John M. Lee: Methods of Conflict Resolution

In the practice of real estate, conflicts and negotiations between buyers and sellers are commonplace. But what happens when an agreement cannot be reached and neither side is willing to compromise? Then we have to go to the next step and go outside of the interested parties for conflict resolution.

There are basically three avenues to turn to and they are usually agreed upon when the buyers and sellers execute the purchase agreement. Thus, it is important to know your options before signing the contract.

Mediation is usually the first option and most real estate contracts dictate that the parties go through mediation prior to any other method of conflict resolution.

An attorney, a retired judge or someone who is well versed in resolving complicated issues, usually conducts mediation proceedings.

Typically, the buyers, sellers and/or their attorneys gather in an office. Each party presents their version of the facts of the case, their positions and a proposed course of action for settlement. Then the mediator usually probes by asking more questions, clarifying the positions of the parties in case he needs to force a negotiated agreement.

This might entail the parties going to separate rooms with the mediator going back and forth, presenting each side's positions and playing "devil's advocate." He might propose alternate solutions or present different scenarios if the situation deteriorates. He might use numbers and dollars and cents to cause both sides to bend. Hopefully, at the end of the mediation both sides will have agreed to some type of settlement or agreement that they can live with.

However, the mediator does not have any power to force a settlement or any action by either party. Thus, if one party refuses to negotiate or feels that it is not in his best interest, he can refuse all the proposals and when the mediator feels that nothing can be achieved, he will recommend that the parties proceed to the next step - either arbitration or a court of law.

In arbitration the arbitrator has the power to rule on the case with no possibility of appeals by the contesting parties. Again, both buyers and sellers, along with their attorneys, appear before the arbitrator to present their cases. The arbitrator can question the parties and attorneys can question the plaintiff and defendant. Each party can bring in material evidence, correspondence or witnesses. And based on the facts, the arbitrator will render a decision that both parties must adhere to.

The last method of conflict resolution is through a court of law. If the claim is $5,000 or less, it goes through Small Claims Court, where the parties present their case before a judge, who then makes a ruling.

If the claim is greater than $5,000, then it must go to a higher court. And with trials, it can be with a judge or before a jury and all the laws of discovery are in effect. Witnesses can be summoned, testimonies and depositions taken, expert witnesses called in and everything you have seen in the movies can take place.

Needless to say, this is a very expensive process with the parties paying for attorney fees, court fees, expert witnesses and other legal expenses. Unless the claims are huge or the personalities of the parties are such that they will not settle, most real estate conflicts do not escalate to this point.

Good mediators can use the high legal costs warning to create concern and usually arrive at a settlement. In the end, most decisions are not based on who is right and who is wrong, but on an economic basis - how much would it would cost to pursue the claim further and what would be the economic risk should you lose.

Going through this process, no matter if it is mediation, arbitration or a court of law, is not fun. It can have a monetary as well as an emotional toll on all parties involved. Therefore, if possible, negotiate differences and exhaust all means prior to initiating these legal proceedings.

John M. Lee is a top-selling broker at Pacific Union, specializing in the Richmond and Sunset districts. For questions regarding real estate, call him at (415) 447-6231 or e-mail johnlee@isellsf.com.