How the Buyer-Seller Arbitration Program Works
Arbitration is an informal hearing in front of a neutral third party or panel, the arbitrator(s), who discovers the facts of the dispute through testimony and evidence and then renders a final determination of the dispute, called an arbitration award. The basic structure of an arbitration process is:
- If permitted under state law, parties to a real property transaction commit to submitting their disputes to either binding or non-binding arbitration. Parties must be notified that if they commit to binding arbitration, they give up their legal right to litigate the dispute in the future.
- A dispute arises and a written request for arbitration is made to the association.
- Notice is given to the other party(ies) to the dispute together with a request for response to the arbitration request.
- A list of qualified arbitrators is provided to the parties. Each party notes those arbitrators who are acceptable to them. The arbitrator lists are then matched and the arbitrator(s) are appointed. There may be the option to have one or three arbitrators on the panel.
- The arbitrator notifies all parties to the dispute of the time and place for the hearing. Parties are also advised that they may be represented by legal counsel.
- At the hearing, each party may open with a statement as to their position on the dispute. Testimony from witnesses may be heard and witnesses cross-examined. Documents in support of a position are also received at this time.
- The hearing then ends and the arbitrator renders an award within a specified time period following the hearing.
Associations should review the information in these guidelines and decide whether to develop and implement an arbitration program in consultation with the association's legal counsel.
These guidelines are intended to help ensure the integrity of the association’s arbitration program. The intent of the guidelines is not to discourage associations from participating in the program, but rather, to ensure that leadership, staff, and members know and understand the level of commitment and resources required to initiate and administer an effective arbitration program as an ongoing service of the association.
The Buyer-Seller arbitration program should include the following elements:
- The entire arbitration process should be completed within ninety (90) days from the date the initial arbitration request is received by the association.
- Arbitration awards should be provided to the parties not later than thirty (30) days from the date the hearing is conducted.
- Arbitration clauses or addendums clearly explain the arbitration process and are signed by all parties to the transaction.
- A statement requiring all parties keep the proceedings and records of the arbitration private and confidential, and the following disclaimer:
Neither arbitrator, or the NATIONAL ASSOCIATION OF REALTORS® or any of its member associations shall be deemed “necessary parties” in any judicial proceedings relating to arbitration under these guidelines, nor shall the arbitrator or the NATIONAL ASSOCIATION OF REALTORS® or any of its member associations shall be deemed “necessary parties” in any judicial proceedings relating to arbitration under these guidelines, nor shall the arbitrator or the NATIONAL ASSOCIATION OF REALTORS® or any of its member associations be liable to any party for any act or omission in connection with any arbitration conducted following the association’s arbitration procedures.
Associations implementing Buyer-Seller Arbitration programs are encouraged to:
- Have adequate staff and volunteer support sufficient to implement and conduct the program.
- Consult with legal counsel to ensure:
- compliance with state law, including arbitration clauses in listing agreements, buyer representation agreements, and sales contracts, that are enforceable under applicable state law
- the arbitration program minimizes arbitrators who are real estate broker/salesperson liability for unauthorized practice of law claims. If under state law the activities of a real estate licensee under the program would be considered the unauthorized practice of law, the association should seek an advisory opinion from the state real estate commission before proceeding with the arbitration program.
- Adopt written procedures and make them available to members and their clients and customers prior to their agreeing to arbitrate future disputes.
- Conduct training for members who serve as arbitrators for the association.
Binding Versus Non-binding Arbitration
Arbitration awards can be either binding or non-binding on the parties. If an arbitration program will be adopted, the directors should decide if awards will be binding or non-binding. This decision is left to the discretion of each association.
In binding arbitration, the arbitrator(s) renders a final decision (award). Neither party may litigate any of the allegations resolved by the award. The award may be confirmed by a court which gives the award the full force and effect of a judgment.
In non-binding arbitration, the award can be rejected by either party. If accepted, the parties must then adhere to the award as in binding arbitration, and issues giving rise to the dispute cannot be subsequently litigated. If rejected, the parties can litigate the issues in dispute.
NAR recommends that the directors appoint a standing committee to exercise oversight of its arbitration program, including responsibility for ensuring that the association's program follows the association’s established procedures and affords all parties fundamental due process. The committee may also be responsible for qualifying, selecting, and conducting the training.