Arbitration in San Carlos Purchase Contracts
As you near the end of our local PRDS Purchase Contract that is commonly used in San Carlos, you will stumble upon an elective clause dealing with binding arbitration. If both the seller and buyer elect arbitration by initialing next to the clause, binding arbitration will be the sole legal avenue for the buyer and seller should they encounter a dispute which they cannot resolve themselves.
How Arbitration Works
Binding arbitration is an alternative dispute resolution to the normal lawsuit making its way through the California Superior Court system. By selecting arbitration, the buyer and seller are essentially agreeing to forgo a trial by judge or jury and have their disputes forever settled by a third party arbitrator. An arbitrator is usually a retired judge or an attorney with many years of experience and specific arbitration training. The discovery rules for arbitration are usually more relaxed than the parties would encounter if their cases were heading through the court system. The process itself is more informal as well. Arbitration was also born out of the idea of a more cost-effective alternative dispute resolution mechanism, but that is not necessarily the case anymore. In fact, many arbitrations can be just as expensive as normal court cases.
Preference for Arbitration
In most purchases in San Carlos, buyers seem to prefer including the binding arbitration clause. I tend to agree with the inclusion, with certain exceptions noted in the section below. Arbitration can be a very reasonable alternative to the normal trial action in the Superior Court system. It tends to be less stressful and in some cases, more cost effective.
Reasons to Pass on Arbitration
There are a few very good reasons to pass on arbitration.
(1) If you have a seller who is moving out of the country, obtaining an order to show personal jurisdiction over that person through arbitration is going to be difficult and time consuming. It would be far easier to institute an action against a seller who is then out of the country if you have all of the long-arm statutes available to plaintiffs involved in a non-arbitration matter in the court system.
(2) If you have (a) a seller who seems to be less than forthcoming on the disclosure documentation; or (b) a home that is naturally susceptible to possible disclosure issues that may have been missed….arbitration may not be the best course of action for you. Why? With an egregious or obvious error by the seller, it will be far most cost effective to go and get a summary judgment against the seller, than it would be to sit through an arbitration.
Keep This in Mind
Just because you and the seller do not include arbitration on the purchase contract does not mean that you will not end up there eventually, anyway. Every judge in San Mateo County will first mandate that all parties try and work out their differences through a mediator. If the mediation proves unsuccessful, most judges will encourage the services of arbitration.
* Disclaimer Sorry, but they make me insert this disclaimer whenever I am talking about legal options on the San Carlos Blog. Nothing in this post should be considered legal advice or forming any type of attorney-client relationship. While I still hold my license to practice law in California, this post and this site are about my services as a realtor, only. Any real estate decisions should only be made with the counsel of your own attorney and realtor. Thanks!