You will always come across the "Arbitration Clause" when you are in the process of buying or selling real property. Therefore, I thought it might be useful if I could provide you with some information on this subject. The following is an introduction to ARBITRATION prepared by the California Association of Realtors.

What is Arbitration?

Arbitration is simply the name used to describe a particular method for resolving disputes between two or more parties. Just as problems may be resolved through negotiation or, in extreme cases, litigation, so too may problems be resolved by the use of arbitration. As a matter of fact, generally speaking, arbitration may be used to resolve any type of dispute unless restricted by the arbitration agreement itself.

In an arbitration, a neutral person who is otherwise uninvolved in the dispute (the arbitrator) listens to the parties express their points of view and then renders the decision (called an award) based upon the presentation of evidence.

The process, in some respects, is similar to what takes place in a court of law. For instance, any party to an arbitration may be represented by an attorney. However, unlike a court process, formal rules of evidence and procedure are not required and the dispute will not be decided by an active judge or jury. Nevertheless, the award issued by the arbitrator is binding upon the participants and can be enforced as if it were rendered in a court.

What are some advances of arbitration?

When disputes are resolved through arbitration, use of the judicial system is avoided. In many counties throughout the state the courts are backlogged with an overabundance of lawsuits. Progress of a court case comes slowly, the formal rules are cumbersome, and a trial may not take place for many months or even many years. The delays inherent in litigation create an emotional and financial hardship on almost all parties.

An arbitration, on the other hand, will almost always be resolved sooner than a court action - the entire process from start to finish is often completed in a few months.

Furthermore, because of the advantages of time and informality, attorney fees and costs are usually lower than in litigation.

Arbitrations are also private. Thus, the testimony and any sensitive information will take place behind doors that are not open to the public. Additionally, individual arbitrators can be selected with an expertise in the particular field of dispute. This helps to ensure that the decision will be made by a knowledgeable and informed person.

Lastly, arbitration awards are final, binding, and legally enforceable.

What are some other factors to consider?

There is only a limited right to appeal an arbitration award; the parties must pay for the services of an arbitrator; and, if a party does not comply with an award you may be required to go to court to enforce the award.

What issues can be resolved by arbitration?

Arbitration may be used to decide virtually any type of claim, including actions for breach of contract, misrepresentation and fraud. Certain types of claims are excluded by statute from arbitration under a real estate listing or sales agreement. Examples include bodily injury, wrongful death, foreclosure, marital dissolution, probate or eviction proceedings. Other limitations may appear in the clause itself. As a remedy, the arbitrator has the authority to award money damages, both actual and punitive, as well as specific performance.

What should I do?

Think carefully about your decision concerning arbitration. It is important.

Read the arbitration clause entirely before deciding whether to sign. If you want more information ask your REALTORĀ® for the extensive Arbitration Question and Answer Memorandum prepared by C.A.R. or consult your attorney.