Should you agree to Arbitration in Real Estate?

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Real Estate

Arbitration in Real Estate is "the submission of a dispute, relating to the material facts of the property, to one or more impartial persons for a final and binding determination."

All Minnesota Association of REALTORS® approved purchase agreements include a disclosure section that requires a buyer and seller to both acknowledge they "have received and have had the opportunity to review" the arbitration disclosure/ agreement document. However, "Arbitration" is NOT part of the purchase agreement, other than the disclosure section, and:

Arbitration is OPTIONAL and VOLUNTARY!

Whether a buyer and/or seller agree to the Arbitration Agreement or not, it does not affect the terms of any Real Estate purchase agreement.

Minnesota Arbitration claims are handled by The National Center for Dispute Settlement (NCDS), which is a private, impartial organization endorsed by the Minnesota Association of REALTORS®.

During the of signing a purchase agreement, the process is most often fast-paced and emotions run high. This makes it difficult for most people to know if arbitration would be the right choice for them or not.

Therefore, discussing and reviewing the implications of arbitration BEFORE signing an offer or purchase agreement is vital to empowering people to make an informed decision.

There are two key elements of the arbitration agreement that most often help a consumer decide: The first is that by agreeing to arbitrate, "you give up your right to go to court."

This limiting factor can be seen as a positive or negative by either party. If a consumer does not like the idea of going to court over a dispute, arbitration can provide peace of mind. On the contrary, it can give consumers a feeling of being "boxed-in" with less options.

The second key element of the arbitration agreement is that "a request for arbitration must be filed within 24 months of the date of the closing on the property."

Many sellers like the idea of limiting claims to 24 months because it gives them a sense that a fast clock is ticking. On the other hand, many buyers don't like the idea of setting a short time frame on their rights. Surprisingly, the decision of agreeing or not to arbitration does not fall along which side of the transaction a consumer stands. Most often it comes down to a consumer's past experience and background in life.

The National Center for Dispute Settlement (NCDS) and The Minnesota Association of REALTORS® both HIGHLY RECOMMEND that arbitration be viewed and used as a last resort to resolve a dispute. At any time before and during an arbitration process, consumers can come to an agreement or settlement- which is believed to be most often better for both parties.

Consulting an attorney is always a good idea whenever a consumer has questions or concerns about whether or not to agree to arbitration. Real Estate agents cannot give legal advice and therefore should not give an opinion on this process. Agents can only inform and provide resources.

If you'd like more information about arbitration, please click on this link: A Guide to Residential Real Property Arbitration.

Contact us if you'd like to learn how we work with clients to buy or sell a home!


Written by Glenn Necklen, Broker / Owner / Realtor at Necklen & Oakland- Professional Real Estate services in Maple Grove, MN.