Benefits of the Arbitration Clause in the Sales Agreement

When purchasing real property, the California Residential Purchase Agreement has two options for contractually agreeing on how future disputes will be handled that arise out of the contract. I am an advocate of arbitration, and I encourage all parties to agree to the arbitration clause in real estate agreements. The arbitration process offers a fair procedure to settling any unfortunate real estate disputes in a timely and more cost effective manner than litigation.

However, before signing a purchase agreement, all parties should carefully read, be familiar with and understand what they are agreeing to when initialing the arbitration clause in a purchase agreement. When a buyer and seller both agree to the arbitration clause, they are giving up their right to have their dispute litigated in a court or a jury trial and the right to appeal. 

Arbitration is a form of dispute resolution that occurs outside the court system. The California Association of Realtors legal team added a self-executing clause in their purchase agreement as they feel it best serves all parties. The clause in this contract makes arbitration contractual, binding and enforceable. The clause allocates for evidentiary and procedural rules that are relatively informal, but in which the parties are granted pre-hearing discovery rights. The goal in this method was to allow the parties more flexibility. In arbitration, parties submit arguments and evidence to a neutral person, known as an arbitrator, who renders a decision, called an award. Arbitration can consist of one arbitrator or a panel of three who make the decision regarding any two-party or multi-party disputes. 

Any qualified individual may administer arbitration and serve as an arbitrator. There are no California laws specifying minimum qualifications or training of arbitrators. Straus Institute for Dispute Resolution was named the top dispute resolution program in the country by U.S. News and World Report for the sixth consecutive year. Their program trains lawyers and non-lawyer professionals to serve as both arbitrators and mediators. It is an excellent resource for locating an area arbitrator and/or seeking additional information.

There are many trained arbitrators with various levels of experience, some with niche areas of expertise. It is important to find one who will work within a comfortable budget and perhaps one who is skilled in the specific area of the dispute, such as one with real estate experience to resolve a property dispute. Some arbitrators charge a flat fee for a hearing while others charge hourly rates. Some arbitrators use an arbitration administrator to arrange for the hearing and those might charge an additional flat fees or hourly rates. If it is a complex case, there may be other costs such a discovery costs, witness fees and possible attorney fees. Typically, the loser of the dispute could be required to pay the fees to conduct the arbitration. However, who pays for what is negotiable.  

An arbitration award is similar to a judgment. The parties are expected to follow the award and comply with the terms. The award is entered into a court jurisdiction and confirmed by the court; when entered, it can be enforced. Federal and California arbitration laws govern enforcement of this judgment. Being a trained mediator/arbitrator, I see great value in resolving real estate disputes through these alternative processes versus jumping to litigation and the court system.