or
lack thereof) between a broker (often a cooperating broker)
and a prospective purchaser. Panels will consider whether,
under the circumstances and in accord with local custom and
practice, the broker made reasonable efforts to develop and
maintain an ongoing relationship with the purchaser. Panels
will want to determine, in cases where two cooperating brokers
have competing claims against a listing broker, whether the
first cooperating broker actively maintained ongoing contact
with the purchaser or, alternatively, whether the broker's
inactivity, or perceived inactivity, may have caused the purchaser
to reasonably conclude that the broker had lost interest or
disengaged from the transaction (abandonment). In other instances,
a purchaser, despite reasonable efforts by the broker to maintain
ongoing contact, may seek assistance from another broker.
The panel will want to consider why the purchaser was estranged
from the first broker. In still other instances, there may
be no question that there was an ongoing relationship between
the broker and purchaser; the issue then becomes whether the
broker engaged in conduct which caused the purchaser to terminate
the relationship (estrangement). This can be caused, among
other things, by words or actions. Panels will want to consider
whether such conduct caused a break in the series of events
leading to the transaction and whether the successful transaction
was actually brought about through the initiation of a separate,
subsequent series of events by the second cooperating broker.
Factor #5. Conformity with state
law
The procedures by which arbitration requests are received,
hearings are conducted, and awards are made must be in strict
conformity with the law. In such matters, the advice of board
legal counsel should be followed.
Factor #6. Consideration of the
entire course of events
The standard of proof in board-conducted arbitration is a
preponderance of the evidence, and the initial burden of proof
rests with the party requesting arbitration (see Professional
Standards Policy Statement 26). This does not, however, preclude
panel members from asking questions of the parties or witnesses
to confirm their understanding of testimony presented or to
ensure that panel members have a clear understanding of the
events that led to the transaction and to the request for
arbitration. Since each transaction is unique, it is impossible
to develop a comprehensive list of all issues or questions
that panel members may want to consider in a particular hearing.
Panel members are advised to consider the following, which
are representative of the issues and questions frequently
involved in arbitration hearings.
The Nature and Status of the Transaction
- What was the nature of the transaction? Was there a residential
or commercial sale/lease?
- Is or was the matter the subject of litigation involving
the same parties and issues as the arbitration?
The Nature, Status, and
Terms of the Listing Agreement
- What was the nature of the listing or other agreement: exclusive
right to sell, exclusive agency, open or some other form of
agreement?
- Was the listing agreement in writing? If not, is the listing
agreement enforceable?
- Was the listing agreement in effect at the time the sales
contract was executed?
- Was the property listed subject to a management agreement?
- Were the broker's actions in accordance with the terms and
conditions of the listing agreement?
- Were all conditions of the listing agreement met?
- Did the final terms of the sale meet those specified
in the listing agreement?
- Did the transaction close? (Refer to Appendix I to Part
Ten, Arbitrable Issues)
- Did the listing broker receive a commission? If not,
why not? (Refer to Appendix I to Part Ten, Arbitrable
Issues)
The Nature, Status and Terms of the Offer
to Compensate
- Was an offer of cooperation and compensation made in writing?
If not, how was it communicated?
- Is the claimant a party to whom the listing broker's offer
of compensation was extended?
- Were the broker's actions in accordance with the terms and
conditions of the offer of cooperation and compensation (if
any)?
- Were all conditions of the agreement met?
Roles and Relationships of the
Parties
- Who was the listing broker?
- Who was the cooperating broker or brokers?
- Were any of the parties acting as subagents? As buyer brokers?
In some other capacity?
- Did any of the cooperating brokers have an agreement, written
or otherwise, to act as agent or in some other capacity on
behalf of any of the parties?
- Were any of the brokers (including the listing broker) acting
as a principal in the transaction?
- What were the brokers' relationships with respect to the
seller, the purchaser, the listing broker, and any other cooperating
brokers involved in the transaction?
- Was the party to whom the property was sold represented
by a party with whom the broker had previously dealt?
- Is the primary shareholder of the buyer-corporation
a party with whom the broker had previously dealt?
- Was a prior prospect a vital link to the buyer?
- Are all appropriate parties to the matter joined?
Initial Contact With the Purchaser
- Who first introduced the purchaser or tenant to the property?
- When was the first introduction made?
