Laying Down the Law – The Real Estate Mediation Requirement: Resolving Before Litigating
October 29, 2022
Disputes among buyers and sellers in residential real estate transactions are more common than many realize. After all, a host of considerations are involved in each and every sale—proper disclosures, proper handling of repairs, earnest money issues, property conditions, fulfilling contingencies, and title issues, to name a few. As a result, real estate transactions are ripe for conflict and litigation.
Wisely, the Arizona Association of REALTORS® has included in its Residential Resale Real Estate Purchase Contract an alternative dispute resolution provision requiring the parties to mediate disputes before filing a formal complaint in the Superior Court or via arbitration. Section 7c of the AAR Residential Resale Real Estate Purchase Contract provides:
“Buyer and Seller agree to mediate any dispute or claim arising out of relating to this Contract in accordance with the REALTORS® Dispute Resolution System, or as otherwise agreed. All mediation costs shall be paid equally by the parties. In the event that mediation does not resolve all disputes or claims, the unresolved disputes or claims shall be submitted for binding arbitration. In such event, the parties shall agree upon an arbitrator and cooperate in the scheduling of an arbitration hearing. If the parties are unable to agree on an arbitrator, the dispute shall be submitted to the American Arbitration Association (“AAA”) in accordance with the AAA Arbitration Rules for the Real Estate Industry. The decision of the arbitrator shall be final and non-appealable. Judgment on the award rendered by the arbitrator may be entered in any court of competent jurisdiction. Notwithstanding the foregoing, either party may opt out of binding arbitration within thirty (30) days after the conclusion of the mediation conference by notice to the other and, in such event, either party shall have the right to resort to court action.”
To begin the mediation process, either the buyer or seller can complete the Buyer-Seller Dispute Resolution Request to Initiate Mediation or Arbitration. https://www.aaronline.com/resolve-disputes/buyer-seller-disputes/ Participants may select one of the mediators from the pre-approved online list with the Arizona Association of REALTORS®.1 The selected mediator will then work with the parties to set the date and location for the mediation (which post-pandemic, is often conducted virtually via Zoom). The mediator will then request that the parties submit to the mediator (and to one another) a pre-mediation memorandum to explain each party’s positions on the factual and legal issues present in the transaction.
During the mediation session, the mediator may or may not begin the proceeding with a joint conference of the parties and their counsel to ensure both sides understand the procedure and the confidentiality of the process. The mediator participates as an objective, third-party neutral working with the parties to facilitate a mutually agreeable resolution to the dispute. The mediator does not make any binding decisions2 regarding facts or the law, and any offers made during the mediation are confidential per Rule 408, Arizona Rules of Evidence and cannot be used in future court or arbitration proceedings.
During the mediation, the mediator separates the parties into their respective locations and engages in “shuttle diplomacy” to carry arguments and settlement positions back and forth between the parties. During caucusing, the mediator will offer his view of the evidence and legal issues so both parties may perform risk analysis of their respective legal positions and assess their relative exposure in the case. The parties are under no obligation to resolve the matter at mediation, but if the parties do reach an agreement, the mediator or parties will draft a written settlement memorandum memorializing the terms of their agreement to be executed before the conclusion of the mediation. Once a written settlement agreement is executed by the parties, the agreement is binding and non-appealable and the conflict is conclusively resolved. Per AAR’s records and per the authors’ experience, most mediations submitted through AAR are successfully resolved.
All told, mediation of disputes is beneficial for buyers and sellers because it is expedient compared to litigation (the parties can generally schedule mediation within 30 to 60 days where as trial could take one to two years) and mediation can save the parties tens of thousands of dollars in litigation fees and costs. Also, mediation is attractive to many parties relatively informal nature and is a cost-effective alternative to litigating an issue. Mediations often last a few hours and all issues in the case may be disposed of without going through protracted litigation. Moreover, the parties save themselves substantial amounts of money and stress by proactively working to resolve the dispute before going to court or arbitration. Parties are free to share their legal positions and make offers without compunction given the confidentiality of the session.
If you or someone you know is faced with a real estate dispute, contact us today to schedule an office meeting or virtual consultation with Attorney Blake Wilkie or you can select Mr. Charles to serve as your mediator by selecting him in the AAR Buyer-Seller Dispute Resolution Request to Initiate Mediation form.
Christopher J. Charles is the Founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher regularly teaches continuing education classes at the Arizona School of Real Estate and Business, and he can be reached at Chris@ProvidentLawyers.com or at 480-388-3343.
Blake Wilkie is an Associate Attorney with Provident Law®. His practice focuses primarily on real estate, real estate litigation, and preventive counsel. Blake is also a licensed Arizona real estate agent, allowing him the unique perspective of serving clients from both a legal and business point of view. He has represented commercial landlords, homeowners, and tenants in numerous transactions and cases, as well as advised on and prepared business formation documents and performed lending agreement legal analysis. From pre-litigation matters through final resolution, he is trained to identify a wide variety of legal issues that arise on a day-to-day basis, how to respond to them, and how to prevent them before they arise in the future. After graduating from the W.P. Carey School of Business at Arizona State University, Blake obtained his J.D. from the Sandra Day O’Connor College of Law at Arizona State University, where he was a Managing Editor of the Arizona State Law Journal.
 Disclosure: The co-author of this article, Chritopher J. Charles, serves as a Mediator and Arbitrator for AAR.
 Although the mediator can not issue any binding decisions in the case regarding the law or the facts, in the unlikely event that the mediation does not result in a full settlement, the mediator can make a determination as to whether the parties participated in the proceeding in good faith.