Most real estate contracts contain optional agreements to participate in nonbinding mediation or binding arbitration should a dispute arise.
Q: Can you explain what mediation, arbitration and litigation are?
A: Mediation is used to resolve disputes and occurs outside the court system. In mediation, both sides in the dispute are assisted by a neutral third person – a mediator. The mediator doesn’t impose a decision on the parties; rather, the mediator facilitates discussions and negotiation with the goal of assisting the parties 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 – an arbitrator – rather than a judge or jury, who then renders a decision. Arbitration typically happens outside the courtroom. 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. Litigation is governed by formal rules and procedures of court and generally is time consuming and expensive. Because it is adversarial, litigation is in effect a contest in which a winner and loser are selected.
Q: How are the three processes different?
A: Mediation is different from arbitration and litigation in many respects. The main difference is that mediation is a nonadversarial process – that is, the parties do not argue their positions and give decision-making power to a third party. Rather, the mediator’s role is to assist the parties in achieving a mutually agreeable resolution. The mediator is not an advocate for either side, or a decision maker, but more of a middleman who listens to the positions and arguments of the parties and uses various techniques to help them to settle the dispute. Typically, mediation is nonbinding in that either side can opt not to agree to a resolution.
Unlike litigation, arbitration is not governed by the formal rules of evidence and procedure 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, the process most people are familiar with, may involve a judge or jury trial in a public courtroom, where evidence is presented, arguments are made and there are substantial rules surrounding the process. It is a public event.
Q: How do costs differ?
A: Every case is different, and it is very hard to predict, but typically mediation is the least expensive, followed by arbitration, which can cost in the $20,000-$100,000 range. Litigation is usually the most expensive and could run hundreds of thousands of dollars.
Q: How long does each process 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. 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 (for example, 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 deciding.