ENDNOTES
1. Schaefer v. Allstate Ins. Co., 63 Ohio St. 3d 708 (1992); Brennan v. Brennan, 164 Ohio St. 2d 2 (1955); Mahoning Cty. Bd. Of Mental Retardation v. Mahoning Cty. TMR Ed. Assn., 22 Ohio St. 3d 80 (1986); Findley City. School Dist. V. Findley Ed. Assn., 49 Ohio St. 129 3d (1990); Ohio Council of AFSCME v. Ohio Dept. of Mental Health, 9 Ohio St. 3d 139 (1984); Campbell v. Automotive Oil and Pret. Co., 162 Ohio St. 321 (1955), and Corrigan v. Rockefeller, 67 Ohio St. 354 (1902).
2. Schaefer, id. at 711.
3. Mahoning Cty., id. at 83.
4. R.C. §2711.01(A)
5 R.C. §2711.09
6. R.C. §2711.09
7. R.C. §2711.13, Beck Suppliers, Inc. v. Dean Witter Reynolds, 53 Ohio App. 3d 98 (Sandusky 1988)
8. Sparks v. Barnett, 78 Ohio App. 3d 448 (Huron 1992), Cleveland v. Fraternal Order of Police, Lodge 8, 76 Ohio App 3d. 755 (Cuy. 1991); Ohio Office of Collective Bargaining v. Ohio Civil Service Employees Assn., 73 Ohio App. 3d 392 (Franklin 1992); Russo v. Chiltick, 48 Ohio App. 3d 101 (Cuy. 1988); Cleveland v. Assn. Of Cleveland Firefrighters, 20 Ohio App. 3d 249 (Cuy. 1984)
9. University Mednet v. Blue Cross & Blue Shield, 126 Ohio App. 3d 219, 230-31 (Cuy. 1997)
10. R.C. §2711.02, Smith v. Dugan & Meyers Construction Co., 18 Ohio Misc. 2d 5 (Clermont 1984)
11. Ostendorf -Morris Company v. Slyman, 6 Ohio App. 3d 46 (Cuy. 1982); McShane v. Kaiser, 108 Ohio App. 514 (Ham. 1958)
12. Ostendorf-Morris, supra.
13. Lint-Hellmuth, Inc. v. Carey, 101 Ohio App. 3d 604 (Clark 1995)
14. Legos v. Tarr, 44 Ohio St. 3d 1 (1989); Stepp v. Freeman, 119 Ohio App. 3d 68 (Greene 1997); Pont East Condominium v. Cedar House Associates, Co., 104 Ohio App. 3d 704 (Cuy. 1995)
15. Ostendorf-Morris v. Slyman, 6 Ohio App. 3d 46 (Cuy. 1982)
16. See, footnote 14, above
17. Stepp, supra, at 73-74
APPENDICES
A. Article 17, SOP 17-4
B. Section 43 and 44, Code of Ethics and Arbitration Manual
C. Representative Procuring Cause Cases
D. NAR Suggested questions for Procuring Cause
E. Appendix I and II to Part Ten of the Code of Ethics and Arbitration Manual
Appendix A
NAR CODE OF ETHICS
ARTICLE 17
In the event of contractual disputes or specific non-contractual disputes as defined in Standard of Practice 17-4 between REALTORS 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.
(Amended 1/97)
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 arbitration 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 arbitration 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 arbitration 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 arbitration (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)
Appendix B
CODE OF ETHICS AND ARBITRATION MANUAL
SECTION 44. DUTY AND PRIVLEDGE TO ARBITRATE*
(a) By becoming and remaining a member and by signing or having signed the agreement to abide by the Bylaws of the Board, every member, where consistent with applicable law, binds himself or herself and agrees to submit to arbitration by the Board’s facilities all disputes as defined by Article 17 of the Code of Ethics and as set forth in the provisions of this Manual, all disputes with any other member, as defined, under the following conditions. In addition, REALTOR principals who participate in a Board’s MLS where they do not hold Board membership, or nonmember brokers and nonmember licensed or certified appraisers who participate in the Board’s MLS, having signed the agreement to abide by the Board’s Multiple Listing Service Rules and Regulations binds himself or herself and agrees to submit to arbitration by the Board’s facilities. (Amended 11/95)
(1) Every REALTOR of the Board who is a REALTOR principal, every REALTOR principal who participates in a Board’s MlS Where they do not hold Board membership and every nonmember broker or licensed or certified appraiser who is a Participant in the Board’s MLS shall have the right to invoke the Board’s arbitration facilities in any dispute arising out of the real estate business with a REALTOR principal in another real estate firm, or nonmember broker/appraiser who is a Participant in the Board’s MLS.
