Most real estate contracts contain optional agreements to participate in non-binding Mediation or binding Arbitration should a dispute arise.
Q: Can you explain what each one means?
A: Mediation is used to resolve disputes and occurs outside of the court system. In mediation, both sides in the dispute are assisted by a neutral third person called a mediator. The mediator is doesn’t impose a decision on the parties; instead the mediator facilitates discussions and negotiation between the parties with the goal of assisting them in reaching a mutually agreeable solution.
Arbitration is similar to litigation in that it is an adversarial process where both sides submit evidence to a neutral third person (the arbitrator), rather than a judge or jury, who then renders a decision regarding the dispute. Arbitration typically happens outside the courtroom. In order to compel another party to arbitrate a dispute, in most cases, both sides have previously agreed to arbitrate any disputes.
Litigation is an adversarial process where both sides submit evidence to a judge or jury in a courtroom and then rely on the judge or jury to make a binding decision regarding the dispute. Litigation is governed by formal rules and procedures of court and generally is time consuming and expensive. Since it is adversarial, litigation is in effect a contest in which a winner and loser are selected.
Q: How are they different?
A: Mediation is different from arbitration and litigation in many respects. The main difference is that mediation is a non-adversarial process. That is, the parties do not argue their positions and give decision-making power to a third party. Instead, the mediator’s role is to assist the parties in achieving a mutually agreeable resolution of their dispute. The mediator is not an advocate for either side, or a decision maker, but more of a middle-man who listens to the positions and arguments of the parties and uses various techniques to try and get them to settle the dispute. Typically, mediation is non-binding in that either side can not agree to a resolution.
Arbitration is different from Litigation in that it is not governed by the formal rules of evidence and procedure that are used in court trials. For this reason, arbitration hearings often take less time, and can be less costly than court trials. Often, both sides have agreed in advance that the Arbitrator’s decisions will be binding and cannot be appealed. Arbitration is also not public as Litigation would be.
Litigation is what most people are familiar with where there may be a judge or jury trial in a public courtroom, evidence is presented, arguments are made and there are substantial rules surrounding the process. It is a public event.
Q: How are the costs different?
A: Every case is different and it is very hard to predict but typically Mediation is the least expensive followed by Arbitration which can be in $20-100k range. Litigation is usually the most expensive option and could be hundreds of thousands of dollars.
Q: How long does each one take?
A: As you can imagine, it all depends on how willing each side is to negotiate. Mediation can take weeks to months, Arbitration can take from a few months to many months and Litigation can take months to years.
Q: Which one is best for me?
A: Like any important decision affecting your legal rights, you need to think carefully before deciding. By agreeing to arbitration, you waive certain rights (e.g., the right to appeal the decision or to have a dispute decided by a jury). Waiving these rights may be acceptable to you in light of the benefits associated with arbitration, but the choice is yours to make. Real Estate agents cannot give you legal advice and you should always consult with a qualified licensed California real estate attorney before making your decision.
Owen Halliday is a REALTOR who manages the Sereno Group Real Estate office in downtown Los Altos. If you have a subject you’d like addressed in a future column, Owen can be reached at email@example.com or 650-492-0062.