The AAR (Arizona Association of Realtors) Purchase Contract, which is used near universally for residential real estate transactions, includes a section for “Alternative Dispute Resolution” that requires mediation as the first step to resolve disputes between buyer and seller. If agreement is not the outcome there, the second step is “binding arbitration”, although either side may opt out of this process.
Why does that contract “require” mediation? What’s the difference between mediation and arbitration?
Mediation is required by the AAR Contract because (1) it’s the quickest and least costly process that might lead to an agreement, and (2) it’s not mandatory that an agreement be reached. Thus, no rights are given up for mediation, and it’s the easy, cheaper way, if it works. Mediation is a settlement “conference” presided over by a mediator who will try to get the parties to come to a negotiated resolution of the dispute.
Within 30 days of conclusion of an unsuccessful mediation conference, if neither side has opted out of “binding arbitration” then that’s the next process. The decision of the arbitrator, who is basically a “judge”, is final and not appealable. Binding arbitration basically serves as a substitute for a trial, and is usually quicker and less costly than a trial, but not necessarily. The for-sure difference between binding arbitration and a trial is that the former is final. A trial can be appealed to an appellate court.
Within 30 days of conclusion an unsuccessful mediation, ” … either party may opt out of binding arbitration … by notice to the other and in such event either party shall have the right to resort to court action.”
The majority of residential real estate disputes are settled in the mediation process. Rarely does it make any sense for one of these disputes go to either binding arbitration or a trial. The dollar amounts are not big enough to justify the delay and expense, and the issues are more practical than legal in nature.