(2) A REALTOR other than a principal or a REALTOR-ASSOCIATE shall have the right to invoke the arbitration facilities of the Board in a business dispute with a REALTOR, or REALTOR-ASSOCIATE, in another firm, whether in the same or different Board, provided the REALTOR principal with whom he is associated joins in the arbitration request, and requests the arbitration with the REALTOR principal of the other firm. Arbitration in such cases shall be between the REALTOR principals. REALTOR nonprincipals and REALTOR-ASSOCIATES who invoke arbitration in this manner, or who are affiliated with a respondent and have a vested financial interest in the outcome, have the right to be present throughout the proceedings and to participate but are not considered to be parties. (Amended 11/95)
(3) A client of a REALTOR principal may invoke the arbitration facilities of the Board in a business dispute with a REALTOR principal arising out of an agency relationship, provided the client agrees to be bound by the arbritration. In the event of such request and agreement, the Board will arbitrate the subject to the provisions of Part Ten, Section 45. A REALTOR principal may also invoke arbitration against his client but no arbitration may be held without the client’s voluntary agreement to arbitrate and to be bound by the decision. (Amended 11/96)
(4) REALTORS, REALTOR-ASSOCIATES, who are or were affiliated with the same firm shall have the same right to invoke the arbitration facilities of the Board, provided each party voluntarily agrees to the arbitration in writing and the Board finds the matter properly subject to arbitration in accordance with the provisions of Part Ten Section 45 of this Manual. This privilege as stated applies to disputes arising when the parties are or were affiliated with the same firm, irrespective of the time request is made for such arbitration. (Amended 11/95)
(5) A REALTOR principal may invoke the arbitration facilities of his Board with a nonmember broker, provided each party agrees in writing to the arbitration and provided the Board finds the matter properly subject to arbitration in accordance with the provisions of Part Ten Section 45 of this Manual. However, it shall be optional with the member as to whether he will submit to a claim to arbitration with a nonmember broker who is not an MLS participant. A nonmember broker who is not an MLS participant or nonmember salesperson shall not be entitled to invoke the arbitration facilities of the Board of REALTORS. (Amended 11/95)
(6) Business disputes between a REALTOR principal and a customer of the REALTOR principal may be arbitrated by the Board if a written contractual relationship has been created by a REALTOR principal between a customer and a client and provided all parties to the dispute (i.e., the customer and the REALTOR(S) agree in writing to arbitrate the dispute. (Amended 11/95)
(b) Where mandatory arbitration is consistent with applicable state law, the Code of Ethics, Article 17, requires only that disputes arising out of the real estate business between REALTORS “…associated with different firms…” be arbitrated. The various provisions of this Section represent the interpretations of the Professional Standards Committee with approval of the Board of Directors of the National Association as to appropriate policy of a Member Board in the matter of providing arbitration facilities by the Board. Thus, Member Boards must provide arbitration facilities for Board Members in the types of arbitration described in the preceding paragraphs (1), (2), and (3). Member Boards may provide arbitration facilities for the additional types of arbitration described in the preceding paragraphs (4), (5), and (6). However, Member Boards shall not establish any mandatory requirement of its Board Members to arbitrate in the circumstances described in paragraphs (4), (5), and (6). No arbitration shall be initiated by the Board and no arbitration shall be undertaken by the Board unless it determines the dispute is properly arbitrable in accordance with the provisions of Part Ten, Section 45 of this manual.
