Real Estate Arbitration: A Quick Guide

Real Estate Arbitration

ADR Times

How to prepare for a real estate arbitration? When problems arise in buying or selling real estate, many participants have started to turn to real estate arbitration and mediation. Buying and selling real estate is a big decision, whether it is a family home or a giant corporate center. Negotiating and agreeing on a price is often fast-paced and can be incredibly stressful. Occasionally, problems arise when the parties are attempting to close and complete the transaction. Often, when negotiations fail, parties to a real estate contract head to litigation.

However, the rise in arbitration and mediation has given parties to a real estate contract an alternative to litigation but still resolved their disputes. This article will discuss this process, detailing how mediation and arbitration may be used in real estate transactions. It will discuss the costs and effectiveness of ADR options in real estate and when arbitration may be required.

Alternative Dispute Resolution in Real Estate

Real estate often benefits from both arbitration and mediation as a part of the process. Arbitration and mediation are both forms of dispute resolution that can help parties resolve disputes.

Typically, the mediator or arbitrator is a lawyer or other legal practitioner with experience in the field, so in this case, it would likely be a law firm with real estate professionals or law experience.

ADR can be helpful in resolving issues related to repair and inspection issues, costs, disputes over the money required to purchase, and misrepresentation cases. However, alternative dispute resolution is not appropriate if there is an allegation of criminal conduct, as an arbitrator is not allowed to make decisions on guilt. Additionally, certain types of disputes in real estate are covered by national real estate organizations, especially those concerning the realtor code of ethics.

National Association of Realtors:

The National Association of Realtors outlines how arbitration and mediation should proceed when a realtor’s ethics are placed in question. The NAR has created a code of ethics for realtors and prefers that arbitrations that take place concerning this code be handled under their process. These recommendations are usually adopted in some capacity on the state or local level. This process usually involves five steps:

  1. Claim and Response: The first step in the process is for a claimant to submit a claim to arbitration. This is where they state why they believe that arbitration would be appropriate and what the grounds are for the dispute. The respondent will then file a response to the claim, alleging their defenses and why they believe differently. These will serve as the basis for understanding the dispute.
  2. Limited Discovery: Unlike litigation, the discovery process in NAR arbitration is particularly limited. The parties can request the arbitrator order that the other party provide evidence or subpoena evidence from a third party, but this is up to the arbitrator’s discretion.
  3. Evidence Exchange: Regardless of what discovery was allowed, the parties are still usually required to exchange a witness and exhibit list before the arbitration hearing.
  4. Hearing: In some cases, the hearing will take place on the property rights in question. The arbitrator will hear testimony from the parties and listen to the evidence presented. Each party will be given the chance to present their case.
  5. Award: After the hearing, the arbitrator will review the case and decide based on the evidence presented. This will usually either be a finding that a realtor did violate their ethical duties or that the claim was not founded. If the realtor did violate a code of ethics, they will likely have to pay the claimant.

This process provides a solid outline for parties that are facing issues with the way that a realtor handed their sale. Realtors are held to high standards of accountability in their practice, and arbitration focusing on ethical implications provides a way to hold real estate professionals accountable for their missteps.

Many realtors who belong to the National Association of Realtors have contracts with their agency and with their clients that such disputes will be submitted to arbitration. However, it is important to remember here, as stated above, that if there is a question of criminal activity, the dispute should be handled through the typical legal system and not in mandatory arbitration.

Effectiveness and Costs:

Part of a discussion about using arbitration and mediation includes examining the pros and cons of using ADR in real estate disputes. An important thing to note before looking at the options is the considerations for conciliation or small claim court. Many states have a small claims court that hears disputes under a certain amount and many states require that disputes under this amount not be recommended to arbitration.

Aside from this issue, there are other important considerations to make when deciding whether arbitration or litigation is the best for a real estate dispute. Because mediation and arbitration involve different processes, it is beneficial to examine each process separately to determine if the process would be effective for a particular dispute.

Mediation

Again, mediation is like a guided settlement conference where a neutral mediator listens to the parties and uses different techniques to encourage the parties to move toward settlement. There are certain aspects of the process that can be beneficial for the parties, but other aspects that may result in hardship. The aspects of mediation to consider include:

Arbitration:

Arbitration is a process in which a neutral arbitrator hears the evidence presented by the parties and issues a decision called an award for the parties to follow. The arbitration process involves various c onsiderations. Some considerations that parties should make when considering arbitration for real estate disputes or legal disputes include:

Conclusion

Alternative dispute resolution provides a variety of options for parties to a real estate dispute. Arbitration and mediation give parties the freedom to choose how their disputes will be settled and to save time and money. In certain cases, arbitration may be required, such as those where the parties signed an arbitration agreement or those involving an ethical issue with the realtor on the contract. However, in many cases, the parties will be free to choose how the dispute will be decided.

There are important considerations for the parties to consider when deciding whether mediation or arbitration will be the best option for the dispute; however, the efficiency of the process and other considerations can often favor using arbitration or mediation, especially in disputes where time is an important issue. Using real estate arbitration or mediation can ensure that the dispute is resolved in a way that meets the parties’ needs and hopefully helps everyone involved feel comfortable with the result.

To learn more about real estate arbitration, mediation, and more, contact ADR Times here!