The Oregon REALTORS® purchase and sale agreements all have a “Dispute Resolution” provision that provides next steps when the parties can’t agree on something or when the agreement gets terminated and nobody wants to give up the earnest money. The stance in the OR Forms is that the parties take it to small claims court if possible [issues that are only about less than $10,000 in money], and if the small claims court can’t take the issue, the parties take it to mediation. If mediation fails or nobody follows the mediation outcome, the parties can take the issue to arbitration for a binding resolution.
What are arbitration and mediation? Good question. Let’s start with arbitration. Arbitration is a private gathering of the parties in front of a neutral arbiter. Simply filing an arbitration can cost $700+, so it isn’t a decision to stumble into. Once the arbitration begins, the parties will present their arguments to the arbiter, potentially argue back and forth, but in the end the arbiter will provide a final judgement that is enforceable in a court of law. The arbiter can be a single individual like a retired judge, or can be a council of individuals. Arbiters can also simply be professionals in the field who have immense knowledge and respect in the industry. The arbiter’s award can be brought to a court of law and enforced. For example, the Buyer wins an arbitration and the Seller is required to pay the Buyer for the cost of their inspection. If Seller refuses to pay the Buyer, the Buyer goes to court and the court will “confirm” the award and allow pursuit of remedies just like a person can do when they win a lawsuit. Garnishment and repossession of personal property are both potential options to that Buyer when they ask the court to enforce the arbitration award.
Mediation by contrast is the little brother of Arbitration. A mediation begins with the parties getting together in front of a neutral third party mediator. The mediator will guide the discussion, ask for people’s opinions and thoughts, direct the discussion away from nonproductive debates, and, if necessary, may divide the parties into two separate rooms and ferry information back and forth between the rooms. The mediator has to be a diplomat, whereas the arbitrator is a judge. The result of a mediation, at best, is an agreement between the parties. If the mediator does their job properly, the parties will be able to see through the fog of war and come to a solution that both the Buyer and the Seller can agree upon. If the mediation fails, for example, if a Buyer feels like they are still right despite the mediator explaining that the Seller really is the one in the right, there is no way to enforce the mediated solution [with the exception to that being if the parties are already acting upon the mediated solution, e.g. Buyer agrees to pay seller and tells everyone they’ll do that, but then changes their mind and refuses. The Seller can reasonably say, “The Buyer told me they’d pay XYZ and I relied on that claim.”]. The mediation will regularly come to a positive result though, despite the unenforceable outcome. When given a chance to cool down and allow level heads to prevail, many conflicts resolve voluntarily. Mediations are generally much cheaper than arbitrations, running only a few hundred dollars.