Real Estate

Real Estate Matters

What happens when disputes arise?

by Michael Repka

Most real-estate transactions go off without a hitch. Agents on both sides explain the rights and responsibilities to their clients and everyone does as required and expected. By and large, agents are competent and thorough and buyers and sellers are reasonable. But not always...

When a dispute arises, most parties fall into one of two camps: There are those that are too eager to sue and those that are too scared of litigation. This often leads to unfair results. In an effort to avoid lawyers, some parties give in and give up their rights or claims even though they are entirely correct in their position and could receive restitution with little effort. On the other hand, some parties casually threaten litigation as if it were a mere inconvenience rather than an onerous process.

Fundamentally, when a dispute arises, the parties need to understand their rights and the various options to help resolve these issues. Armed with this information, parties are often able to reach an agreement that is fair to all and quite efficient.

The standard-form contracts

In Silicon Valley, most residential real-estate agents use a standard-form contract from either the California Association of Realtors (CAR) or the Peninsula Regional Data Service (PRDS). Given the prevalence of the PRDS contract in and around Palo Alto, this article will focus on its provisions.

Most of the rights and responsibilities of the parties to a residential real-estate agreement are laid out in the nine-page PRDS Real Estate Purchase Contract. Unfortunately, many clients don't read it and their agents don't explain its provisions. A considerable amount of time, money and aggravation could be avoided if the parties thoroughly understood what they were signing before submitting or accepting an offer. A good agent or their manager should be willing and able to explain all of the provisions of the contract that you are being asked to sign.

It should be noted that the CAR and PRDS contracts and related documents provide significant protection to real estate brokers and salespeople, in addition to defining the rights and responsibilities of the parties.

When a dispute cannot be resolved though reasonable discussion there are four main options available: mediation, arbitration, litigation and small claims court.

Mediation

Mediation is a non-binding process in which the parties, with or without attorneys, meet with an independent third party, to come to a common agreement. In practice, this can be a very useful step because it helps the parties understand their rights and obligations and the cost associated with continuing the dispute.

Mediation is contractually required irrespective of whether the parties agree to the arbitration clause (discussed below) and no party can collect attorney's fees from the other side if they refuse to mediate. It should be noted that the contract provides that real-estate agents are not required to participate in mediation.

Arbitration

Arbitration is somewhat like mediation, but with teeth. In arbitration, the buyer and the seller arrange for the services of a private arbitrator to settle the case. Instead of a trial, arbitration provides an informal hearing with the arbitrator, the buyer, the seller and usually their attorneys. Documents may be submitted and witnesses may testify. Following a hearing, the arbitrator renders a decision, which is generally binding -- even if wrong.

While arbitration is generally less costly and time intensive than litigation, it is still an expensive undertaking and usually involves attorneys. Additionally, under the standard-form contracts, real-estate licensees are not required to arbitrate. Thus, a party may have to initiate a separate action in court to seek damages from a real-estate agent or broker whereas they would have been able to sue both the agent and the other party in the same action if they had not initialed the arbitration clause.

Litigation

Think Perry Mason, but without the drama. Litigation is simply suing someone in court and it is both expensive and time consuming, but many argue that it is more predicable than arbitration. This predictability comes, in part, from the fact that judges do not want to be overturned on appeal, so they are very careful to follow the law established by prior cases.

Small claims court

Irrespective of whether the parties initialed the arbitration clause, small claims court is a third option available to settle disputes of $10,000 or less. The process is fairly simple and each party represents themselves. The elimination of attorneys on both sides makes this a valuable, albeit underutilized, option for many of the smaller issues that might arise after a sale.

Although vigilance and good professional guidance should be able to keep most buyers and sellers out of disputes, a thorough understanding of the contract terms and the dispute resolution options will provide guidance should the unexpected arise.

Michael Repka, managing broker and general counsel for DeLeon Realty, Palo Alto, formerly practiced real estate and tax law in Palo Alto. He serves on the Board of Directors of the California Association of Realtors. He can be reached at MichaelR@DeLeonRealty.com.

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Comments

Like this comment
Posted by Jim W Hildreth
a resident of another community
on Oct 31, 2012 at 11:30 am

The article on Mediation and Real Estate when a dispute arises was outstanding if a dispute should occur between buyer seller and seller, Broker.

