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What is Arbitration?

What is arbitration?

Arbitration is a way to settle disputes between parties, usually between a buyer and a seller. This is one way, among several, to resolve disputes. In the context of a home purchase between buyers and sellers, the outcome of the arbitration process is binding. That means whatever the outcome is, it's final. There is no appeal process, which can be both good and bad.

At the time of the purchase agreement

In the state of Minnesota, when presenting a purchase agreement we include an Arbitration Disclosure form. If all parties sign this form, then your options are to use arbitration instead of the court system. If the form is not signed at the time of the purchase agreement, you can still choose to arbitrate, if both parties agree, if the need arises.

Example

For the remainder of this post, I'll use this hypothetical situation:CB064147

Let's say you are the Buyer, and you purchase a house from the Seller. 3 months after the closing the sewer line backs up. In chatting with the neighbor, you find out that the seller had sewer line backups all the time. In fact, they had the "frequent customer card" with the local sewer and drain company. None of this was disclosed on the Sellers Disclosure form when the house was for sale. So you have a professional come out and do a video scope of the main drain line and find out it is mostly collapsed and needs replacing... to the tune of $7500.

In this case, or any case, you have several common options to try to settle the dispute between the parties. I'll list them in order of difficulty:

1. You can just say "oh well, life happens" and cover the costs yourself.

2. You can politely ask the seller if they had problems, and if they admit it, you can ask them to cover your costs.They may do so, or they may not. If they don't, you can escalate it to the next option.

3. If you have signed the Binding Arbitration form, this next option is your only choice. If you asked the seller nicely and they decide to not cooperate, you can bring the case to Arbitration. With arbitration, you and the seller will sit down with an arbitrator and discuss the case. The outcome of the arbitration is binding, which means that you can't appeal any decision and the decision is final. The arbitrator does not have to follow the law, which can both be a positive or negative. The costs of arbitration is usually less than going to court.

4. If you don't have a binding arbitration form signed, if you and the other party agree to arbitrate, you can do so.

5. If either party decides not to arbitrate, then court is your next step. This can be small claims court or district court. With the court option, it is highly advised to hire a lawyer. The costs with hiring a lawyer and bring the case to court can be much higher than the other options outlined above.

Here is a quick document outlining some of the positives and negatives of arbitration.

2007 RAP Arbitration Summary Guide

 

NOTE: I AM NOT A LAWYER. YOU SHOULD EVALUATE YOUR OPTIONS CAREFULLY AND / OR DISCUSS YOUR OPTIONS WITH A LAWYER. THIS IS NOT LEGAL ADVICE, JUST AN OUTLINE OF SOME OF YOUR MOST COMMON OPTIONS AVAILABLE FOR DISPUTES.

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Steven Hong - RE/MAX Results 
REALTOR, e-PRO, GREEN, Old Home Certified 
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