BUYER-SELLER DISPUTE RESOLUTION SYSTEM (DRS) - Kansas City Real Estate Lawyer

Introduction

This Dispute Resolution System (DRS) is not intended to replace arbitration or mediation activities conducted by associations? Professional Standards Committees. The program is designed to resolve disputes between buyers, sellers, and real estate brokers/salespeople not otherwise covered under Article 17 of the Code of Ethics and Standards of Practice of the National Association of REALTORS? (NAR).

?Dispute Resolution System? and the acronym ?DRS? are used to identify methods of resolving disputes out of court, including mediation and arbitration. DRS programs are increasingly important as parties and the courts are utilizing programs that avoid the legal system and resolve disputes in a quick and cost-efficient manner. DRS reflects a serious effort to design workable and fair alternatives to civil litigation.

There are several types of DRS programs, including:

Negotiation?Direct bargaining between disputing parties with the parties attempting to resolve the dispute without the involvement of a neutral third party. Many real estate brokers practice this method of DRS without even realizing it. One example is where a disgruntled buyer on a walk-through inspection finds the seller broke the mailbox when moving out of the home and the real estate broker offers to replace the mailbox to resolve the problem.

Mediation?In mediation, a neutral third party assists the disputants in negotiating a mutually acceptable settlement. Mediators do not make decisions but instead help the parties make their own agreement by clarifying issues, utilizing persuasion, and employing other conflict resolution strategies and techniques. Although there is no guarantee that every dispute will be resolved, surveys show that settlements are reached over 80% of the time.

Arbitration?Arbitration is probably the best known DRS method. In arbitration, parties agree to submit existing or future disputes to a neutral third party, the arbitrator, or a panel of arbitrators who decide how the dispute will be resolved. In binding arbitration, the decision of the arbitrator(s) is final and binding. In non-binding arbitration, the parties choose whether to accept the arbitrator’s decision or to proceed to litigation.

Benefits of DRS

Faster than litigation.
Less expensive than litigation.
Discourages litigation of frivolous claims.
Parties actively participate in the process.
Provides service brokers and salespeople can offer to clients and customers.
Enhances the image of REALTORS? by providing consumers viable alternatives to litigation.
Potential for lowering the cost of Errors and Omissions insurance.

In addition to the above benefits, in mediation:

Parties retain their legal rights to arbitrate or litigate if mediation is unsuccessful.
Parties control the outcome.
The process helps restore goodwill between disputants.
True interests of the parties (not just their positions) are discovered/addressed.
Process and agreement are flexible, allowing parties to move beyond different views of law or fact to create durable solutions beyond ?win/lose?.
Solutions are just as binding and enforceable as arbitration awards.
Parties are less likely to have to go into court to enforce their agreement than in arbitration because the parties have entered into the agreement as opposed to having a third party render an award.
The National Association of REALTORS? DRS Program
These materials were developed by the National Association of REALTORS? for associations to use in conducting alternative DRS programs involving consumers (i.e., buyers and sellers). Many associations have already implemented the mediation program developed by NAR in 1990, or have adopted this program when it was first offered back in 1994. Other associations have designed and implemented their own DRS programs.

These materials update the NAR program. Associations are free to use the mediation materials, the arbitration materials or a combination of mediation and arbitration.

A combination mediation/arbitration program may be the most useful in settling disputes in a timely and cost-efficient manner. In a combined program, the DRS clause in the agreement provides for a two-step process, first mediation and then, if mediation is not successful, arbitration. The key is to first have the parties make good faith efforts through mediation to make their own settlement. If parties cannot resolve their differences through mediation, they have committed to arbitration, through which a neutral third party decides the dispute based on the facts.

The NAR program is designed to resolve disputes between buyers, sellers, and real estate brokers/salespersons. The program is not designed to be used for disputes between REALTORS?. Disputes between REALTORS? must be resolved through mediation and/or arbitration procedures established in the NAR Code of Ethics and Arbitration Manual.

Many civil court systems across the United States have adopted some form of DRS. Generally, DRS is triggered at the time the lawsuit is filed. Depending upon the particular type of program, once a suit is filed, the parties must participate in mediation or non-binding arbitration. If the DRS is unsuccessful, civil litigation begins. DRS programs are frequently encouraged because they provide a measuring stick for the parties to determine the relative strength of their cases. The NAR program does not conflict with court-annexed DRS programs because the NAR program takes place prior to the filing of litigation.

The NAR program creates minimal legal exposure for associations. Associations should review each component and, after the decision is made to adopt one or both components, carefully follow the NAR Guidelines. Associations that follow these Guidelines, and provide confirmation to NAR that a DRS program has been adopted locally, will be covered under the professional liability insurance provided by NAR.

Note: At the discretion of the local association, the local DRS program can be offered in rental transactions between landlords and tenants, and their real estate brokers/licensees.

Background

The concept of a REALTOR? DRS program for buyer-seller disputes was conceived in 1987 by members of the REALTORS? Liability Task Force. In January 1988, members of the then newly formed REALTORS? Risk Reduction DRS Subcommittee began the task of designing and developing a Dispute Resolution System that could be easily implemented by local associations and REALTORS? throughout the country.

In their deliberations, members of the subcommittee evaluated and debated the merits of arbitration as well as mediation. Because of the non-adversarial nature of mediation, and the fact that disputants did not give up legal rights in agreeing to mediation, the NAR program was developed initially as a mediation program. The Mediation Guidelines were developed and sent, in 1990, to every association for their independent endorsement and administration.

Since 1990, several state associations have successfully developed and implemented arbitration programs. Because of their success and the interest in arbitration, in 1992, the Risk Reduction Committee decided to expand the NAR DRS program to include Arbitration Guidelines, at the discretion of local associations.

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