- Was the introduction made when the buyer had a specific
need for that type of property?
- Was the introduction instrumental in creating the desire
to purchase?
- Did the buyer know about the property before the broker
contacted him? Did he know it was for sale?
- Were there previous dealings between the buyer and the
seller?
- Did the buyer find the property on his own?
- How was the first introduction made?
- Was the property introduced as an open house?
- What subsequent efforts were made by the broker after
the open house? (Refer to Factor #1)
- Was the introduction made to a different representative
of the buyer?
- Was the "introduction" merely a mention that the property
was listed?
- What property was first introduced?
Conduct of the Brokers
- Were all required disclosures complied with?
- Was there a faithful exercise of the duties a broker owes
to his client/principal?
- If more than one cooperating broker was involved, was either
(or both) aware of the other's role in the transaction?
- Did the broker who made the initial introduction to the
property engage in conduct (or fail to take some action) which
caused the purchaser or tenant to utilize the services of
another broker? (Refer to Factor #4)
- Did the cooperating broker (or second cooperating broker)
initiate a separate series of events, unrelated to and not
dependent on any other broker's efforts, which led to the
successful transaction - that is, did the broker perform services
which assisted the buyer in making his decision to purchase?
(Refer to Factor #4)
- Did the broker make preparations to show the property
to the buyer?
- Did the broker make continued efforts after showing
the property?
- Did the broker remove an impediment to the sale?
- Did the broker make a proposal upon which the final
transaction was based?
- Did the broker motivate the buyer to purchase?
- How do the efforts of one broker compare to the efforts
of another?
- What was the relative amount of effort by one broker
compared to another?
- What was the relative success or failure of negotiations
conducted by one broker compared to the other?
- If more than one cooperating broker was involved, how and
when did the second cooperating broker enter the transaction?
Continuity and Breaks in Continuity
(Abandonment & Estrangement)
- What was the length of time between the broker's efforts
and the final sales agreement?
- Did the original introduction of the purchaser or tenant
to the property start an uninterrupted series of events leading
to the sale or lease, or was the series of events hindered
or interrupted in any way?
- Did the buyer terminate the relationship with the broker?
Why? (Refer to Factor #4)
- Did negotiations break down?
- If there was an interruption or break in the original series
of events, how was it caused, and by whom?
- Did the seller change the listing agreement from an
open listing to an exclusive listing agreement with another
broker?
- Did the purchaser's motive for purchasing change?
- Was there interference in the series of events from
any outside or intervening cause or party?
- Did the broker who made the initial introduction to the
property maintain contact with the purchaser or tenant, or
could the broker's inaction have reasonably been viewed by
the buyer or tenant as a withdrawal from the transaction?
- Was the entry of any cooperating broker into the transaction
an intrusion into an existing relationship between the purchaser
and another broker, or was it the result of abandonment or
estrangement of the purchaser, or at the request of the purchaser?
Conduct of the Buyer
- Did the buyer make the decision to buy independent of the
broker's efforts/information?
- Did the buyer negotiate without any aid from the broker?
- Did the buyer seek to freeze out the broker?
- Did the buyer seek another broker in order to get a
lower price?
- Did the buyer express the desire not to deal with the
broker and refuse to negotiate through him?
- Did the contract provide that no brokers or certain
brokers had been involved?
Conduct of the Seller
- Did the seller act in bad faith to deprive the broker of
his commission?
- Was there bad faith evident from the fact that the difference
between the original bid submitted and the final sales
price equaled the broker's commission?
- Was there bad faith evident from the fact that a sale
to a third party was a straw transaction (one in which
a non-involved party posed as the buyer) which was designed
to avoid paying commission?
- Did the seller freeze out the broker to avoid a commission
dispute or to avoid paying a commission at all?
- Was there bad faith evident from the fact that the seller
told the broker he wouldn't sell on certain terms, but did
so via another broker or via the buyer directly?
Leasing Transactions
- Did the cooperating broker have a tenant representation
agreement?
- Was the cooperating broker working with the "authorized"
staff member of the tenant company?
- Did the cooperating broker prepare a tenant needs analysis?
- Did the cooperating broker prepare a market analysis of
available properties?
- Did the cooperating broker prepare a tour book showing alternative
properties and conduct a tour?
- Did the cooperating broker show the tenant the property
leased?
