Q: I was surprised to see that C.A.R. has removed the Arbitration provision from all of their Listing Agreement forms. Is this a good step for the real estate industry? What should we do if a Seller wants to include an Arbitration provision?
A: Yes, the removal of the Arbitration provision from the Listing Agreement forms is beneficial for real estate professionals; however, C.A.R. has also created a form to add the provision back into the Listing if a Seller wants to include Arbitration in a Listing Agreement.
Regardless of how C.A.R. attempted to craft the Arbitration provision in their Listing Agreements to limit the provision to commission disputes, Judges and Arbitrators took a decidedly different view of those provisions. As a result, too many California Listing Agents were required to participate as defendants in Arbitration actions between Sellers and Buyers (even when the nature of the dispute was clearly limited to those Parties) without any comparable means of obligating Selling Agents to participate in that same Arbitration action. This created an inequity in the treatment of the Brokers.
Additionally, since Arbitrators are legally allowed to be arbitrary and ignore not only statutory and case law but contract provisions as well, Arbitrators were often disregarding Broker’s legitimate, contractual commission rights. There is no right to appeal a badly-decided Arbitration case unless the Party who wants to appeal can prove actual bias and/or prejudice of the Arbitrator which seldom occurs.
The Arbitrators who hear disputes between Sellers and Brokers are seldom, if ever, Association of REALTORS® Arbitrators. Attorneys for Sellers generally insist upon using private Arbitration services and retired judges who charge large hourly fees. Thus, resolving commission disputes through Arbitration was usually expensive and, more often than not, in favor of the Seller rather than the real estate licensees.
Thus, it should not be surprising that C.A.R. has followed the lead of other real estate forms entities (such as PRDS and SFAR) and eliminated the Arbitration provision from their Listing Agreements.
If a potential Seller refuses to list their property with a real estate licensee unless the Listing Agreement contains an Arbitration provision, then the Brokerage needs to make a business decision as to whether the Listing is important enough to agree to Arbitration. If the Brokerage is willing to include an Arbitration provision in its Listing Agreement, then use the separate C.A.R. Arbitration Agreement (Form ARB). See sample attached.
PRACTICE TIPS:
- Brokers should establish a company policy regarding their preferences regarding Arbitration in its Listing Agreements and the procedures that Sales Associates should follow when a Seller will only list if the Listing Agreement includes an Arbitration provision.
- Based upon significant past experience with Listing Agreements that do not contain an Arbitration provision, very few Sellers request, let alone demand, adding an Arbitration provision and generally do so because the Sales Associate brought up the subject.
- The recommended approach for dealing with Sellers who insist that they will not sign a Listing Agreement without an Arbitration provision is for Brokers to recognize their three options and to then make the best business decision for the Brokerage. Those three options are:
- Do not take the Listing if the Seller is going to be difficult about the terms of standard forms;
- Encourage the Seller to retain their own qualified California real estate attorney to add an appropriate Arbitration provision;
[NOTE: We do not necessarily recommend either of these first two options above.]
- Use the C.A.R. Arbitration Agreement form as an Addendum to the Listing Agreement.
DO NOT FORWARD TO SELLERS OR BUYERS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
Copyright© Broker Risk Management 2018 08/17/18