The standard California Association of Realtors (CAR) Residential Purchase Agreement form includes a Paragraph which if initialed by both the Seller and Buyer constitutes an agreement to arbitrate rather than litigate any dispute that arises. Arbitration or litigation, as the case may be, occurs only after the parties have gone through Mediation as mandated by the agreement (see Legal Blog on Mediation).
Many of the so-called advantages and disadvantages of arbitration are subject to legitimate debate. Any given person’s attitude about arbitration versus court may be colored by their personal experience. For example, a person who has obtained a bad decision from an arbitrator which was non-appealable may prefer to take their chances in court.
The following are some of the advantages and disadvantages of arbitration often cited:
- Arbitration is less expensive. This is not necessarily true. The filing fees in arbitration are often higher than court. Arbitrators have to be paid by the parties to the dispute being heard, whereas judges are paid by all of the taxpayers.
- Arbitration is faster. This is usually true however in large complex cases the attorneys will often drag out an Arbitration proceeding almost as long as a court action.
- Arbitration is final. This can be either an advantage or a disadvantage. The grounds for appealing an arbitration award are extremely limited and thus a party who gets a bad result (even one where there is a clear mistake of fact or law) is stuck with it.
- Arbitrators aren’t as qualified as Judges. This is usually not true because the arbitration clause in the CAR form requires that the arbitrator be a retired judge or an attorney with at least five years residential real estate law experience.
- Pre-hearing discovery rights in arbitration are limited. Again, not true under the CAR arbitration clause which provides for discovery (i.e. written interrogatories, depositions, production of documents and other means of examining the other party’s evidence before the hearing). Discovery under arbitration is subject to the supervision and control of the arbitrator.
- Arbitration avoids the possibility of a “run away” jury. This can be a factor in potentially large cases where juries are known to punish the party they feel is wrong.
After weighing the advantages and disadvantages, many end up favoring arbitration because in most cases it results in a speedy final decision from someone with expertise in residential real estate.
It is noted that the California courts have held that, if initialed, the arbitration provision is not limited to breach of contract disputes but will also apply to failure to disclose lawsuits which may be couched in terms of fraud or misrepresentation since these cases “arise out of the agreement and transaction”.