(Revised 11/96)
Appendix C
REPRESENTATIVE CASES
(Procuring Cause)
1. Mars v. Miclau, 168 Ohio St. 144 (1958)
2. Bauman v. Worley, 166 Ohio St. 471 (1957)
3. Bell v. Dimmerling, 149 Ohio St. 165 (1948)
4. Stanson, Inc. v. McDonald, 147 Ohio St. 191 (1946)
5. Dohner v. Bailey, 20 Ohio App. 3d 1981 (Clark 1984)
6. Sulphur Springs Realty v. Blackstone, 7 Ohio App. 3d 27 (Wood 1982)
7. Ostendorf-Morris Company v. Slyman, 6 Ohio App. 3d 46 (Cuy. 1982)
8. Walker v. Davies, Inc., 34 Ohio App. 3d 139 (Frank. 1793)
9. Thomas Reap Realty v. Hadlock, 88 Ohio Law Abs. 100 (Geauga 1961)
10. Eberle v. Bertle, 86 Ohio Law Abs. 289 (Tus. 1961)
11. McShane v. Keiser, 108 Ohio App. 514 (Ham. 1958)
12. Kalna v. Fialko, 102 Ohio App. 442 (Cuy. 1955)
13. Yarma v. Griffiths, 104 Ohio App. 3d 545 (Cuy. 1995)
14. Corkin v. Smith, 104 Ohio App. 3d 274 (Clark 1957)
15. Harley E. Rouda & Co. v. Springtime, 49 Ohio App. 2d 49 (Frank. 1975)
16. Wertz Realty, Inc. v. Parden, 79 Ohio App. 3d 462 (Mont. 1992)
17. Scott v. Cravaak, 53 Ohio App. 2d 248 (Ham. 1977)
18. Hoke v. E.J. Hoke Realty Co., 71 Ohio Law Abs. 354 (Cuy. 1955)
19. Maschuk v. Maxam, 70 Ohio Law Abs. 308 (Cuy. 1955)
20. Vincent v. Weber, 13 Ohio Misc. 280 (1965)
Appendix D
NAR SUGGESTED QUESTIONS
Who is the listing agent?
Was there a written listing agreement between the property owner and the listing agent? Were both of the parties to the dispute authorized to as agent of the principal or subagent of the listing broker?
Who first introduced the customer to the property and how was such an introduction made?
Did the first or original introduction to the property actually originate an uninterrupted series of events leading to the sale (or objective of the transaction), or was the series of events originated by the first introduction to the property hindered or terminated at any point for cause such as abandonment or estrangement of the customer by the agent or subagent?
Was there a faithful exercise of agency or subagency on the part of the individual making the first introduction of the property to the customer, or conversely, was there fault or deficiency on the part of said agent or subagent either in the interest of the client or in fairness to the customer?
How did the second agent or subagent enter the transaction?
Was the second agent or subagent to enter the transaction aware of the prior introduction and/or negotiation on the property with the customer by the first agent or subagent?
If the second agent or subagent was aware of prior introduction of the property and/or negotiation on the property with the customer by the first agent or subagent, what did he do to serve the interest of the client and yet be fair to all parties, avoiding action inconsistent with the agency of the other agent or subagent?
Was the entry of the second agent or subagent into the transaction an intrusion upon agency or was it innocent exercise of agency or subagency in the interest of the client and pursuit of a customer?
Did the second agent or subagent, by the second introduction, start a second or separate series of events which were not dependent upon the first introduction and/or negotiation on the property, with said second introduction and series of events flowing therefrom, leading to the successful transaction?
Appendix E
Appendix I to Part Ten
Arbitrable Issues
Article 17 of the Code of Ethics provides:
In the event of contractual disputes or specific non-contractual disputes as defined by Standard of Practice 17-4 between Realtors 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. (Revised 1/97)
Part Ten, Section 43, Arbitrable Issues, in this Manual provides in part:
As used in Article 17 of the Code of Ethics and in Part Ten of this Manual, the terms “dispute” and “arbitrable matter” refer to contractual issues and questions, and certain specific non-contractual issues and questions outlined in Standard of Practice 17-4, including entitlement to commissions and compensation in cooperative transactions, that arise out of the business relationships between REALTORS, and between REALTORS and their clients and customers, as specified in Part Ten, Section 44, Duty and Privilege to Arbitrate. (Revised 11/96)
Part Nine, Section 42, Grievance Committee’s Review and Analysis of a Request for Arbitration provides, in part, in subsection (b):
If the facts alleged in the request for arbitration were taken as true on their face, is the matter at issue related to a real estate transaction and is it properly arbitrable – i.e., is there some basis on which an award could be based?