- Did the cooperating broker issue a request for proposal
on behalf of the tenant for the property leased?
- Did the cooperating broker take an active part in the lease
negotiations?
- Did the cooperating broker obtain the tenant's signature
on the lease document?
- Did the tenant work with more than one broker; and if so,
why?
Other Information
Is there any other information that would assist the hearing
panel in having a full, clear understanding of the transaction
giving rise to the arbitration request or in reaching a fair
and equitable resolution of the matter?
These questions are typical, but not all-inclusive, of the
questions that may assist hearing panels in understanding the
issues before them. The objective of a panel is to carefully
and impartially weigh and analyze the whole course of conduct
of the parties and render a reasoned peer judgment with respect
to the issues and questions presented and to the request for
award.
Sample Fact Situation Analysis
The National Association's Professional Standards Committee
has consistently taken the position that arbitration awards
should not include findings of fact or rationale for the arbitrators'
award. Among the reasons for this are the fact that arbitration
awards are not appealable on the merits but generally only on
the limited procedural bases established in the governing state
arbitration statute; that the issues considered by hearing panels
are often myriad and complex, and the reasoning for an award
may be equally complex and difficult to reduce to writing; and
that the inclusion of written findings of fact or rationale
(or both) would conceivably result in attempts to use such detail
as "precedent" in subsequent hearings which might or might not
involve similar facts. The end result might be elimination of
the careful consideration of the entire course of events and
conduct contemplated by these procedures and establishment of
local, differing arbitration "templates" or predeterminants
of entitlement inconsistent with these procedures and Interpretation
31.
Weighed against these concerns, however, was the desire to
provide some model or sample applications of the factors, questions,
and issues set forth in these Arbitration Guidelines. The following
"fact situations" and analyses are provided for informational
purposes and are not intended to carry precedential weight in
any hearing.
Fact Situation #1
Listing Broker L placed a listing in the MLS and offered compensation
to subagents and to buyer agents. Broker Z, not a participant
in the MLS, called to arrange an appointment to show the property
to a prospective purchaser. There was no discussion of compensation.
Broker Z presented Broker L with a signed purchase agreement,
which was accepted by the seller. Subsequently, Broker Z requested
arbitration with Broker L, claiming to be the procuring cause
of sale.
Analysis:
While Broker Z may have been the procuring cause of sale,
Broker L's offer of compensation was made only to members
of the MLS. Broker L never offered cooperation and compensation
to Broker Z, nor did Broker Z request compensation at any
time prior to instituting the arbitration request. There was
no contractual relationship between them, and therefore no
issue to arbitrate.
Fact Situation #2
Same as #1, except Broker Z is the buyer's agent.
Analysis:
Same result, since there was no contractual relationship between
Broker L and Broker Z and no issue to arbitrate.
Fact Situation #3
Broker L placed a listing in the MLS and offered compensation
to subagents and to buyer agents.
Broker S (a subagent) showed the property to Buyer #1 on
Sunday and again on Tuesday. On Wednesday, Broker A (a subagent)
wrote an offer to purchase on behalf of Buyer #1 which was
presented to the seller by Broker L and which was accepted.
At closing, subagency compensation is paid to Broker A. Broker
S subsequently filed an arbitration request against Broker
A, claiming to be the procuring cause of sale.
Analysis:
Broker S's claim could have been brought against Broker A
(pursuant to Standard of Practice 17-4) or against Broker
L (the listing broker), who had promised to compensate the
procuring cause of sale, thus arguably creating a contractual
relationship between Broker L and Broker S. (Amended 11/96)
Fact Situation #4
Same as #3, except Broker S filed the arbitration request
against Broker L (the listing broker).
Analysis:
This is an arbitrable matter, since Broker L promised to compensate
the procuring cause of sale. Broker L, to avoid the possibility
of having to pay two cooperating brokers in the same transaction,
should join Broker A in arbitration so that all competing
claims can be resolved in a single hearing. The hearing panel
will consider, among other things, why Buyer #1 made the offer
to purchase through Broker A instead of Broker S. If it is
determined that Broker S initiated a series of events which
were unbroken in their continuity and which resulted in the
sale, Broker S will likely prevail.
Fact Situation #5
Same as #3, except Broker L offered compensation only to subagents.
