Multiple Choice Question: You are the buyer’s agent. Should you include the C.A.R. Arbitration Agreement (ARB) in your buyer’s offer to purchase? Pick the best answer:

A. Yes; it should ultimately be signed by you, the buyer, and the seller.
B. Yes; it should ultimately be signed by you and the buyer only.
C. No.
D. Heck no. 

Answer: The correct answer is D. As background, a few years ago, C.A.R. removed the arbitration clause from the C.A.R. Residential Listing Agreement (not Residential Purchase Agreement). However, our company policy is for listing agents to nevertheless add the arbitration clause back into the listing agreement, using the one-page C.A.R. Arbitration Agreement (Form ARB). The preference for arbitration stems from our company’s business decision that, if a dispute were to arise between our company and a seller, we are better off resolving that dispute through arbitration, rather than litigation.

Adding the ARB back into a listing agreement is not the same thing as adding an ARB to a purchase agreement. The C.A.R. Residential Purchase Agreement (RPA) already has an arbitration clause for the buyer and seller to initial if they want to include it in their purchase agreement. Paragraph 22C(3) of the RPA arbitration clause specifically states that “Brokers shall not be obligated nor compelled to mediate or arbitrate unless they agree to do so in writing.”

That broker exclusion from the mediation/arbitration in paragraph 22C(3) of the RPA can work as an advantage for us as the buyer’s broker. Most legal claims involving real estate transactions stem from a buyer’s assertion after close of escrow that something was not properly disclosed. When that occurs, the broker exclusion in paragraph 22C(3) forces the buyer and buyer’s attorney to bifurcate their claims. They must generally proceed with mediation/arbitration as against the seller (claim #1), but file a lawsuit against us as the buyer’s broker (claim #2).

The buyer could pursue claims #1 and #2 separately, but simultaneously. In practice, however, buyers will generally just go after the seller first through mediation/arbitration. If that mediation/arbitration resolves the buyer’s claim, or the buyer loses interest in pursuing the claim or runs out of money to pay for attorneys’ fees, we may never get dragged into the dispute.

If, however, we mistakenly signed and incorporated an ARB into the purchase agreement and the buyer and seller do not resolve their dispute in a buyer-seller mediation, the buyer will not need to bifurcate his or her claims any longer. The buyer could pursue an arbitration matter against both the seller and us at the same time, and we will lose that advantage of waiting in the wings.

-Thank you to Marilyn Simon (Pasadena Manager) for suggesting this week’s legal tip.

Copyright© 2020 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of August 31, 2020. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.