Mediation and Arbitration Clause in the Purchase Agreement

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Mediation clease from CAR RPA

What is Mediation?

Mediation is a structured, interactive process where an impartial third party assists disputing parties in resolving conflict through the use of specialized communication and negotiation techniques. All participants in mediation are encouraged to actively participate in the process. Mediation is a “party-centered” process in that it is focused primarily upon the needs, rights, and interests of the parties. The mediator uses a wide variety of techniques to guide the process in a constructive direction and to help the parties find their optimal solution. A mediator is facilitative in that he manages the interaction between parties and facilitates open communication. Mediation is also evaluative in that the mediator analyzes issues and relevant norms (“reality-testing”), while refraining from providing prescriptive advice to the parties (e.g., “You should do…”).

In the context of real estate purchase contracts, buyers may have a claim against the seller for failure to disclose a property condition or sellers may be claiming entitlement to the buyer’s deposit on a failed purchase.

The settlement is a voluntary, mutual decision that the parties decide they can all live with.

Arbitration clause from CAR RPA

2. What is Arbitration?

Arbitration does not involve a voluntary, mutual decision by the parties. Instead, the parties agree to designate an arbitrator (again, a retired judge or experienced attorney) who will make a unilateral decision after hearing evidence.

The parties will give testimony, present evidence, and at the conclusion of the presentations the arbitrator will render his or her “award.” In short, it is a private trial taking place in a conference room instead of a courtroom, the parties are paying the arbitrator by the hour and there will be a winner and a loser.

An arbitration decision or award is legally binding on both sides and enforceable in the courts

3. How do mediation and arbitration provisions work in real estate contracts?

The CAR RPA (Residential Purchase Agreement) mediation provision is mandatory. Meaning, you must go through mediation before arbitration or suing in court. The arbitration provision is voluntary and both buyer AND seller must initial for it to be enforceable.