Dispute Resolution / Arbitration

 

Procuring Cause and Arbitration

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How to file or respond to a complaint

PREFACE

As do all of the nation's 1750 Associations/Boards, the Minnesota Commercial Association of REALTORS® requires its members to arbitrate business disputes that arise out of their relationships as REALTORS®. Article 17 of the REALTORS® Code of Ethics specifies: "In the event of a controversy between REALTORS® associated with different firms, arising out of their relationship as REALTORS®, the REALTOR® shall submit the dispute to arbitration in accordance with the regulations of their Board (Association) or Boards rather than litigate the matter." These disputes usually involve one member in disagreement with another member over entitlement to a commission.

The following questions and answers will help you understand the process.

Q. How is arbitration between buyers and sellers handled?
A. If there is a dispute arising out of or relating to the physical condition of property, and the parties agree to arbitrate, it is handled by the American Arbitration Association. Their phone number is (612) 332-6545.

Q. How do I know if I have a legitimate dispute?
A. Any disagreement a REALTOR® has with another REALTOR® over entitlement to a commission or other award must be handled through arbitration rather than litigation. Members should always try to solve disputes on their own but if that is not possible, arbitration is both a service and responsibility.

Q. How do I file a complaint?
A. Call the Association to have a complaint form sent to you. Arbitration is between brokers of companies, so if you are not the broker you must have your broker's agreement to arbitrate.

  1. Name the broker (respondent) you have the complaint against.
  2. Indicate the amount of money in dispute.
  3. Include an explanation of the situation. State why you feel you are entitled to an award of some kind. Remember, you don't include ethical allegations in your documentation. If you think there has been ethical violations, they will be handled separately with an ethics complaint.
  4. Attach copies of all pertinent documents relative to the arbitration such as listing agreements, purchase and sales agreements, closing statements, etc., plus any notarized statements from witnesses.
  5. Attach the required hearing fee, ten copies of everything you are submitting, and send everything to the Association office.

Q. When must a complaint be filed?
A. You have six months after the facts become known, which is generally the closing, to file a complaint.

Q. What is mediation?
A. Before you file an arbitration request or make a reply to an arbitration request you should know that the 
Minnesota Commercial Association of REALTORS® offers a mediation service. In order for mediation to be provided, it must be agreed to by the complainant and respondent. If you want to utilize mediation it is necessary that both management members of the firms involved initial the appropriate box on the arbitration complaint/reply form. You must provide to the Association full written details of the complaint and reply along with your check for the hearing fee. If mediation is successful both checks will be returned, as there is no charge for this service. If mediation is not successful, the matter will proceed to the Arbitration Committee. Mediation is not required, however, it can be a useful tool in resolving the conflicts that arise involving Association members. Mediation can resolve controversy, promote amicable resolutions, and reduce the number of cases requiring the more formal complex arbitration procedures of the Association, thus reducing the time and effort required of Association members serving on the Arbitration Committee.

Q. When and where is the hearing held?
A.After the complaint is received it is sent to the responding company which has 20 days to send a reply. That reply is sent to the complainant with a minimum of 20 days notice of a hearing date at the Association office.

Q. What if I think the other party acted unethically?
A.An arbitration over entitlement shall be held separately from any ethics hearing. Any award in arbitration shall be granted on the basis of judgment by the committee as to "procuring cause" (or the "predominant efficient cause".) An award in arbitration shall not be made on the basis of an alleged or determined violation of the Code of Ethics as to a basis for its findings.

Q. How does the committee make a decision on who's entitled to the amount in dispute?
A.The committee will avoid any assumption or presumption of entitlement to any award on the basis of any predetermined rule or regulation of the Board/Association of REALTORS®, and shall make its determination in each case on the merits of all ascertainable and relevant facts. They look at procuring cause in making their decision.

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Document Your Facts Before You Request Arbitration

There is no easy way to resolve disputes that arise as to entitlement to a portion of a commission. Each matter requires a careful review and evaluation of the facts. The following points might be helpful if you should get involved in such a dispute.