Mediation is also confidential, cost effective and can allow "fresh air" v arbitration or litigation. Mediation can lead to a quick resolve in the dispute.

Mediation can also be effective in landlord tenant disputes, real estate deposit disputes, probate matters, easement issues, tree disputes, or neighbor to neighbor disputes, partnership disputes.

As the article mentioned if the claim is $10,000 or less, "small claims court" can be of value. Sometimes courts will have mediation panels that are available at small claims or on issues above $10,000.

Check with the local court under ADR or Alternative Dispute Resolution.

Another source would be a private mediator, simply do research in your
browser such as Yahoo, Google ie. "Real Estate Mediator", "Real Estate Mediation"

If one has legal questions, about real estate issues, its always best to seek legal counsel in the area of the law, where you have legal questions.

Jim W Hildreth Mediator, Arbitrator & Referee
Web Link


Like this comment
Posted by Ducatigirl
a resident of Old Palo Alto
on Oct 31, 2012 at 3:45 pm

Wish I had known about all of this when we bought the house we are in now. Our agents did not inform us of things to avoid in location, and the seller did not disclose important things like the nearby RR or lack of insulation. The agents didn't even tell us that the lot was substandard--they told us everyone had a tiny lot in Palo Alto.

As we uncovered the truths, one by one, we were told we would have to hire a real estate lawyer for big money and sue the sellers to force them to take the house back and return our 50% down payment. The whole thing would have been so expensive, with no guarantee of a good outcome for us, that only the attorneys would come out ahead. so we decidied against it.

Now, we are finding this property to be extremely hard to sell due to its location and small lot, and we are stuck here.

what we did not know then is hurting us now. Caveat emptor!


Like this comment
Posted by looking for a scapegoat
a resident of Palo Alto Hills
on Oct 31, 2012 at 4:20 pm

" the seller did not disclose important things like the nearby RR "
You did not notice a train nearby???

" lack of insulation."
You did not have the house inspected before you bought.

"Now, we are finding this property to be extremely hard to sell due to its location and small lot, and we are stuck here."
I am sure you can still get millions for it. You are not stuck--if you want to move, then move.


Like this comment
Posted by Ducatigirl
a resident of Old Palo Alto
on Oct 31, 2012 at 8:12 pm

We had the house inspected...the inspector was too lazy to go into the attic and look (said it was too hard to get up there). That autumn, we did, and surprise! no insulation whatsoever.

I was unfamiliar with Palo Alto and came from the direction of Middlefield whenever I came to look at it. Never saw the tracks, because they were blocked by trees and bushes.

Agents never told us a shared driveway was a distraction that would make the house hard to sell or refinance later. I was inexperienced and did not have a clue. The driveway did not bother me, then or now, but it is most people's number onbe complaint about the house, despite $100,000 of improvements put in.

Our last agent told us no onen liked our house, and that we would have to accept an offer under 1.3 million, even though it was appraised at 1.536 million. anything less than 1.4 million will not enable us to get a low enogh payment on the next house.

Unless we want to downgrade, we are stuck where we are, at least for a few more years. Problem is, we need a bigger house soon.


Like this comment
Posted by Sharon
a resident of Midtown
on Oct 31, 2012 at 8:16 pm

When people build and buy houses in a known flood zone

Who should bail them out?


Like this comment
Posted by there is a train in Palo alto?
a resident of Old Palo Alto
on Oct 31, 2012 at 8:19 pm

Yeah, don't bother taking any responsibilty for you predicament-out was the lazy inspector, the bushes, the agent etc. (not that I believe any of your story). I know a Jan h in that neighborhood that is looking to sell- maybe you can get a good deal on jet house.


Like this comment
Posted by Ducatigirl
a resident of Old Palo Alto
on Nov 1, 2012 at 9:10 am

I admit, I was very naive and inexperienced in these matters. It was our first house.


Like this comment
Posted by horselady
a resident of Community Center
on Nov 5, 2012 at 12:31 pm

Why all the snarky comments?


Posted by Name hidden
a resident of Monroe Park

on Jun 5, 2017 at 9:44 pm

Due to repeated violations of our Terms of Use, comments from this poster are automatically removed. Why?


Sorry, but further commenting on this topic has been closed.

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