Should I Sign the Arbitration Clause?

If your Realtor seems cagey about advising you on certain aspects of your purchase agreement, they may be navigating that tricky line between supporting you and inadvertently practicing law without a license.

I recently attended a class taught by a real estate attorney and he made it clear in no uncertain terms that Realtors need to be very careful—and that one of the most common areas where Realtors get tripped up is when answering the question, “Should I sign the arbitration clause?”

If a client has question about arbitration (or any substantive issue in the purchase agreement), Realtors should refer clients to information vetted by experts. The purchase agreement is more than a dozen pages long and that doesn’t include the hundreds of pages of legally required disclosure documents.

So, the best answer a Realtor can give when asked for legal advice is to say, “I just happen to have, right here in my hand, the California Association of Realtors’ explanation of that topic.”

The California Association of Realtors (CAR) provides Q&As that cover all sorts of complex legal topics, thankfully written in plain English. Anyone interested in a CAR Q&A can contact my office and we’ll be happy to supply it. If that doesn’t clear things up, you should talk to a real estate attorney.

All that said, since arbitration is such a source of confusion for so many people, I’ll review it briefly here. Obviously, this should not be taken as legal advice—I am not qualified to provide that and, given the complexity of the subject and the unique nature of each transaction, a short column would fall woefully short.

Arbitration is a dispute resolution system that is typically cheaper and quicker than litigation (that is, going to court). Arbitration is not appropriate for claims that meet the criteria for small claims court (where damages are limited).

With arbitration, both parties agree to hire an arbitrator who hears evidence and renders a decision. Depending on the situation and the original agreement between the parties entering arbitration, arbitration rulings have varying levels of enforceability. Basically, an arbitrator is both judge and jury, and most of the time, their decisions are binding.

The rules of arbitration are less detailed than for litigation, and thus, arbitration is typically cheaper and quicker. Anyone can act as an arbitrator, provided both sides agree. Usually, they are retired judges or practicing lawyers. (CAR can supply a list of arbitrators if you need one.) But here’s the downside, with binding arbitration, you are at the mercy of the arbitrator and this person does not have to hold to the same exacting standards as a legal case tried in a courtroom.

I was once involved in arbitration where the arbitrator ignored a signed agreement and ruled in favor of the other side. This doesn’t usually happen, but it can. You can usually only overturn binding arbitration if you can prove fraud or collusion on part of the arbitrator, and that’s tough to do. If you sign the arbitration clause in a purchase agreement, the other party can force you into arbitration. If you don’t sign that clause, you cannot force the other party into arbitration; however, both parties can still opt for arbitration.

Sometimes people try mediation first, which is different from arbitration primarily because mediation is not binding. So, if you’re looking for the least expensive route to resolve an issue, mediation might be a good route. Another benefit of mediation is that the details are usually confidential and therefore cannot be used as evidence should the issue go to court.

So, in response to that age-old question, “Should I sign the arbitration clause?” a Realtor’s response should be, “That’s up to you. Here’s the name and phone number of a few real estate attorneys who can advise you.”

If you have questions about property management or real estate, please contact me at or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.

Dick Selzer is a real estate broker who has been in the business for more than 45 years.

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