Commission dispute resolution: Mediation vs. arbitration by Richard Ferro

Richard Ferro, Berkshire Hathaway Blake, Realtors

As far back as 1913, the National Association of Realtors (NAR) Code of Ethics required arbitration between or among Realtors for settlement of contractual disputes–the most notable being those involving commissions. While litigation is not entirely precluded (the parties could jointly decide to take that route or the local Board could decide that the issue is too complex), arbitration has usually been the normal course. In these cases, a hearing is conducted with sworn testimony, counsel, witnesses and evidence and then a hearing panel made up of the association’s professional standards committee renders a decision in executive session. Arbitration awards are final and normally judicially enforceable when not paid by the non-prevailing party.

As an alternative to arbitration, mediation can provide a simpler process as well as a number of additional benefits. Once initiated, the disputing parties meet with a mediator appointed by the association. The parties explain their issues, cite their positions and have an opportunity to ask each other questions. With proper training and expertise, the mediator has the job of moving the parties toward a mutually acceptable resolution. If an agreement is reached, it is written up and signed by the parties.

The mediation process is more streamlined and less formal that an arbitration. It is lower in cost in terms of time and money, as well as much simpler to initiate. Whereas arbitration has a limited number of possible outcomes (win/lose/split), the mediation process can explore a range of possible solutions. In arbitration, the arbitrators are in control of the outcome, but in mediation, the parties themselves control the outcome.

Possibly the most significant difference in the processes is the fact that the mediation process is designed to maintain or even improve relationships where arbitration can harm relationships and impact the future business of the parties. Lastly, it is important to note that mediation is purely voluntary and in no way precludes either party’s right to arbitration if not successful.

Richard Ferro, CCIM is a principal broker and manager of Berkshire Hathaway Blake, Realtors, Albany, N.Y.