Tuesday, October 11, 2016

What is Arbitration and How Does it Work?

In essentially every real estate transaction, buyers, sellers, and their respective REALTORs must decide whether to accept or decline arbitration.  My experience is that most agents have no idea what they are asking their clients to accept or decline, and that's a big issue.  In the event a discrepancy or dispute arises between buyers and sellers, whether during or after the transaction, that decision to accept or decline arbitration will have a huge effect on what happens next.

To start, a 35,000 foot overview of arbitration - arbitration is an alternative to litigation (i.e. lawyers and the court system).  A panel of arbiters would hear both sides of a case, and the decision reached by the arbiter becomes legally binding.  It is significantly cheaper than going through the court system (after all, hiring lawyers is expensive).  In Minnesota, arbitration has a statute of limitations of two years (meaning a claim would have to be filed within two years of the closing date - anything after would likely be rejected by the arbitration company).

The important caveat to keep in mind is that a dispute is only going through the arbitration process if ALL PARTIES TO THE TRANSACTION (include the REALTORs) accept arbitration.  If any party declines on the Arbitration Disclosure Statement, any dispute would be directed to the small claims court system.  This is why it's important for customers to understand the significance of their decision to either accept or decline arbitration at the time of the offer.  At the end of the day, REALTORs are not allowed to dispense any sort of legal advice, but at the very least they should be able to communicate and articulate the consequences for accepting or declining arbitration.

Please keep in mind that this is a very high-level overview of arbitration and what it entails, and I could probably write another 5 paragraphs about this.  If you have other questions about arbitration and how it relates to real estate transactions, please feel free to contact me.  And of course, always seek the legal advice of a qualified attorney if you have specific questions!