Negotiation, mediation, arbitration or court?
Originally appeared in Hills Publications, March 21, 2008 and ANG Newspapers, March 30, 2008
Real estate disputes sometimes pop up after close of escrow. It is typically the buyer who has the complaint. The issues can range from lack of disclosure on the seller’s part to poor representation by one or both agents. Once this process begins, there are four possible approaches. Based on the method chosen, there can be a fast, inexpensive resolution, or a time consuming, costly and aggravating stalemate.
Face-to-face contact between the parties, usually buyer and seller, is sometimes the quickest, easiest and most effective way to settle the issue. Many years ago, the buyer of one of my listings was obviously unhappy throughout the escrow, yet she did not want to cancel the transaction.
Following careful thought, then talking with the selling (buyer’s) agent and my manager, I suggested that the buyer and sellers, along with myself and the other agent, meet in my office to see if we could resolve the problem.
After listening intently, and meeting alone with the sellers, I told the buyer what the sellers were and were not willing to do. I made it clear that if this was not acceptable, she had the option of withdrawing from the sale.
The buyer chose to continue. I wrote up a detailed addendum that dealt with all the concerns she had voiced, along with how they would be handled. The escrow closed with no further objections from the buyer.
It is preferable to handle problems during the escrow. Once it closes, others, e.g., friends, relatives, attorneys, tend to get involved and settling the dispute becomes more complicated. At that point, face-to-face negotiations may not be appropriate.
Agents need to be extremely careful to consult with their broker and, possibly, the company attorney, before making any suggestions on how to proceed in a real estate conflict. Licensees are not lawyers and should never act like one.
Mediation is an approach whereby a neutral third party, a mediator, works to help the parties resolve their dispute. This alternative is relatively informal. Negotiation and mediation are considered non-adversarial.
There is great flexibility in how the mediator can conduct the mediation. Typically, he or she will ask the parties to sign a confidentiality agreement. Thereafter, he will ask them to state their side of the dispute and assist them in identifying areas of common ground.
The mediator does not have the authority to compel a solution. Instead, he attempts to support each side in reaching an agreement. This is then put into writing.
Mediation is a default in the California Association of Realtors (C.A.R.) purchase contract. In other words, mediation language is included without a space for the buyer and seller to initial. The clause says they “agree to mediate… before resorting to arbitration or court action.” If either of them refuses to mediate, that party will not be entitled to reimbursement for attorneys fees, even if he later prevails.
Although outside the court system, arbitration is closer to litigation because it is an adversarial process. The parties argue their case in front of a neutral third person, the arbitrator, who has the power to make a binding decision called an “award.”
There is an arbitration clause in C.A.R. contracts. Unlike the mediation clause, for it to be in effect, arbitration must be initialed by all principals to the purchase agreement. In most instances, buyers do initial this clause. When they leave it blank, listing agents often explain to their sellers that the buyer is reserving the right to sue them in court. For this reason, sellers usually insist that buyers agree to arbitration as part of the contract.
The arbitration clause also obligates buyers and sellers “to mediate and arbitrate disputes or claims involving either or both brokers.”
The arbitration hearing has numerous elements akin to a court proceeding, e.g., representation by attorneys, formal written statements, taking of depositions, submission of evidence, and examination of witnesses.
Arbitration is not encumbered by the same procedures and rules of evidence as in court trials and this often allows the process to be speedier and less expensive. It can usually be scheduled more expeditiously than a court date and a decision is generally rendered sooner by an arbitrator than a judge in court.
A major difference between an arbitration award and a court decision is that arbitration cannot be appealed except on very narrow grounds, such as bias or fraud on the part of the arbitrator.
For most people, going to court is no more desirable than an appointment for an IRS audit. It takes years, at least two, and lots of money, think $50,000 plus, for most cases to get to court. The dispute can often be worth less than the cost to litigate.
Parties on each side pay a large toll caused by the stress of a situation that just keeps going on and on. As a real estate expert witness, for both plaintiff’s and defendant’s attorneys, I see this frequently.
About 90% of the cases are settled before they get to court. Even these can take years and many dollars.
Avoiding court is the most sensible program. As a seller, consider getting legal advice before you accept a contract that does not include the arbitration clause. If you are involved in a real estate dispute, see if you can resolve it quickly and informally.