Broker B (a buyer agent) requested permission to show the
property to Buyer #1, wrote an offer which was accepted, and
subsequently claimed to be the procuring cause of sale.
Analysis:
Since Broker L did not make an offer of compensation to buyer
brokers, there was no contractual relationship between Broker
L and Broker B and no arbitrable issue to resolve.
If, on the other hand, Broker L had offered compensation to
buyer brokers either through MLS or otherwise and had paid
Broker A, then arbitration could have been conducted between
Broker B and Broker A pursuant to Standard of Practice 17-4.
Alternatively, arbitration could occur between Broker B and
Broker L.
Fact Situation #6
Listing Broker L placed a listing in the MLS and made an offer
of compensation to subagents and to buyer agents. Broker S
(a subagent) showed the property to Buyer #1, who appeared
uninterested. Broker S made no effort to further contact Buyer
#1. Six weeks later, Broker B (a buyer broker) wrote an offer
on the property on behalf of Buyer #1, presented it to Broker
L, and it was accepted. Broker S subsequently filed for arbitration
against Broker L, claiming to be the procuring cause. Broker
L joined Broker B in the request so that all competing claims
could be resolved in one hearing.
Analysis:
The hearing panel will consider Broker S's initial introduction
of the buyer to the property, the period of time between Broker
S's last contact with the buyer and the time that Broker B
wrote the offer, and the reason Buyer #1 did not ask Broker
S to write the offer. Given the length of time between Broker
S's last contact with the buyer, the fact that Broker S had
made no subsequent effort to contact the buyer, and the length
of time that transpired before the offer was written, abandonment
of the buyer may have occurred. If this is the case, the hearing
panel may conclude that Broker B instituted a second, separate
series of events that was directly responsible for the successful
transaction.
Fact Situation #7
Same as #6, except that Broker S (a subagent) showed Buyer
#1 the property several times, most recently two days before
the successful offer to purchase was written by Broker B (a
buyer broker). At the arbitration hearing, Buyer #1 testified
she was not dissatisfied in any way with Broker S but simply
decided that "I needed a buyer agent to be sure that I got
the best deal."
Analysis:
The hearing panel should consider Broker S's initial introduction
of the buyer to the property; that Broker S had remained in
contact with the buyer on an ongoing basis; and whether Broker
S's efforts were primarily responsible for bringing about
the successful transaction. Unless abandonment or estrangement
can be demonstrated, Broker S will likely prevail. Agency
relationships are not synonymous with nor determinative of
procuring cause. Representation and entitlement to compensation
are separate issues.
Fact Situation #8
Similar to #6, except Buyer #1 asked Broker S for a comparative
market analysis as the basis for making a purchase offer.
Broker S reminded Buyer #1 that he (Broker S) had clearly
disclosed his status as subagent, and that he could not counsel
Buyer #1 as to the property's market value. Broker B based
his claim to entitlement on the grounds that he had provided
Buyer #1 with information that Broker S could not or would
not provide.
Analysis:
The hearing panel should consider Broker S's initial introduction
of the buyer to the property; that Broker S had made early
and timely disclosure of his status as a subagent; whether
adequate alternative market information was available to enable
Buyer #1 to make an informed purchase decision; and whether
Broker S's inability to provide a comparative market analysis
of the property had clearly broken the chain of events leading
to the sale. If the panel determines that the buyer did not
have cause to leave Broker S for Broker B, they may conclude
that the series of events initiated by Broker S remained unbroken,
and Broker S will likely prevail.
Fact Situation #9
Similar to #6, except Broker S made no disclosure of his status
as subagent (or its implications) until faced with Buyer #1's
request for a comparative market analysis.
Analysis:
The hearing panel should consider Broker S's initial introduction
of the buyer to the property; Broker S's failure to clearly
disclose his agency status on a timely basis; whether adequate
alternative market information was available to enable Buyer
#1 to make an informed purchase decision; and whether Broker
S's belated disclosure of his agency status (and its implications)
clearly broke the chain of events leading to the sale. If
the panel determines that Broker S's failure to disclose his
agency status was a reasonable basis for Buyer #1's decision
to engage the services of Broker B, they may conclude that
the series of events initiated by Broker S had been broken,
and Broker B will likely prevail.
