In business, disputes happen. This is especially true in residential real estate transactions, where there are more than mere business issues at stake. A house is more than just a building; it is a home, it is hopes, it is dreams. Emotion plays a significant role in many home purchases, and if things don't go right, these emotions can lead to disappointment, anger and even rage. Our society (or most of it, anyway) has evolved beyond resolving disputes with our fists, or with a six-gun. Today, we just sue!

Studies have shown that most residential real estate problems involve relatively modest sums; the amount in controversy in most disputes is less than $7,500. If a lawsuit is filed over a dispute like that, the collective attorney's fees can quickly dwarf the amount in dispute; a phenomenon we refer to as “the tail wagging the dog.” In such cases, our legal system is often an inefficient, impractical, frustrating and very expensive mechanism. I can confidently speak for countless litigators who will tell you that litigation is misery... it is the worst way to resolve disputes. Alas, it is also the best system that mankind has been able to come up with.

Thus the trend in recent years toward finding alternative forms of dispute resolution. The courts in my home state of sunny Arizona and elsewhere have themselves responded to this problem by assigning many cases involving disputes where the amount in controversy is below a certain dollar amount (say, $50,000) to a Court-appointed Arbitrator. In most instances, these cases are resolved without a jury trial.

The organized real estate industry has in many states also responded to this problem by encouraging the parties to transactions to agree to submit any disputes first to mediation, before resorting to litigation. The National Association of REALTORS® (NAR) has developed and supported an alternative Dispute Resolution System, or DRS, which features Rules and Procedures designed to facilitate a prompt and fair resolution of transactional disputes. This program has been enthusiastically adopted by the Arizona Association of REALTORS® (AAR) and its local affiliates. The AAR publishes a "generic" Mediation clause and incorporates it into all of their published contract forms. For example, the AAR's current form of Residential Resale Purchase Contract contains the following clause:

"Mediation: Any dispute or claim arising out of or relating to this Contract, any alleged breach of this Contract or services provided in relation to this Contract shall be submitted to mediation in accordance with the Rules and Procedures of the NATIONAL ASSOCIATION OF REALTORS® (NAR) Dispute Resolution System or, if not available, another mediation provider. Disputes shall include representations made by the Buyer, Seller or any Broker or other person or entity in connection with the sale, purchase, financing, condition or other aspect of the Premises to which this Contract pertains, including without limitation allegations of concealment, misrepresentation, negligence and/or fraud. Any agreement signed by the parties pursuant to the mediation conference shall be binding."

The mediation clause provides an exemption for the filing of certain types of actions, such as a foreclosure, an eviction, a mechanic's lien or a lawsuit filed to allow the recording of a Lis Pendens (a notice of pending action), etc. However, these exemptions do not affect the parties’ obligation to submit the dispute to mediation. The costs of mediation are shared equally by the parties, unless otherwise agreed.

The language of the mediation clause is mandatory, and it is clearly designed to cover even those disputes which arise after the close of escrow. Indeed, how could a seller, for example, file to foreclose upon a mortgage or a deed of trust before it is recorded (at closing)?

In order to appreciate the value of mediation, it is important to understand exactly what a mediator does - and does not - do. The trained mediator is impartial, and will not give legal advice or pass judgment on the correctness of a party's position. Nor does a mediator issue a binding decision. Rather, the mediator will help the parties to identify and articulate their issues, and help them explore alternatives, moving them toward reaching an agreement as to how to resolve them. This is usually accomplished through face-to-face negotiation, perhaps followed by some "shuttle diplomacy" with the combatants in separate rooms, and all negotiations are conducted in a non-adversarial atmosphere.

If the parties are able to successfully reach a resolution, they will sign a binding settlement agreement. If the mediation is unsuccessful, the parties are free to pursue any other avenue of legal redress.

Does it work? Well, the track records of the private firms that have handled hundreds of mediations for most of the central Arizona REALTOR® Associations is pretty impressive. Of the cases submitted to mediation so far, over 80% have settled. Not bad!

My personal experience with mediation is even better than that. Now, most of my clients are real estate licensees and brokerage companies, so I've had the opportunity to attend more than a dozen mediation sessions to date. Most of those cases were very difficult; indeed, many of the parties were dug in deep and not very receptive to further discussion. All of those cases settled. I'm a believer.

Arizona’s Real Estate Commissioner, like those in a number of other states, strongly supports the concept of mediation as an alternative to lawsuits and disciplinary action. Indeed, he has made an arrangement with the Attorney General's office (which has a mediation program) whereby certain administrative complaints made against licensees by members of the public may be submitted by the parties to mediation. If a settlement agreement is reached in such a case, the Department will honor it, and will dismiss the license complaint where appropriate.

When these kinds of potentially very bitter and expensive disputes are settled through mediation, everyone benefits. The complainant is satisfied, the licensee resolves the license complaint, and the Department is spared the expense of pursuing administrative action against the licensee. All in all, a "win-win" result. Other states would do well to follow Arizona’s example.

The contractual agreement to mediate provides an opportunity for the parties to a dispute to resolve their differences in an efficient, non-adversarial and relatively inexpensive manner. It is almost cliche to talk about "the expense and delay of litigation," but hey... it's the truth. Lawsuits take a lot of time and cost a lot of money. Litigants are hardly ever happy, even if they "win." As Abraham Lincoln so wisely admonished us, "Discourage litigation; persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often the real loser - in fees, expenses and waste of time." Couldn't have said it better myself!

Published: May 23, 2000

Use of this article without permission is a violation of federal copyright laws.

Editor's Note: This article reflects the opinions of Robert Bass only and not necessarily the views of this or any other publication, organization or Website owner.

Robert Bass has practiced law in Phoenix, Arizona since 1978. A former Administrative Law Judge for the Arizona Department of Real Estate, he presided over hundreds of disciplinary cases against real estate brokers and salespeople. A nationally-known writer and real estate educator, his law practice concentrates in defending real estate licensees in Errors & Omissions claims, and in license complaint cases before the Arizona Real Estate Department. He is an Affiliate Member of the Arizona Association of REALTORS®, and has served on its Contract Forms Committee, Information Management Committee and Agency Law Task Force.