Failure to Disclose Litigation – Arbitration v. Litigation – Part 1

Sometimes bad things happen to good people. In the case of the purchase of a home, it often manifests as an undisclosed problem with the home. That pesky roof leak, drainage problems or something else that was not disclosed during the course of the purchase. Today, Attorney Robert Enos, kicks off a multi-part series that will break down non-disclosure litigation.

As always, if you have any questions about your real estate, business, estate planning, or any other legal issue, please let us know by e-mailing managing shareholder Keith Dunnagan at

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Failure to Disclose Litigation – Part 1
Arbitration v. Litigation
By: Robert J. Enos, Esq.

In this first part of our multi-part series on failure to disclose cases we examine some a decision buyers, sellers and their agents must make at the formation of the contract. In virtually all California residential purchase and sale transactions the parties use the California Association of Realtor (CAR) Residential Purchase and Sale Agreement (Contract), in which the buyer and seller are presented with a choice to either agree to arbitrate or not in the event of a legal dispute between them. Pursuant to the Contract before the buyer and seller initiate either arbitration or a lawsuit, they must first make a good faith effort to mediate. Failure to so may result in a waiver of attorney fees later. Once that step is completed the parties would then proceed to either arbitration or a lawsuit. But, at formation of the contract the parties have a choice between contractual arbitration or filing a lawsuit.

Contractual arbitration applies if the parties have agreed to resolve the dispute by arbitration rather than litigation. Only parties who have agreed contractually to arbitrate are bound. Meaning, if the buyer and seller are locked into arbitration, other individuals associated with the transaction may not, such as home and pest inspectors, or even the realtors themselves. The primary intent of contractual arbitration is to shorten the time the parties need wait to get to a trier of fact. Arbitration is also intended to be a lessor cost alternative to a full scale lawsuit. In realty that is not always the case since a lawsuit has a single $435 fee, while an arbitrator fee by comparison can run $450 per hour. Every time the arbitrator touches the file or speaks with the parties the hourly meter is running thus arbitrator fees alone can run $10,000-$20,000. Unfortunately, in this scenario an individual who might also be responsible for causing harm could be outside the arbitration agreement and therefore would have to be sued in a separate costly lawsuit.

If the party seeking relief is not bound by the arbitration clause, either by choice or by stipulation of the parties, then the benefit to them is all the potential defendants can be lumped together in one action. This can facilitate global settlement and save the aggrieved party legal costs. A Superior Court proceeding, unlike arbitration does usually take longer. A rare exception is when one side or the other seeks trial setting preference based on age or poor health. Another distinction to arbitration is a Superior Court decision can be appealed.

Therefore, what should a buyer or seller decide when executing the contract – arbitration or a lawsuit? A good rule of thumb is if you are the buyer do not execute the arbitration provision. That way if problems arise you will have one single arena to fight all the parties responsible for your harm. If you are the seller, do execute the arbitration provision because if confronted with an illegitimate claim it can be dealt with more rapidly, or if confronted with a legitimate claim, the division of defendants and the shear costs often detour the plaintiff’s arbitration pursuit.


The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in probate, business and real estate matters and have represented and advised brokers on their professional obligations as well as consumers on their rights. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at Our flat fee consult for new clients may get you the answers you need for the questions you have.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.