Despite the guidance provided in the above-referenced sections of the Code of Ethics and Arbitration Manual, questions continue to arise as to what constitutes an arbitrable issue, who are the appropriate parties to arbitration requests, etc. To provide guidance to Board Grievance Committees in their review of arbitration requests, the Professional Standards Committee of the National Association provides the following information.
Arbitration by Boards of Realtors is a process authorized by law in virtually every state. Arbitration is an economical, efficient, and expeditious alternative to civil litigation. Jurists, including the former U.S. Supreme Court Chief Justice Warren Burger, have endorsed arbitration as a method of reducing the litigation backlog in the civil courts.
To conduct arbitration hearings, Boards of Realtors, acting through their Grievance Committees and Professional Standards Committees, must have a clear understanding of what constitutes an arbitrable issue. An arbitrable issue includes a contractual question arising out of a transaction between parties to a contract in addition to certain specified non-contractual issues set forth in Standard of Practice 17-4. Many arbitrations conducted by Boards of Realtors involve entitlement to compensation offered by listing brokers through a multiple listing service or otherwise to cooperating brokers acting as subagents, as agents of purchasers, or in some other recognized agency or non-agency capacity. Frequently, at closing, the listing broker will be paid out of the proceeds of the sale and will direct that a disbursement be made to the cooperating broker who the listing broker believes was the procuring cause of the sale. Subsequently, another broker who may have been previously involved in the transaction will file an arbitration request claiming to have been the procuring cause of sale, and the question arises as to who is the proper respondent. (Revised 11/96)
In our example, assume that the listing broker is Broker A, the cooperating broker who was paid is Broker B, and the cooperating broker who was not paid, but who claims to be the procuring cause of sale, is Broker C. It is not unusual for arbitration requests filed by one cooperating broker to name another cooperating broker as the respondent. This is based on the assumption that the monies the listing broker paid to Broker B are unique and that the listing broker’s obligation to compensate any other broker is extinguished by the payment to Broker B, irrespective of whether Broker B was the procuring cause of sale or not. However, the mere fact that the listing broker paid Broker B in error does not diminish or extinguish the listing broker’s obligation to compensate Broker C if a Hearing Panel determines that Broker C was, in fact, the procuring cause of sale. (Revised 11/96)
Does this mean that a listing broker is always potentially obligated to pay multiple commissions if a property was shown by more than one cooperating broker? Not necessarily. When faced with Broker C’s arbitration request, the listing broker could have initiated arbitration against Broker B, requesting that the Hearing Panel consider and resolve all of the competing claims arising from the transaction at the same time. Professional Standards Policy Statement 27, Consolidation of arbitration claims arising out of the same transaction, provides:
Upon review by the Grievance Committee, or upon motion by either the complainant or the respondent, an arbitration request may be amended to include any additional appropriate parties so that all related claims arising out of the same transaction can be resolved at the same time.
A listing broker may realize, prior to the closing of a transaction, that there may be more than one cooperating broker claiming compensation as the procuring cause of sale. In such instances, to avoid potential liability for multiple compensation claims, the listing broker, after the transaction has closed, can initiate an arbitration request naming all of the potential claimants (cooperating brokers) as respondents. In this way, all of the potential competing claims that might arise can be resolved through a single arbitration hearing. (Revised 11/96)
There is also an alternative avenue of arbitration available to Realtors involved in disputes arising out of cooperative real estate transactions. Standard of Practice 17-4 recognizes that in some situations where a cooperating broker claims entitlement to compensation arising out of a cooperative transaction, a listing broker will already have compensated another cooperating broker or may have reduced the commission payable under a listing contract because a cooperating broker has expressly sought and/or chosen to accept compensation from another source, e.g., the seller, the purchaser, etc. Under the circumstances specified in Standard of Practice 17-4, the cooperating brokers may arbitrate between themselves without naming the listing broker as a party. If this is done, all claims between the parties, and claims they might otherwise have against the listing broker, are extinguished by the award of the arbitrators. (Adopted 11/96)
In reviewing requests for arbitration, it is important that Grievance Committees not take actions that could be construed as rendering decisions on the merits. For example, a Grievance Committee should not dismiss an otherwise arbitrable claim simply because Grievance Committee members believe the respondent would undoubtedly prevail in a hearing. On the other hand, an arbitration request that cites no factual basis on which a Hearing Panel could conceivably base an award should not be referred for hearing. A party requesting arbitration must clearly articulate, in the request for arbitration, facts that demonstrate a contractual relationship between the complainant and the respondent, or a relationship described in Standard of Practice 17-4, and an issue that could be the basis on which an arbitration award could be founded.
