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Protecting Your Assets Real Estate Deals: Pros and Cons of Choosing Arbitration

If you are buying or selling your home and have just written or received an offer, there is an important clause to be aware of: Dispute Resolution.

Most offers to purchase and sell residential real estate in the state of California are written using the California Residential Purchase Agreement And Joint Escrow Instructions form (RPA-CA). When full executed by you and the other party this contract specifies the terms of your sale, including the purchase price, how the purchase will be financed and whether you and the other party will agree to arbitration should a dispute arise that cannot be resolved with mediation. This last point, the arbitration clause, is found in Section 22 on Page 8 of RPA-CA and, depending on how it is specified, can have major legal consequences.

Read on to learn the pros and cons of choosing arbitration when executing an offer.

First: Mediation

Real estate disputes can happen in a variety of ways. The common-theme amongst these conflicts is that you and other party disagree about who is entitled to what under the terms of your contract. Under the terms of RPA-CA (page 8) you will have to try mediating any dispute that arises before bringing the issue to an arbitrator or to court.

Mediation is the process in which you and the other party hire a neutral third person to help facilitate a discussion of your dispute, review possible outcomes, and ideally, reach a settlement, thereby avoiding any further legal proceedings and costs.

In meditation, you and the other party are in control of the outcome. Any settlement that arises out of mediation must be by mutual agreement. The mediator does not have the power to make a legally binding decision.

If mediation does not work, the way section 8 of the RPA-CA is executed becomes very important. Depending on how it is filled out and signed, you and the other party will either move into arbitration or begin legal proceedings to solve your disagreement.

Choosing Arbitration Of Disputes:

In the RPA-CA, the buyer and seller will have the option to elect Option B in Section 22 on page 8, which reads:

“The Parties agree that any dispute or claim in Law or equity arising between them out of this Agreement or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration

What does this mean and what are the benefits and drawbacks of selecting this option?

Should a dispute arise after entering into a legally binding contract, arbitration is a process in which you and the other party hire a neutral third person to hold a hearing, listen to evidence and decide who is right and who is wrong. In arbitration, the decision that the arbitrator comes to will be legally binding for you and the other party.

Under the terms of the contract, the Arbitrator will be a retired judge or justice, or an attorney with at least 5 years of residential real estate Law experience, unless you and the other party agree to a different arbitrator.


The benefits of arbitration include:

  • Arbitration hearings are private and arbitration decisions are confidential and not subject to public review.
  • Buyers and sellers are allowed to, by mutual agreement, choose an arbitrator and select, if they desire, a person with subject matter expertise.
  • An arbitration hearing may often take place sooner than a court hearing, and therefore a possibility in saving costs, legal expenses and time by proceeding in arbitration rather than litigation.


The downfalls of Arbitration Include:

  • The main disadvantage of choosing arbitration is that you give up your right to a trial by judge or jury and your right to appeal a decision that you do not agree with.
  • One of the main reasons why arbitration is faster than litigation is because some lengthy presentations of evidence are excluded from the process. This means that the final decision relies less heavily on evidence and more on the skills and expertise of the arbiter.

You can read more about the pros and cons of arbitration here.

Letting Your Preferences be Known

Once you understand the pros and cons of arbitration, you have to consider if it is a better choice for you and your real estate. A majority of our clients choose arbitration because of the time and cost savings it comes along with, but this does not mean it’s the best choice in every situation.

Be sure to let your Realtor know your preferences before executing a contract so that your interests are protected should a dispute arise.

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