DO NOT AGREE TO THE CALIFORNIA ASSOCIATION OF REALTORS OPTIONAL ARBITRATION CLAUSE IN THE RESIDENTIAL PURCHASE AGREEMENT
In California, the vast majority-if not all-of real estate brokers use the California Association of Realtors (CAR) Residential Purchase Agreement and Escrow Instructions form. The buyer’s agent will present the form to the seller’s agent, with various blanks filled in. This step constitutes the offer to purchase.
The sellers then are given the option of accepting the offer or making a counteroffer. The acceptance is done by signing the last page of the agreement. The counteroffer usually is done on another CAR form that the agents attach to the original offer. The counteroffer can go back and forth until the parties agree on everything.
Within the CAR purchase agreement is an optional arbitration clause that is unfavorable to the buyer and seller and very much in favor of the real estate agents and their brokers. The parties agree to the clause by initialing it. If both parties do not initial the clause, it is not in effect.
What is bad about the clause for the buyer and seller? First, the clause does not require the arbitrator to follow the law. In this regard, it is helpful to remember that “arbitrary” and “arbitrator” have the same root word. The arbitrator may completely ignore the law, and the courts will uphold the arbitrator’s award. The duty of an arbitrator to follow the law can be put into the clause, but the CAR form does not include that requirement.
Second, the parties give up their right to appeal. So if the arbitrator ignores the law or is mistaken about the law, the victimized party cannot go to a higher court to correct the award. The right to appeal can be put in the clause, but again the CAR form does not have it.
Third, the CAR form is so unfair that the agents and brokers do not allow themselves to be covered by it. They only arbitrate if they decide that they will after the dispute has arisen. So when your agent tells you to initial the clause, ask the agent why if it is good enough for you, then why isn’t it good enough for the agent.
There are other problems with the clause, but these basic problems are adequate reasons not to initial the CAR form. If you want arbitration, have a clause drafted by an attorney familiar with these issues and attach that clause as an addendum to the purchase agreement.