Understanding the Mediation and Arbitration Provisions of the RPA

Understanding the Mediation and Arbitration Provisions of the RPA
By: D. Keith Dunnagan, Esq.
February 14, 2023

One of the confusing provisions of the California Ass’n of Realtors Residential Purchase Agreement (RPA) is the mediation and arbitration provisions. It is often the source of many discussions between client and real estate professional and even more discussion when the deal goes bad and parties are looking to engage in an adversarial process to resolve their differences. We often hear questions about what do these terms mean? How are they applied? How are they different? Today we look at the mediation and arbitration provisions and in the next installment we will explain the arbitration process.

First and foremost the main difference between mediation and arbitration is related to the decision making process. In mediation, a neutral (the mediator) works with all the parties to see if they can compromise amongst themselves to come to a conclusion that everyone agrees on to resolve the dispute. If the parties do not agree, the mediation ends and the parties go on to enter the litigation phase. If the parties agree, a settlement agreement (contract between the parties) is drafted laying out how the matter was agreed to be resolved by the parties.

Arbitration is more like private litigation. The parties go before a neutral (the arbitrator) and put on their evidence and tell their side of the story. After the conclusion of the arbitration, the arbitrator takes the facts and evidence and weighs them against the law and the arbitrator makes a decision on how the matter will be resolved. The parties do not need to agree on the outcome because the arbitrator will determine the outcome.

Second, under the RPA the mediation provision is mandatory and the arbitration provision is elected. Paragraph 30 of the RPA states “The Parties agree to mediate any dispute or claim arising between them out of this Agreement…”. It goes on to say that even if the arbitration paragraph is not elected the parties will still agree to mediate. What this means is that if a buyer and seller find themselves in a dispute before they resort to arbitration or litigation they will attempt to mediate. The cost of not mediating is high. Under Paragraph 30(a) if a party refuses to mediate after request or begins a lawsuit before attempting to mediate, the party failing to comply may lose their right to attorney’s fees if they are successful in the litigation.

While the mediation process is mandatory, the arbitration process is not. Both parties must elect to be bound by arbitration. If one party does not agree to be bound then the arbitration provision is not enforceable. Under the RPA the way the parties elect to be bound is by initialing the election at the conclusion of the term.

Third, many do not understand the formality of both mediation and arbitration. Most mediators or arbitrators are either retired judges or experienced attorneys (some that still practice or some that have retired from practice), either way the neutrals are generally well versed in the area of law that they are being asked to serve as a neutral.

Fourth, while an individual is allowed to represent themself at the mediation or arbitration, unlike small claims where no attorneys are allowed, attorneys are allowed and generally do represent parties in a mediation or arbitration. The issues can be complex and most of the time individuals feel more comfortable having their own counsel present to help resolve the dispute.

Fifth, while mediation tends to be inexpensive (and this is relative) arbitrations tend to be rather costly. The reason many individuals like arbitration over traditional litigation is because arbitration is private and tends to be much quicker than litigation.

The downside to both mediation and arbitration is the same. In mediation if you resolve your dispute by agreement, you cannot later litigate or appeal the resolution. Same with arbitration, while it is private and quick, the parties to the arbitration waive appeal rights and the arbiter’s decision is final.

If you have a legal issue related to the RPA get competent representation. Failure to comply with the terms of the agreement can have rather significant adverse impacts.

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.

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