Arbitration For Real Estate Brokers
Members of the National Association of Realtors (NAR), by virtue of their association with NAR and its local boards (LIBOR, HGAR, HANFRA etc.), are bound by a code of ethics and are subject to mandatory arbitration of disputes between brokers. The expansive “Code of Ethics” can be found on NAR’s website and includes rules that members are required to follow, and the procedure for arbitrating disputes between brokers who violate those rules.
But what exactly happens at these arbitrations, and should you hire an attorney to represent you?
What is Arbitration?
Arbitration is a form of dispute resolution where the parties voluntarily agree (usually by contract) to submit their dispute to a third-party, the arbitrator, who renders a binding decision resolving the dispute. It is often seen as an alternative to litigation in a court of law where many view it as faster, more efficient, and potentially cheaper than an extended lawsuit. But there are downsides to this efficiency. Namely, arbitration can, but does not necessarily have to, contain less due process protections, e.g. less discovery, less right to appeal, looser rules. One important aspect of arbitration to remember — the decision of the arbitrator is final. A court will only intervene an undo an arbitrator’s decision in the most extreme examples of fraud, corruption, misconduct, violations of public policy, and irrational decisions unsupported by evidence. See Matter of Erin Cosntr. & Dev. Co., Inc. v. Meltzer, 58 AD3d 729 (2nd Dept. 2009). In fact, a court will not vacate an arbitration award “[e]ven where an arbitrator has made an error of law or fact” because the court must “give deference to the decision of the arbitrator… even if the arbitrator misapplied the substantive law in the area of the contract.” New York City Tr. Auth. v. Transport Workers Union of Am., Local 100, AFL-CIO, 6 NY3d 332 (2005).
The takeaway is clear — treat the arbitration as seriously as you would a lawsuit. Your options are limited if you don’t like the outcome.
What Happens at a NAR Arbitration?
It is important to distinguish between the two types of hearings NAR conducts — Ethics Hearings and Arbitrations. Ethics Hearings punish members for alleged violations of the Code of Ethics. Arbitrations resolve disputes between brokers, typically, who is the procuring cause of the transaction. Both are technically arbitrations, but they follow their own procedures. This blog will focus on the Arbitration set forth in Part 10, et seq. of the Code of Ethics.
Arbitration is commenced by filing a request for arbitration which details the alleged dispute and the evidence in support of the claimant’s position. Section 47(a). The Grievance Committee will review the request and determine if arbitration is appropriate. Section 47(b). The respondent is served with the request and supporting documents, and they submit a response. Section 48. At the hearing, both sides may present evidence and witness testimony, and both sides may question witnesses, including opposing witnesses. Section 51. The dispute will be heard by a panel of arbitrators who are also members of the local NAR board who may also ask questions of the parties and witnesses. Section 51(b). The chairperson leading the arbitration panel will govern the operation of the hearing, including making rulings on the admissibility of evidence and testimony. Once the hearing has concluded, a decision is rendered in writing and delivered to the parties.
Critically, the parties have the right to be represented by counsel throughout the entire proceeding. Section 29.
I Lost, Now What?
The decision of the arbitrator is final and binding. Unlike with an Ethics Hearing, in a NAR Arbitration, your right to appeal is limited only to a procedural review based on allegation(s) of procedural deficiency or other irregularities which may have deprived a party of due process. Section 55. Stated otherwise, you can’t appeal just because the decision was wrong. You are bound by the arbitration award, even if you think it is the dumbest thing you’ve ever read. The time to hire an attorney was before the arbitration, not after you lost.
When you receive that notice in the mail from another broker dragging you to NAR arbitration over a $30,000 commission dispute, take it seriously. Hire an attorney to give you the best chance of prevailing.