Headed to Court

David Schwalb, president of Schwalb Realty Group, Inc. in Chicago and a real estate attorney, says if you can utilize a Grievance Committee, it is the most effective and cost efficient way to deal with a dispute between two brokers. However, Grievance Committees can only cover transactions that are listed on the MLS, or if a complaint arises between two members of a Realtor association.

When a dispute occurs over a transaction that was not listed on the MLS, or if one of the two brokers involved in the dispute is not a member of a local Realtor association, they go to court. There are cases where members of the general public or non-member brokers may report misconduct to the Grievance Committee, but Schwalb says it depends on local rules. Disputes between agents that end up in court typically deal with broker compensation; the chief issue between agents is commercial transactions where a compensation agreement is not documented or not properly documented.

Such misunderstandings are more common than you may think. The 2013 National Association of Realtors Profile of Real Estate Firms shows eight out of 10 firms specialize in residential brokerage, with commercial brokerage and residential property management the most common secondary functions. With statistics like this, it stands to reason the majority of agents and brokers will have to deal with these types of compensation claims at some point in time, and it helps having a basic understanding of how they work.

For instance, brokers should know that if they have a compensation claim in a residential transaction, they cannot file a lien against a residential property. But that’s not the case for commercial properties that are not listed on the MLS, as properties listed on the MLS would have compensation documented. “Leaving the compensation to the end is leaving it to chance or worse,” adds Schwalb.

One of the main disputes on the client side has to do with disclosure on residential properties. Schwalb says disclosure is not always taken seriously by a seller, and many sellers are looking for ways to not disclose a material defect. “The problem is they will likely get sued, assuming it’s  a big defect,” he says. “The bigger the defect, the greater likelihood [they get sued].”

Schwalb has served as an expert witness on cases and says he has seen misconduct by other brokers. Misconduct often involves mishandling of escrow monies. Schwalb says despite the very strict laws on the books in Illinois, if a broker holding escrow has misappropriated money, other parties would absolutely have to hire an attorney to pursue their claim.

If a broker is independent and has questions, then he or she should contact the local Realtor association, state real estate association or state legal hotline. Beyond that, it may be worth hiring an attorney specializing in broker issues.

“Investing in a couple of hours of legal assistance from an attorney is an ounce of prevention, as they say,” adds Schwalb.