The Real Deal

More than one way to settle

In the second installment on Alternative Dispute Resolution, the focus is on Arbitration. Binding arbitration is frequently used when a disagreement occurs between a buyer or seller and a Realtor in a specific transaction.

The arbitration is very much like a court process except that, instead of a judge hearing arguments, a panel of professional Realtors who are not affiliated in any way with either party decides the case. Both claimants (the initiating party) and respondents can have legal counsel represent them or they can represent themselves. The decision of the arbitration panel is binding and can be enforced in a court of law.

Arbitration works best when both parties want to maximize their recovery, resolve their dispute quickly, and are willing to accept a nonappealable decision by the panel.

If, on the other hand, one of the parties needs to use "discovery" to find and confirm the facts of his or her case or does not want to waive the right to a jury trial, then arbitration is not the best approach.

Though arbitration resembles a traditional court process, it is less formal and generally private. The rules of evidence are less stringent than they are in the courtroom.

Recently, the following case came before the Real Estate Arbitration panel that demonstrates the usefulness of the process.

A buyer relocating to the Bay Area from Minneapolis enlisted the help of a licensed real estate agent. The buyer was only able to make selected trips to preview homes, so he relied heavily on his agent for research and information.

After four months of "trial-and-error" offers on specific properties, a home was finally found and a contract put in place for immediate purchase. The buyer had only been able to see the property once, but had requested full electrical, plumbing and termite inspections before closing escrow. As a condition of the contract between the buyer and his agent, the agent had the authority to select and oversee the companies chosen to do the inspections.

All inspection reports were completed and reviewed by the Realtor and the buyer. Everything seemed to be in order, so the buyer finalized the transaction and took possession of the home. After a few weeks residing in the home, however, the buyer noticed "dry wood" damage on a windowsill usually caused by termites. He made arrangements to have a second inspection and found that one corner of the home had fairly significant termite damage. The cost to exterminate and repair the damage was about $12,000.

The buyer decided to recoup his costs by taking the initial termite company and the real estate agent to arbitration. A panel of neutral real estate arbitrators was selected and agreed upon, and evidence from both sides was presented. In the final decision, the panel awarded the buyer two-thirds of the expense ($8,000) to be paid equally by the termite company and the representing real estate agent legally authorized to act upon the behalf of his client.

The panel did not, however, feel that the buyer was entitled to full reimbursement as he bore ultimate responsibility for the transaction.

For more information on Real Estate Arbitration, contact your local Realtor or the Silicon Valley Association of Realtors at 650.949.9115 or visit the website at www.siliconvalley-realtors.org.

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Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors. Send questions on any topic to: Ask Your Realtor, c/o SILVAR, Los Altos District, 345 San Antonio Road, Los Altos, CA, 94022; call 650.949.9115; or send email to ppompei@siliconvalley-realtors.org.

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