  • Write down the facts and gather documentation early:

When a dispute arises that might lead to an arbitration, the best way to proceed is for the agent involved to begin to collect all the facts, including any documentation available, and write out what took place, what was said, and the dates involved. This collection of facts phase should be brought together as soon as possible while points are still fresh in the minds of those involved.

  • Talk to the member you have a dispute with:

If you are a salesperson, inform your broker or manager immediately. The broker or manager should contact the other salesperson's broker or manager as soon as possible after it is known there is a dispute. Don't wait until after the closing takes place for fear of jeopardizing the sale. It is the fairest thing to all concerned to bring forth the facts relating to a dispute so that those involved can try to resolve it. Ask management and the salesperson of the other brokerage firm to have a meeting with you so that facts can be exchanged in an effort to resolve the matter.

  • Do your homework:

Review as much as you can about procuring cause if that is at the center of a dispute. You should keep in mind that "absolute answers" are not always possible. Each case involves a unique set of circumstances and series of events that need to be considered.

  • Keep an open mind until you know the facts:

Don't take a rigid position on the matter until you know the facts from both sides. Sometimes management practices blind allegiance when the facts simply do not support their salesperson's position. Sometimes a buyer will try to use the agents for their own personal gain. Sometimes a salesperson clearly tries to take over without regard for what the other agent has done. If any of these or similar factors are involved, it's best to face the situation early and avoid the time and effort that goes into an arbitration. Sometimes a compromise is the best way to resolve a dispute. In some cases, the facts when known, do not fully support one side or the other. However, if you conclude that the facts support your claim and you cannot get the matter resolved to your satisfaction, then proceed to file with the Association an arbitration complaint.

  • Be brief and to the point, yet provide the facts you have:

If you submit a matter to arbitration, provide the facts to the arbitrators. To do this it would help if, as previously suggested, you have written out what took place. Be thorough and concise. From time to time the committee will receive a complaint or reply that is way too long for the issue involved. It's as though the person submitting the matter thinks that if enough words are tossed around they'll win simply by the weight of it all. That doesn't work. The arbitrators want to know what the claim is and the points, and only the points, that support the claim. In the reply, the arbitrators want to know why the respondent does not agree with the claim and the points, and only the points, that support his or her position. On the other hand don't say too little. Provide your story and whatever supporting documentation you have relative to the case you are presenting.

  • Consider mediation:

Mediation is a middle ground for members to consider. It is being used quite effectively by REALTORS® throughout the nation.

  • Prepare carefully in advance of the hearing before the Arbitration Committee:

While arbitration is relatively informal, it requires preparation. The arbitrators receive a copy of the complaint and reply, including any documentation, and have read those items in advance of the hearing. When presenting your case, as a complainant or respondent, present your oral statements of fact that are pertinent to your claim or denial of the claim. You should also review your rights and responsibilities included in the Association's Code of Ethics and Arbitration Manual found in the Yearbook.

  • In arbitration someone will win and someone will lose:

If your position does not prevail before the arbitrators, it is not because they misunderstood the facts as sometimes alleged by the loser. When you are involved in an arbitration you are responsible for presenting the facts you have before your peers, who practice and understand the real estate business just as you do. The facts supporting your complaint or reply, or lack of same, is what determines the outcome of an arbitration. It's not because the arbitrators did not understand what went on, or because they did not like the people involved on one side of the matter. The individuals involved in an arbitration have a legitimate difference of opinion that is submitted to their peers for resolution. Once you present your case with the facts available to you, the arbitrators do the best they can in arriving at a decision. When you submit a matter to arbitration you should understand that there is a possibility that your position may not prevail.

  • The Association will provide due process:

The Minnesota Commercial Association of REALTORS®, in offering arbitration, is committed to providing due process to members who find they need the service. Due process includes the procedures that are found in the Association's manual which are followed before and at the arbitration hearing. The Association staff and the Arbitration Committee follow the procedures carefully in order to give both the complainant and respondent their rights. Sometimes members confuse due process with the outcome of an arbitration. In other words a member will use the administrative review right that they have, which is another way of saying due process, when in fact they didn't like the decision of the Arbitration Committee. Requests for procedural review go to the Board of Directors or an executive group appointed for taking up such a request. The group that takes up the request cannot hear the arbitration again. The procedural review process is limited only to the points that are claimed to have deprived a party of due process.