Fact Situation #10
Listing Broker L placed a property on the market for sale
or lease and offered compensation to brokers inquiring about
the property. Broker A, acting as a subagent, showed the property
on two separate occasions to the vice president of manufacturing
for ABC Corporation. Broker B, also acting as a subagent but
independent of Broker A, showed the same property to the chairman
of ABC Corporation, whom he had known for more than fifteen
(15) years. The chairman liked the property and instructed
Broker B to draft and present a lease on behalf of ABC Corporation
to Broker L, which was accepted by the owner/ landlord. Subsequent
to the commencement of the lease, Broker A requested arbitration
with Broker L, claiming to be the procuring cause.
Analysis:
This is an arbitrable matter as Broker L offered compensation
to the procuring cause of the sale or lease. To avoid the
possibility of having to pay two commissions, Broker L joined
Broker B in arbitration so that all competing claims could
be resolved in a single hearing. The hearing panel considered
both brokers' introductions of the property to ABC Corporation.
Should the hearing panel conclude that both brokers were acting
independently and through separate series of events, the hearing
panel may conclude that Broker B was directly responsible
for the lease and should be entitled to the cooperating broker's
portion of the commission.
Fact Situation #11
Broker A, acting as the agent for an out-of-state corporation,
listed for sale or lease a 100,000 square foot industrial
facility. The property was marketed offering cooperation and
compensation to both subagents and buyer/tenant agents. Over
a period of several months, Broker A made the availability
of the property known to XYZ Company and, on three (3) separate
occasions, showed the property to various operational staff
of XYZ Company. After the third showing, the vice president
of finance asked Broker A to draft a lease for his review
with the president of XYZ Company and its in-house counsel.
The president, upon learning that Broker A was the listing
agent for the property, instructed the vice president of finance
to secure a tenant representative to ensure that XYZ Company
was getting "the best deal." One week later, tenant representative
Broker T presented Broker A with the same lease that Broker
A had previously drafted and the president of XYZ Company
had signed. The lease was accepted by the out-of-state corporation.
Upon payment of the lease commission to Broker A, Broker A
denied compensation to Broker T and Broker T immediately requested
arbitration claiming to be the procuring cause.
Analysis:
The hearing panel should consider Broker A's initial introduction
of XYZ Company to the property, Broker A's contact with XYZ
on an on-going basis, and whether Broker A initiated the series
of events which led to the successful lease. Given the above
facts, Broker A will likely prevail. Agency relationships
are not synonymous with nor determinative of procuring cause.
Representation and entitlement to compensation are separate
issues.
Fact Situation #12
Broker A has had a long standing relationship with Client
B, the real estate manager of a large, diversified company.
Broker A has acquired or disposed of twelve (12) properties
for Client B over a five (5) year period. Client B asks Broker
A to locate a large warehouse property to consolidate inventories
from three local plants. Broker A conducts a careful evaluation
of the operational and logistical needs of the plants, prepares
a report of his findings for Client B, and identifies four
(4) possible properties that seem to meet most of Client B's
needs. At Client B's request, he arranges and conducts inspections
of each of these properties with several operations level
individuals. Two (2) of the properties were listed for sale
exclusively by Broker C. After the inspections, Broker A sends
Broker C a written registration letter in which he identifies
Client B's company and outlines his expectation to be paid
half of any commission that might arise from a transaction
on either of the properties. Broker C responds with a written
denial of registration, but agrees to share any commission
that results from a transaction procured by Broker A on either
of the properties. Six (6) weeks after the inspections, Client
B selects one of the properties and instructs Broker A to
initiate negotiations with Broker C. After several weeks the
negotiations reach an impasse. Two (2) weeks later, Broker
A learns that Broker C has presented a proposal directly to
Client B for the other property that was previously inspected.
Broker A then contacts Broker C, and demands to be included
in the negotiations, Broker C refuses, telling Broker A that
he has "lost control of his prospect," and will not be recognized
if a transaction takes place on the second property. The negotiations
proceed, ultimately resulting in a sale of the second property.
Broker A files a request for arbitration against Broker C.
Analysis:
This would be an arbitrable dispute as a compensation agreement
existed between Broker A and Broker C. The hearing panel will
consider Broker A's introduction of the property to B, the
property reports prepared by Broker A, and the time between
the impasse in negotiations on the first property and the
sale of the second property. If the hearing panel determines
that Broker A initiated the series of events that led to the
successful sale, Broker A will likely prevail.