(Revised 11/96)
Another question that frequently arises with respect to arbitration requests is whether the fact that the listing broker was paid out of the proceeds of the closing is determinative of whether a dispute will be considered by a Hearing Panel. Initially, it should be noted that the Arbitration Guidelines (Appendix II to Part Ten) provide that an arbitrable issue involving procuring cause requires that there have been a “successful transaction.” A “successful transaction” is defined as “a sale that closes or a lease that is executed.” Some argue that if the listing broker is not paid, or if the listing broker waives entitlement to the commission established in the listing contract, then there is nothing to pay to the cooperating broker and, thus, no issue that can be arbitrated. This is an improper analysis of the issue. While the listing broker needs the consent of the seller/client to appoint subagents and to compensate subagents, buyer agents, or brokers acting in some other recognized agency or non-agency capacity, the offer to compensate such individuals, whether made through the multiple listing service or otherwise, results in a separate contractual relationship accepted through performance by the cooperating broker. Thus, if the cooperating broker performs on the terms and conditions established by the listing broker, the fact that the listing broker finds it difficult to be paid or, alternatively, waives the right to be paid, has no bearing on whether the matter can be arbitrated but may have a direct impact on the outcome. Many cooperative relationships are established through MLS and the definition of the MLS provides, in part: (Revised 11/97)
While offers of compensation made by listing brokers to cooperating brokers through MLS are unconditional,* 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. (Amended 11/98)
* Compensation is unconditional except where local MLS rules permit listing brokers to reserve the right to reduce compensation offers to cooperating brokers in the event that the commission established in a listing contract is reduced by court action or by actions of a lender. Refer to Multiple Listing Policy Statement 7.23, Information Specifying the Compensation on Each Listing Filed with a Multiple Listing Service of a Board of REALTORS, Handbook on Multiple Listing Policy. (Adopted 11/98)
The foregoing are by no means all-inclusive of the consideration that must be taken into account by a Grievance Committee in determining whether a matter will be arbitrated. However, they are some of the common questions raised with respect to arbitrable issues, and this discussion is provided to assist Grievance Committees in their important role in evaluating arbitration requests. (Adopted 4/91)
Appendix II to Part Ten
Arbitration Guidelines (Suggested Factors for Consideration by a Hearing Panel in Arbitration)
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. (Revised 11/97)
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. (Adopted 11/96)
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.) (Revised 11/96)
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 (subject to the client’s agreement to arbitrate), 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. (Revised 11/98)
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. See also 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 determinations 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 transaction,” 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:
…The 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. (Revised 11/98)
* Compensation is unconditional except where local MLS rules permit listing brokers to reserve the right to reduce compensation offers to cooperating brokers in the event that the commission established in a listing contract is reduced by court action or by actions of a lender. Refer to Multiple Listing Policy Statement 7.23, Information Specifying the Compensation on Each Listing Filed with a Multiple Listing Service of a Board of REALTORS, Handbook on Multiple Listing Policy. (Adopted 11/98)
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. (Amended 11/96)
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. (Revised 4/95)
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
1. What was the nature of the transaction? Was there a residential or commercial sale/lease?
2. 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
1. What was the nature of the listing or other agreement: exclusive right to sell, exclusive agency, open, or some other form of agreement?
2. Was the listing agreement in writing? If not, is the listing agreement enforceable?
3. Was the listing agreement in effect at the time the sales contract was executed?
4. Was the property listed subject to a management agreement?
5. Were the broker’s actions in accordance with the terms and conditions of the listing agreement?
a. Were all conditions of the listing agreement met?
b. Did the final terms of the sale meet those specified in the listing agreement?
c. Did the transaction close? (Refer to Appendix I to Part Ten, Arbitrable Issues)
d. 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
1. Was an offer of cooperation and compensation made in writing? If not, how was it communicated?
2. Is the claimant a party to whom the listing broker’s offer of compensation was extended?
3. Were the broker’s actions in accordance with the terms and conditions of the offer of cooperation and compensation (if any)?
a. Were all conditions of the agreement met?
