Commercial Real Estate

Settling Agent Disputes In Commercial Real Estate Deals

Picture of a man on the phone trying to settle a commercial real estate disagreement or dispute

Almost every profession in this country is closely regulated by different associations and official bodies. In the world of Orange County real estate in general, that professional body is the California Association of Realtors (CAR). The CAR is dedicated to advancing the profession of realtors and ensure that certain standards are put in place. The CAR can help settle and mediate commercial real estate disputes.

The purpose of the CALIFORNIA ASSOCIATION OF REALTORS is to serve its membership in developing and promoting programs and services that will enhance the members’ freedom and ability to conduct their individual businesses successfully with integrity and competency, and through collective action, to promote real property ownership and the preservation of real property rights.

When realtors are affiliated with the CAR, they are also mandated by arbitration and mediation standards. Hence, if there is ever a dispute, the CAR has procedures in place to help in resolving such. However, a commercial real estate agent is not a realtor. As a result, while some still choose to join the CAR because of their overall professional standards within the world of real property, they are also not bound by those arbitration and mediation requirements.

Some people believe that it is this particular lack of overseeing body that makes commercial realtors akin to cowboys. They believe that the term is suitable for them because it describes the fact that they work hard, are true entrepreneurs, and take whatever they can. This is particularly true for those commercial real estate professionals that operate on a commissioned-sales payment arrangement, which most of them do.

The amount a commercial real estate agent receives on a commission is calculated as a percentage of the total commercial property sale price or lease value. While it’s illegal due to anti-trust laws to set a market- or industry-wide standard for commission percentages, most agents earn anywhere from 4% to 8%.

However, regardless of how professional the commercial real estate agents are – or aren’t – there are bound to be disagreements. Usually, those are related to the manner in which they get paid. And this is where they truly set themselves apart from cowboys, because while their disputes may not be arbitrated by the CAR, they also don’t meet at high noon at the OK Coral.

How Commercial Real Estate Agents Resolve Complaints

The vast majority of disputes between commercial real estate agents is a fee disagreement. Most professional commercial real estate agents try to prevent this from happening by starting any negotiation with a clear understanding of who will be paid what even before the deal is negotiated. They have faith in the fact that their coworkers are as honorable as they are, in other words, understanding that working in an ethical manner ensures that there will be no misunderstandings, that deals will go by smoothly, and that everybody will get paid with the right amount. Mainly, however, they ensure that they have a written agreement in place for everything, including escrow, leases, responses, offers, listings, and more.

In a few situations, a contract must also be in writing to be valid. State laws often require written contracts for real estate transactions or agreements that will last more than one year. You’ll need to check your state’s laws to determine exactly which contracts must be in writing.

Additionally, while it is certainly true that commercial real estate agents don’t join the CAR, because they don’t have to, that doesn’t mean that they are not represented by any professional body. They are often members of the Association of Industrial Commercial Real Estate (AIR CRE).

AIR CRE is an innovative, member-owned platform that provides commercial real estate professionals in Southern California with the critical tools they need to be successful. We have curated the best resources that the industry has to offer, and packaged them together as a single integrated network. Our Members have unparalleled access to a system of market research, listings services, contracts and legal resources, networking, and education.

AIR CRE has also created a platform for agents who are involved in a dispute and require arbitration. This has become even more important since there have been significant changes in the market for commercial real estate professionals in Southern California.

Then, there is the fact that the majority of commercial real estate agents work from an office, rather than completely independently. While it is true that the agents are often not classed as ’employees’ of these offices, they can access their policies and procedures and use them for their own issues. These include dispute resolution strategies and mediation options.

How a Resolution Is Obtained in Disputes Between Agents

If a dispute does occur, most commercial real estate agents will be able to go through five different steps, escalating to the next one whenever a particular step did not bring a successful solution. These steps are:

Step 1 – Work with the other agent to try and come to an amicable solution for the problem.

Step 2 – If no resolution can be agreed upon by the two parties, managers will be brought in. These can be intra-office or interoffice.

Step 3 – If managerial involvement still does not lead to an agreeable solution, an arbitrator will be brought in for mediation. This arbitrator should be independent and skilled in bringing negotiations back on track.

Step 4 – Should mediation fail, then a new form of arbitration will commence, known as binding arbitration.

In binding arbitration, disputing parties waive their right to a trial and agree that they will be bound by the arbitrator’s final decision. Binding arbitration is suitable for business disputes in which two parties need to resolve internal conflicts in order to expedite an outcome.

Step 5 – If the binding arbitration fails to resolve the situation, then both parties will seek legal advice in an attempt to litigate towards a resolution. This is rare, because the point of a binding arbitration is to avoid going to court. However, this can be circumvented by suggesting that the new dispute is based on the binding decision of the arbitrator.

That being said, most commercial real estate professionals will say that it is very rare that things ever get past the second step, and even rarer for them to get past the third step.

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