Mediation
Despite the best efforts of well-intentioned REALTORS®,
disagreements still occur. While less formal, faster, and less
expensive than litigation, arbitration is not without cost in
both time and money on the part of the parties. Substantial
board/association human and financial resources are also consumed
in providing this service to members. There is an alternative
to arbitration, albeit one that is available only where all
parties to a dispute voluntarily agree to use it - mediation.
Mediation is a service provided by many boards/associations
of REALTORS®. Unlike arbitration, in which the parties present
their cases to a panel of arbitrators whose decision is final
and binding, mediation brings the disputing parties together
in an atmosphere conducive to dialogue and conciliation, encouraging
them to work together to reach a mutually acceptable resolution.
Though boards/associations are not required to provide mediation
services, experience has shown that as many as 80 percent of
the disputes that otherwise would be arbitrated can be resolved
faster and more efficiently through mediation. This can save
significant savings in time and expense for the parties and
for boards and associations. Mediation can also be a positive
experience for those who participate because, rather than a
"winner" and a "loser" being determined by a panel of arbitrators,
in mediation the parties work together, guided by a mediator,
to fashion their own solution. Mediation can be a "win-win"
situation for everyone.
Boards/associations that offer mediation generally have one
or more appointed mediation officers who act as facilitators/intermediaries.
These officers are typically REALTORS® who are experienced
and adept in dispute resolution techniques. While mediators
may have personal "styles", their primary objective is to help
each party appreciate the position of the other party, then
to move them forward toward an amicable resolution.
Detailed information about mediation is in the National Association's
Code of Ethics and Arbitration Manual. Specific information
about the availability of mediation services and the procedures
for initiating mediation can be obtained from local boards/associations
of REALTORS®.
Mediation can be initiated in a number of ways. While there
is no reason why two REALTORS® with a disagreement cannot
simply ask the local board/association to provide a mediator,
in most instances mediation begins with the filing of a formal
arbitration request since requesting mediation alone does not
extend the arbitration filing deadline. In some areas, requests
for arbitration are automatically reviewed by the grievance
committee and, after a determination is made that an arbitrable
dispute exists, the disputing parties are invited to participate
in mediation.
In other areas, filing a formal arbitration request automatically
triggers an inquiry of the parties about whether they would
be willing to participate in mediation. If the parties agree
to attempt to mediate their dispute, the grievance committee
is not called on to consider whether an arbitrable dispute exists
unless a party subsequently withdraws from the mediation process,
or mediation proves unsuccessful. And, where mediation is offered
prior to initial review of an arbitration request by the grievance
committee (to determine whether an arbitrable dispute actually
exists), if any of the parties initially refused to participate
in mediation, mediation will be offered to the parties again
following the grievance committee's review if an arbitrable
dispute actually exists. This "second chance" approach is based
on the premise that mediation is preferable to arbitration,
not only from the parties' standpoint but from that of the board/association,
and acknowledges that some parties may not choose to mediate
unless it is clear that an arbitration hearing is the undeniable
alternative. Offering a second chance to participate in mediation
ultimately benefits the parties and the board/association.
A mediation session is essentially simple. The mediation officer
uses various techniques to encourage the parties to explore,
understand, and appreciate each other's position. The most desirable
solution is one crafted by the parties themselves through cooperative
effort. When the parties reach agreement, they are encouraged
to put it in writing and sign it. If the parties are unable
to reach a mutually acceptable solution, the mediator can recommend
a solution. The mediator's recommendation can be made orally
or in writing, though a written proposal that the parties can
subsequently consider is preferred. The parties then have up
to forty-eight hours to consider the mediator's recommendation
and decide whether they will agree to it. If either party does
not agree with the mediator's recommendation, the mediation
process is over and the arbitration process proceeds (assuming
arbitration has been requested).
The fact that at times mediation does not produce the desired
result does not diminish its value to REALTORS® and to boards/associations.
There will be instances when REALTORS® mediate in good faith
but, for one reason or another, are unable to reach a joint
agreement or agree with the solution proposed by the mediator.
In such cases, the alternative is a decision imposed on the
parties by a panel of arbitrators after an arbitration hearing.
While this may be the only answer, a mutually-fashioned, mutually
agreed upon solution to disagreements between REALTORS®
is the preferred outcome.
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