Roles and relationships of the parties
1. Who was the listing broker?
2. Who was the cooperating broker or brokers?
3. Were any of the parties acting as subagents? As buyer brokers? In some other capacity?
4. 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?
5. Were any of the brokers (including the listing broker) acting as a principal in the transaction?
6. What were the brokers’ relationships with respect to the seller, the purchaser, the listing broker, and any other cooperating brokers involved in the transaction?
a. Was the party to whom the property was sold represented by a party with whom the broker had previously dealt?
b. Is the primary shareholder of the buyer-corporation a party with whom the broker had previously dealt?
c. Was a prior prospect a vital link to the buyer?
7. Are all appropriate parties to the matter joined?
Initial contact with the purchaser
1. Who first introduced the purchaser or tenant to the property?
2. When was the first introduction made?
a. Was the introduction made when the buyer had a specific need for that type of property?
b. Was the introduction instrumental in creating the desire to purchase?
c. Did the buyer know about the property before the broker contacted him? Did he know it was for sale?
d. Were there previous dealings between the buyer and the seller?
e. Did the buyer find the property on his own?
3. How was the first introduction made?
a. Was the property introduced as an open house?
b. What subsequent efforts were made by the broker after the open house? (Refer to Factor #1)
c. Was the introduction made to a different representative of the buyer?
d. Was the “introduction” merely a mention that the property was listed?
e. What property was first introduced?
Conduct of the brokers
1. Were all required disclosures complied with?
2. Was there a faithful exercise of the duties a broker owes to his client/principal?
3. If more than one cooperating broker was involved, was either (or both) aware of the other’s role in the transaction?
4. 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)
5. 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)
a. Did the broker make preparations to show the property to the buyer?
b. Did the broker make continued efforts after showing the property?
c. Did the broker remove an impediment to the sale?
d. Did the broker make a proposal upon which the final transaction was based?
e. Did the broker motivate the buyer to purchase?
6. How do the efforts of one broker compare to the efforts of another?
a. What was the relative amount of effort by one broker compared to another?
b. What was the relative success or failure of negotiations conducted by one broker compared to the other?
7. 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 and estrangement)
1. What was the length of time between the broker’s efforts and the final sales agreement?
2. 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?
a. Did the buyer terminate the relationship with the broker? Why? (Refer to Factor #4)
b. Did negotiations break down?
3. If there was an interruption or break in the original series of events, how was it caused, and by whom?
a. Did the seller change the listing agreement from an open listing to an exclusive listing agreement with another broker?
b. Did the purchaser’s motive for purchasing change?
c. Was there interference in the series of events from any outside or intervening cause or party?
4. 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?
5. 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
1. Did the buyer make the decision to buy independent of the broker’s efforts/information?
2. Did the buyer negotiate without any aid from the broker?
3. Did the buyer seek to freeze out the broker?
a. Did the buyer seek another broker in order to get a lower price?
b. Did the buyer express the desire not to deal with the broker and refuse to negotiate through him?
c. Did the contract provide that no brokers or certain brokers had been involved?
Conduct of the seller
1. Did the seller act in bad faith to deprive the broker of his commission?
a. 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?
b. 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?
c. Did the seller freeze out the broker to avoid a commission dispute or to avoid paying a commission at all?
2. Was there bad faith evident from the fact that the seller told the broker he would not sell on certain terms, but did so via another broker or via the buyer directly?
Leasing transactions
1. Did the cooperating broker have a tenant representation agreement?
2. Was the cooperating broker working with the “authorized” staff member of the tenant company?
3. Did the cooperating broker prepare a tenant needs analysis?
4. Did the cooperating broker prepare a market analysis of available properties?
5. Did the cooperating broker prepare a tour book showing alternative properties and conduct a tour?
6. Did the cooperating broker show the tenant the property leased?
7. Did the cooperating broker issue a request for proposal on behalf of the tenant for the property leased?
8. Did the cooperating broker take an active part in the lease negotiations?
9. Did the cooperating broker obtain the tenant’s signature on the lease document?
10. Did the tenant work with more than one broker; and if so, why? (Revised 11/96)
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. (Adopted 11/96)
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 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 Client 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. (Adopted 11/96)