What is the history behind REALTOR^® mediation and arbitration? 

For nearly 100 years, REALTORS^® have been using arbitration as the chosen dispute resolution mechanism to resolve differences with other REALTORS^®. The REALTOR^® Code of Ethics was adopted as “Ethics of the Real Estate Profession” in 1913 by the National Association of Real Estate Exchanges. The original purpose of the code was to establish professional standards and conduct for real estate practitioners in an era of speculation, exploitation and competition. The code not only included consumer protection but also fostered respect for and cooperation with other real estate practitioners. 

Members of the association agreed they would resolve their disputes in the original code, which included the following provisions in Article 9: “Invoke friendly arbitrations by the Real Estate Association rather than through the courts of law, in settling differences with other agents.” 

Fast forward 99 years, and Article 17 of the Code of Ethics continues this informal dispute resolution tradition for REALTORS^® with provisions for both mediation and arbitration of their contractual disputes. REALTORS^® who find themselves in conflict may use the local board’s ethics, mediation and arbitration services. 

Mediation

What is mediation?

Mediation is the confidential process by which disputing parties meet with a neutral mediator to reach a mutually agreeable solution or settlement of their dispute. The objective in mediation is for the parties to resolve the dispute and enter into a written agreement stating the terms of their settlement, thereby avoiding the need to arbitrate the matter. Often the crux of the issue between REALTORS^® is a failure to communicate clearly or timely with each other or incomplete communication between members and consumers. Mediation offers a neutral place where brokers, or consumers, can overcome misunderstandings or miscommunication. Guided by a mediator, the parties are able to discuss the situation, offer suggestions for resolution, and reach a settlement. 

What are some of the benefits of mediation?

People in conflict can use mediation to set aside other distractions and focus on the issue at hand. In mediation, each party is given the time necessary to share their experience and expectations. This gives the other party perspective regarding the situation. Inevitably in mediation, parties have “aha” moments when listening to the other party tell their side of the story. A party suddenly has clarity about something that was unknown or mistaken or misunderstood. Hearing the other party tell their side of the situation frequently leads to a better understanding of what occurred and why the other party has the position they do. 

REALTOR^® mediation is a free member benefit. Mediation captures the spirit of REALTOR^® cooperation, working together to reach a successful resolution. The service is easy to schedule and allows the parties to craft a creative win-win solution to the matter. Unlike an arbitration hearing where there is a prevailing party and a non-prevailing party, mediation has two parties who agree on the solution. Mediation can help maintain good relationships between parties who will continue to cooperate in the marketplace and gives them the power to determine their own outcome. 

Who are the mediators?

In REALTOR^® mediation, the mediator is a facilitator, not the decision-maker. Although local association policy determines who the mediators are, mostly they are REALTORS^® who have experience with professional standards and arbitration hearings and have attended additional mediation training. Mediators are selected for their knowledge of the real estate industry and judicial temperament in resolving disputes. The mediator may make recommendations or suggestions for settlement but cannot impose his or her solutions on the participants. The mediator has a duty of confidentiality to keep the discussions private, thereby allowing the parties to honestly and frankly work together to solve the dispute at hand. 

Is participation in REALTOR^® mediation mandatory? 

That depends on local association policy. Article 17 of the Code of Ethics creates the duty to arbitrate contractual disputes between REALTORS^® arising out of real estate transactions. Since 2002, associations have offered voluntary mediation services. Given the NAR goal to have mediation as the primary dispute resolution mechanism, Article 17 was amended in 2012, giving local associations the discretion to require mandatory mediation for arbitrable issues. Members may contact their local association to see whether mediation is voluntary or mandatory. 

If mandatory mediation is adopted, then REALTORS^® are obligated to participate in mediation. If mediation is not mandatory, or if mandatory mediation is tried but is not successful, the dispute will be forwarded to an arbitration hearing where the outcome will be decided by the hearing panel. 

Arbitration

What are the differences between mediation and arbitration in terms of what the parties must do to prepare? 

One of the distinctions between mediation and arbitration is that mediation parties come with an open mind and an expectation to reach resolution. In mediation the parties may, but are not required to, bring exhibits, documents, contracts or witnesses. It is not a formal hearing. 

To prepare for an arbitration, a broker may wish to confer with legal counsel for help in gathering any witnesses and evidence necessary to convince a hearing panel comprised of three or more arbitrators. The panel hears testimony and reviews documents and then renders a final decision resolving the dispute. Arbitration is faster and less expensive than going to court, and decisions are made by a panel of real estate professionals, rather than judges who may not be well-versed in real estate and licensee law. But going to arbitration can feel like going to court because it is a confrontational, adversarial, all-or-nothing process where there is a winner and a loser.

The agent went to closing and did not get paid because the listing agent is proclaiming that she is procuring cause because the buyer went to her open house. The buyers also had individual showings of the property with the cooperating agent. The listing agent never contacted the buyer after the open house and after the individual showings. How will the arbitration panel make a decision about procuring cause? 

If the brokers are unable to negotiate or use mediation to reach a settlement, the broker may file a request for arbitration. The issue for the arbitration panel will be procuring cause: who caused the sale of the property? There is no single act that determines procuring cause; it is a conclusion drawn from a full, knowledgeable consideration of all of the facts of the case. 

The preeminent written authority explaining procuring cause, as applied in REALTOR^® arbitration hearings, is the Code of Ethics and Arbitration Manual, specifically “Appendix II to Part Ten—Arbitration Guidelines (Suggested Factors for Consideration by a Hearing Panel in Arbitration),” which may be viewed online at www.realtor.org/CEAM.nsf/1ea4bd9041b3346c862569a6006f7c75/448362d102506f1086257234006f6ea6?OpenDocument. That document indicates that:

“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 transaction,’ as used in these Arbitration Guidelines, is defined as ‘sale that closes or a lease that is executed.’”

Arbitration 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. Did the first broker actively maintain ongoing contact with the purchaser, or did the broker’s inactivity, or perceived inactivity, cause 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 first broker “abandoned” the buyer and whether the broker engaged in conduct that caused the buyer to terminate the relationship (estrangement). This can be caused, among other things, by the broker’s 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 broker.

Ethics

What can an agent do when they observe another agent acting unethically? 

If the allegation is that the REALTOR^® violated the Code of Ethics, then the person can file a complaint with the local association. Before doing so, it may be beneficial to read the NAR brochure, “Before You File an Ethics Complaint” at www.realtor.org/mempolweb.nsf/pages/Beforeyoufileanethicscomplaint?OpenDocument&Login.

Alternately, the agent could approach the other agent directly or via their broker to attempt to resolve the issue without a third party. If the direct approach is not successful, contact the local association to determine if the association offers mediation services for ethics; most do in Wisconsin. Finally in some cases there may be an office policy in place that sets forth how the company intends to internally resolve ethics or company policy about dispute resolution.

Tracy Rucka is Director of Professional Standards and Practices for the WRA.