Advantages of Mediation & Arbitration in Resolving Real Estate Disputes

Real estate is a volatile business.  Nothing in it is fixed in any true sense: Property values rise and fall, interest rates rise and fall, neighborhoods shift and evolve, and ideal home sizes and configurations change.  In such a changeable environment, disputes can simply be more chaos on top of existing chaos – especially when they involve litigation.  When everything is moving so fast, litigation is almost always a deal-breaker.  A better solution is the flexible and efficient route of Real Estate Mediation & Arbitration.

Advantages of Real Estate Mediation & Arbitration

Consider the advantages of Real Estate Mediation & Arbitration over litigation:

  • Same results, less time and money.
  • More control, and you can even have an attorney present.
  • Preserve business relationships with less adversarial approach.
  • Private, not a matter of public record.

Made for Each Other

Real Estate and Alternative Dispute Resolution (ADR) are a perfect fit, because using Real Estate Mediation & Arbitration to solve problems brings investors, sellers, landlords, tenants, developers and lenders together as a team to solve problems, instead of dividing them up into factions to fight.  Real Estate is always a communal activity involving neighbors and local businesses, and disputes should be treated accordingly, as transient disagreements among friends, as long as there are no charges of criminal behavior.

Litigation often feels like progress because of its fearsome reputation.  But in Real Estate, Mediation & Arbitration is almost always more the effective strategy.

Mediation and Arbitration: What They Mean in a Real Estate Purchase Contract

Real-Estate-Purchase-ContractWhen buying and selling property, most people assume that once you sign a contract to buy or sell, it’s more or less a done deal.  Unfortunately as too many people already know, many real estate deals that seemed perfectly rock-solid can go sour, often unexpectedly and often causing real harm to one of the parties.

What most people also do not know is that when they sign that contract in California they are almost certainly agreeing to a mediation clause – but not necessarily an arbitration clause.  This is because standard real estate contracts (which make up about 90% of all contracts used) in California include a mediation clause, and it is not required that the contracting parties initial it – it’s in effect automatically.  However, if the parties wish to have a binding arbitration clause, such a clause must be explicitly initialled by each party or it is not considered to be in effect.

The difference between these clauses is important.  Mediation is a process that seeks to resolve a dispute between two parties.  The results can be binding or non-binding depending on the agreement of both parties involved.  A mediator doesn’t take sides and is unconcerned, by definition, with ‘fairness’ or ‘justice.’  The role of the mediator is simply to resolve a dispute so that it does not proceed any further.  The reason you do not have to explicitly agree to a mediation clause is because it may or may not be binding.  If you refuse to go through the mediation, however, you may be prevented from recovering legal costs even if you win your case in litigation.  This is why it’s often advisable to go through the mediation process even if you are certain it will not provide the relief you require.

Arbitration is a binding process, and as a result explicit agreement from both parties is required.  An arbitrator’s decision cannot be appealed – it is final.  The process is generally much faster than legal actions – most lawsuits take anywhere from 3-5 years to reach a resolution – and much less expensive, but an arbitration conference room is not a court house and you do not have the same legal protections and options as you would in a law suit.  The pros and cons of this type of alternative dispute resolution are obvious and must be weighed before entering into any arbitration clause.  Don’t forget you can always pursue arbitration (with the agreement of the other parties) at a later time.

If you have questions about mediation or arbitration as it applies to real estate transactions, seek out an arbitrator who is familiar in that particular state’s real estate landscape before proceeding.

Top Ten Consumer Rights in California Home Purchase

Consumer Rights in California

If you are purchasing (or planning to purchase) a home in California, it is important to know your rights as a consumer before you start your search. Many unscrupulous sellers and brokers rely on the fact that home buyers have not done their research and are not aware of their rights in the exchange. Such assumptions can lead them to attempt to take advantage of you as you are searching for a home.

However, if you show them from the onset that you are educated about your rights, you’re much more likely to settle on a fair deal.

  • As a consumer, you have the right to select your own lender, real estate broker/agent and inspector.
  • As a consumer, you have the right to use California’s approved Residential Purchase Agreement (RPA-CA) when participating in the process of making offers or accepting an offer.
  • As a consumer, you should always be given up-front information concerning the real estate agent’s relationship to the seller. This information is usually given through an Agency Disclosure Form and should be available to you at all times.
  • As a consumer, you have the right to hire an attorney or mediator to review all of the documents involved in the sale or potential sale of the property. As California is considered an escrow state, you will also deal with an escrow company, which acts as a neutral third party in ensuring that the contract is upheld properly.
  • As a consumer, once you have signed a RPA-CA contract, you have 17 days to change your mind after your offer has been accepted. While there are certain conditions to this–such as dissatisfaction with the condition of the home or the neighborhood in which it is located–you can back out of the offer and contract without being penalized.
  • During the 17-day timeframe provided to you in the RPA-CA contract, as a consumer, you have the right to negotiate with the seller regarding repairs that you believe should be made or credit that should be applied to the asking price to cover the cost of those repairs (if they are not made by the seller). Even if you purchase a property that is sold to you “as is,” you have this right.
  • As a consumer, you should be given a copy of every piece of documentation signed pertaining to the property’s purchase.
  • As a consumer, you always have the right to walk away from the purchase while it is in escrow, although you could be penalized financially for this decision. It is important to speak with an attorney or mediator if you choose this route to make sure that it is in your best interest to do so.

Real Estate Mediation: How Mediators Can Help When Clients Don’t Like Each Other

John S. Preston“Whenever you’re in conflict with someone, there is one factor that can make the difference between damaging your relationship and deepening it. That factor is attitude.” William James, noted American philosopher and psychologist, wrote these words when he discussed the crucial steps to navigating human conflict. Although he wasn’t referring specifically to real estate disputes–he might as well have been.

The scope of real estate transactions and property ownership is often a slippery slope of things that can go wrong: including disputes are liquidated damages, faulty repairs, in which the former owners fail to disclose that the sewage backs up four times a year. All of these situations create high levels of tensions between parties and their brokers, with each party holding stubbornly to the reasons and justifications for his or her “side” of the argument.

Real estate conflicts easily produce situations in which relationships between parties deteriorate. This is especially true if one party feels that the conflict was initiated by the other party in an intentional act of disregard or disrespect. When property and ownership and someone’s life savings hang in the balance, tensions can run higher than normal and “likeable” can turn into “detestable” quickly. The good news is that mediation, as a form of alternative dispute resolution (ADR), is a perfect forum for this type of scenario. In most California contracts, mediation is required to avoid the forfeiture of attorney fees. If approached in the right way, mediation can quickly turn a “detestable” disputant into someone worth hearing out, even if you disagree with them, including your real estate broker.

The key to this is the non-adversarial process of real estate mediation. Unlike litigation, mediation allows each party the opportunity to see the conflict from both sides of the fence and to negotiate with the other in a fair and reasonable manner. If James’ advice is heeded, with the right attitude, disputants in a real estate transaction or problem can walk away from mediation with a broader perspective and a changed frame of reference regarding how the dispute began in the first place. This becomes the first step to reaching a resolution.

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