In the practice of real estate, conflicts and negotiation between buyers and sellers are commonplace. But what happens when an agreement cannot be reached and neither side is willing to compromise? Then we have to go to the next step beyond negotiations and go to third parties to resolve the conflicts.

There are basically three avenues to turn to and they are usually agreed upon when the buyers and sellers execute the purchase agreement. Thus, it is important to know your options before signing the contract.

Mediation is usually the first option and most real estate contracts dictate that the parties go through mediation prior to any other method of conflict resolution. An attorney, retired judge or someone who is well versed in resolving complicated issues usually holds the mediation proceedings. Typically, the buyers, sellers, and/or their attorneys gather in an office. Each presents the facts of the case, their positions, and a proposed course of action or settlement. Then the mediator usually probes by asking more questions, clarifying the positions of the parties, and trying to force an agreement by negotiation.

This might entail the parties going to separate rooms and the mediator going back and forth presenting the other side’s positions and playing the devil’s advocate to each side. The mediator might propose alternate solutions, or present different scenarios if the situation were to deteriorate further. They might use numbers and dollars and cents to cause both sides to bend. And hopefully at the end of the mediation, both sides will have agreed to some type of settlement or agreement that they can live with.

However, the mediator does not have any power to force a settlement or any action by either party. Thus, if one party refuses to negotiate or feels that it is not in their best interest, they can refuse all the proposals and when the mediator feels that nothing can be achieved, they will recommend that the parties proceed to the next step of either arbitration or a court of law.

Arbitration is different in that the arbitrator has the power to rule on the case with no possibility of appeals by the parties. Again, both buyers and sellers, along with their attorneys, appear before the arbitrator to present their case. The arbitrator can question the parties, the attorneys can question the plaintiffs and defendants. Each party can bring in material evidences, correspondences or witnesses. Based on the facts, the arbitrator will render a decision that both parties must adhere to. 

The last method of conflict resolution is through a court of law. If the claim is $10,000 or less, it goes through the Small Claims Court where the parties usually present their case before a judge, and the judge rules on their findings.

If the claim is greater than $10,000, then it must go through a higher court. These trials can be with a judge or before a jury. All the laws of discovery are in effect. Witnesses can be summoned, testimonies and depositions taken, expert witnesses can be called, and everything you have seen in the movies can take place. Needless to say, this is a very expensive process with the parties paying for attorney fees, court fees, expert witnesses and other legal expenses. Unless the claims are huge or the personalities of the parties are such that they will not settle, most real estate conflicts do not escalate to this point. 

The good mediators can use these high legal costs to create concern and usually force a settlement. In the end, most decisions are made not based on who is right and who is wrong, but on an economic basis of how much it would cost to pursue the claim further, and what would be the economic risk should you lose.

Going through this process, no matter if it is mediation, arbitration or a court of law, is not fun. It can have a monetary as well as an emotional toll on all parties involved. Therefore, if possible, negotiate out the differences and exhaust all means prior to initiating these legal proceedings.

John M. Lee is a broker with Compass specializing in the Richmond and Sunset districts. If you have any real estate questions, call him at 415-465-0505 or email at johnlee@isellsf.com.