Most real estate transactions proceed fairly smoothly, with minor disputes usually resolved through negotiation. However, buyers and sellers sometimes find themselves confronted with disputes that they are unable to resolve by themselves.
The real estate purchase contract usually includes a mandatory mediation clause. Mediation is a non-binding, affordable and confidential process that often allows the parties, working with a mediator of their choosing, to reach a mutually agreeable settlement and thereby avoid the time, expense and uncertainty of arbitration or litigation.
If mediation fails to resolve the issues in question the parties must arbitrate or go to trial. Most real estate contracts give the parties the option of agreeing up front to arbitrate disputes that might arise between themselves. Although the parties can always agree to arbitrate disputes after they arise, at that point one or both parties may not be willing to do so.
Arbitration occurs outside of the court system. The parties submit arguments and evidence to an arbitrator, usually a retired judge, who then renders a decision. By agreeing to arbitration the parties give up their right to appeal except as provided by California law.
Because arbitration is not governed by the formal rules of evidence and procedure used in court trials, arbitration hearings often take less time than court trials. Court cases may take years, and if appealed can take even longer. In contrast, the entire arbitration process often can be completed in a few months, making arbitrations significantly less expensive than litigation.
Like any important decision affecting your legal rights, you need to think carefully before deciding on arbitration. Consult your attorney for guidance in evaluating the pros and cons of arbitration.