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Factors Considered by Hearing Panel

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.

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 V to Part 5, 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 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. If an arbitration hearing panel believes that a REALTOR® involved in the arbitration may have violated the Code of Ethics, the panel may cite the relevant testimony and refer it to the Grievance Committee for consideration in the same manner as other alleged violations of the Code of Ethics. Under no circumstances may an ethics hearing be conducted, based on concerns identified by the arbitration hearing panel, until after the arbitration process has been completed and the award, if any, has been made.

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 form another broker. The panel will want to consider why the purchaser "abandoned" 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 entire course of events leading to the sale.

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Procuring Cause is at Center of Many Arbitrations

Many of the arbitrations between REALTORS® associated with different firms, arising out of their relationship as REALTORS® (as specified in Article 17 of the Code of Ethics) get focused on one common issue: who was the procuring cause.

Procuring cause can be defined as an uninterrupted series of events that result in the sale of the property. 1

In any matter heard the Association's Arbitration Committee is required to look at the entire course of conduct of those involved in a transaction in order to establish procuring cause. Thus it would be incorrect to assume that the act of showing a property by itself establishes procuring cause. It would also be incorrect to assume that the act of writing a purchase agreement by itself establishes procuring cause.

Based on suggestions from the National Association of REALTORS®2, the following points are part of what the committee reviews:

  • What was the nature of the transaction giving rise to the arbitration request?
  • Was the property listed or subject to a management agreement?
  • Who was the listing agent?
  • 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 agreement in writing?
  • Was it in effect at the time the dispute arose?
  • Who was the cooperating broker or brokers?
  • Are all appropriate parties to the matter joined?
  • Is or was the matter the subject of litigation?
  • 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?
  • Were all disclosures mandated by law or the Code of Ethics complied with?
  • Who first introduced the ultimate purchaser or tenant to the property?
  • When was the first introduction made?
  • How was the first introduction made?
  • Did the original introduction of the purchaser or tenant to the property start an uninterrupted series of events leading to the sale (or to any other intended objective of the transaction) or was the series of events hindered or interrupted in any way?
  • If there was an interruption or break in the original series of events, how was it caused, and by whom?
  • Did the broker making 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 the broker having withdrawn from the transaction?
  • Did the broker making the initial introduction to the property engage in conduct, (or fail to take some action) which caused the purchaser or tenant to choose to utilize the services of another broker?
  • Was there interference in the series of events from any outside or intervening cause or party?
  • What were the brokers' relationships with respect to the seller, the purchaser, the listing broker, and any other cooperating brokers involved in the transaction?
  • What offers (if any) of cooperation and compensation were extended to cooperating brokers acting as subagents, buyer brokers, or to brokers acting in any other capacity?
  • If an offer of cooperation and compensation was made, how was it communicated?
  • If the cooperating broker(s) were subagents, was there a faithful exercise of agency on their part or was there any breach or failure to meet the duties owed to a principal?
  • If the cooperating broker(s) were buyer agents or were acting in a non-agency capacity, were their actions in accordance with the terms and conditions of the listing broker's offer of cooperation and compensation (if any).
  • If more than one cooperating broker was involved, was either (or both) aware of the other's role in the transaction?
  • If more than one cooperating broker was involved, how and when did the second cooperating broker enter the transaction?
  • If more than one cooperating broker was involved, was the second cooperating broker aware of any prior introduction of the purchaser to the property by the listing broker or by another cooperating broker?
  • 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?
  • 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?
  • 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 non 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 the request for award.

END NOTES

1. Will You Or Won't You Get Paid?, Jill Sammon, Minnesota REALTOR® Spring, 1990, p. 10. Definition also in Procuring Cause: Who Really Sold the Property?, Lee R. Hess, Ph.D., Real Estate Today, October 1988, p. 20.

2. Code of Ethics and Arbitration Manual, 1995 edition, NATIONAL ASSOCIATION OF REALTORS®, p. 110. The term REALTOR® is a registered collective membership mark that identifies members of a local Association or Board of REALTORS® and the National Association of REALTORS® and who, by their membership, subscribe to a strict Code of Ethics.

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