BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Mediation for Buyers and Sellers
A New Mediation Service from CAR
BOTTOM LINE: CAR has a new and useful mediation service for buyers and sellers that is easy to use and may result in lower mediation costs to the parties.
I. C.A.R. REAL ESTATE MEDIATION CENTER FOR CONSUMERS
The California Association of REALTORS ® has created the “Real Estate Mediation Center for Consumers.” The website is: www.consumermediation.org In the CAR Purchase Agreement forms this service is listed as the default mediator unless the parties agree to use another service. Many experienced mediators are signing up to be mediators through this service. They are required to provide a discounted fee for the first hours of their mediation services.
A buyer or seller can go to the above website and fill out a request for mediation. CAR staff then contacts the other side to see if they are willing to participate through this service. If the answer is “No,” then both parties are referred to their respective legal counsel. If both parties agree, they can agree on a mediator from the list, or allow the CAR staff to choose a mediator based on geographic proximity and affordability of fees. The mediator then contacts the parties regarding the time and place for the mediation. Most mediation hearings are in person but, if necessary, they can be done by Skype or commercial video conference services.
One of the benefits of this service is that it does not take an attorney to commence the process. Buyers and sellers can decide if they want to be represented by counsel; but, for simple matters, such as many deposit dispute claims, they may decide to proceed without counsel.
This service can be accessed by buyers and sellers even if the CAR Purchase Agreement was not used in the transaction. However, it will not be the default mediation service and the parties will have to agree to its use.
II. MEDIATION: THE BASICS
1. WHAT IS MEDIATION? Mediation is a process where a neutral third party, the mediator, listens to both sides and attempts to get the parties to come to an agreement. The mediator has no power to render a decision. The mediation will be successful only if the parties come to a mutually agreeable solution, and sign a written mediation agreement. This mediation agreement can later be enforced in court if a party fails to follow through on the agreed terms.
To help buyers and sellers understand mediation and arbitration CAR has “Mediation for the Consumer” and “Arbitration for the Consumer” in six languages on the CAR website.
2. INFORMAL NEGOTIATIONS AND SMALL CLAIMS COURT: Prior to commencing mediation or arbitration, buyers and sellers can and should engage in informal negotiations to try to resolve the dispute. Also, most mediation and arbitration provisions in purchase agreements do not apply to matters within the jurisdictional limits of Small Claims Court, so a buyer or seller can just bypass mediation and go directly to small claims court for matters up to $10,000 for individuals, and $5,000 for entities. Other exemptions from the requirement of mediation are also spelled out in the “Dispute Resolution” portion of the Purchase Agreement.
3. HOW DOES MEDIATION COMMENCE? All commonly-used purchase agreements automatically require mediation prior to arbitration or litigation. If a party refuses or declines to mediate, they risk losing the right to recover attorneys’ fees if they are the prevailing party in a subsequent arbitration or lawsuit.
It is the principal, buyer or seller, who must commence the process. Agents should advise their sellers and buyers that they might want to talk to an attorney to represent them, although parties often will mediate without representation by counsel. However, it is generally a good idea for a party to have legal representation if the other side does.
The process starts with a written demand for mediation usually accompanied by a proposed name of a mediator, or a list of potential mediators. The parties must first agree on who the mediator will be. There are many mediation services available. It is important to select a good, experienced mediator since good mediators will have a higher likelihood of achieving a successful outcome. The CAR mediation service takes care of these initial steps.
Next, they have to agree on a date and place for the mediation. The mediator, often an attorney or retired judge, will require a minimum fee up front, which will usually be shared equally by the parties. Any time spent by the mediator over the time covered by the advance fee will be billed on an hourly or daily basis by the mediator. These costs are also usually split, although the mediation agreement may specify a different result.
4. CONDUCT OF THE MEDIATION: The mediator may request the parties to exchange documents prior to the mediation or at the mediation itself. The mediation commences usually with each party stating their case while the other party is admonished by the mediator to listen and not interrupt. After both parties have stated their case, the mediator may place each party in a separate room and go back and forth between them attempting to point out the relative strengths and weakness of each party’s position.
The mediator will also remind the parties of the costs of proceeding to arbitration or litigation, and to take those costs into consideration in making offers of compromise during the mediation. A mediation hearing can be as short as a half day, or as long as several weeks. Most mediation hearings over deposit disputes are on the short end of that scale.
If the parties reach agreement, the mediator will write up the terms of the agreement and ask each party to sign it. If agreement cannot be reached, the mediation will be terminated and the parties then are free to commence arbitration (if agreed upon in the Purchase Agreement, or subsequently) or litigation.
5. THE AGENTS’ ROLE: It is up to your client to commence the mediation – not you. You may want to help by getting referrals to good mediators in your area or referring the client to the CAR Mediation Service, but do not get involved in starting the process beyond that. Unless the mediation is over compensation under the listing agreement, the mediation is between the buyer and seller and brokers may choose to participate or not. But it is up to the BROKER, NOT THE AGENT to choose whether to mediate.
You may be asked to participate in the mediation as a witness; but only do so with the advice and supervision of your manager – and make it clear that you are appearing only as a witness, not as a party. In some cases, your broker may recommend that you be accompanied by counsel when you do appear as a witness in the mediation. The risk is that you may say something in a mediation that, if the mediation is not successful, could lead to a party using that information for a claim against the broker in a later arbitration or litigation. (The mediation itself has a cloak of confidentiality regarding what is said, but information disclosed there could lead to a later development of a theory of liability against the broker.)
6. IN MOST MEDIATED SETTLEMENTS NEITHER PARTY IS HAPPY: As bad as a party may think the end result of a mediated settlement is, attorneys will tell you that a bad settlement is better than a good lawsuit every time. This is because, if the mediation fails, the resulting arbitration or litigation will run up attorneys’ fees at an alarming rate. Most arbitrations and lawsuits settle before judgment is rendered and, in that case, each party pays their own already-incurred attorney’s fees and costs. So, in addition to each party either paying some money, or receiving less than they thought they were entitled to, each must pay their attorney’s fees. Add to this the time commitment and mental anguish of going through an extended contested claim, and the case for a mediated settlement is easy to make.
PRACTICE TIPS
1. Brokers should always recommend that their clients discuss their claim with a qualified California real estate attorney before proceeding.
2. While you may want to be helpful, it is always best to have the buyers and sellers commence and engage in this process themselves.
DO NOT FORWARD TO SELLERS OR BUYERS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2015 02/06/15