What do Dispute Provisions in a Real Estate Contract Really Mean?

Ready to take that real estate contract dispute to court?  Not so fast.  Chances are your real estate contract requires you to either mediate or arbitrate your dispute before filing a lawsuit, which means your dispute may never be heard in a courtroom.  Although commonly glossed over or completely ignored by both parties, mediation and arbitration provisions are the first contractual provisions to which an attorney looks when a dispute arises. 

Mediation and arbitration are classified in the legal world as "alternative dispute resolutions" (often simply referred to as ADR).  With the exception of industry-standardized contracts, every real estate contract is unique, but all parties are bound by any contract provision requiring mediation or arbitration of disputes.  Clients often use the terms mediation and arbitration interchangeably, but make no mistake—they are far from the same thing. 

Mediation is an informal settlement conference where a neutral third-party (called a mediator) is hired by the parties to assist in reaching a settlement agreement.  The mediator does not serve as a judge and cannot render a decision in the case.  In the event the parties cannot reach a settlement, the mediation simply reaches an "impasse."  Most mediations are conducted (with all attorneys and parties present) at the mediator's office or one of the attorney's offices.  Many contracts require participating in mediation prior to the filing of a lawsuit. 

Arbitration, on the other hand, removes the entire dispute outside of court.  An arbitrator is appointed (or agreed upon by the parties) to act as the judge in the case.  Similar to a trial, evidence and witness testimony are presented, but in a more informal manner and usually in a law firm's conference room.  In most instances, the arbitrator's decision is final and cannot be appealed.  Generally speaking, the arbitration process proceeds much more quickly than an actual lawsuit and costs significantly less, depending on the circumstances. 

Before flipping to or clicking on that "sign here" tab in your next real estate contract, check to see if the contract contains a mediation or arbitration provision.  Know what you are signing and understand the ramifications of any provision that will dictate how disputes are handled.