Arbitration and the new PRDS Real Estate Purchse Contract

by Deniece Watkins Smith, Realtor

www.dsoldit.com

New Contract

A new Peninsula Regional Data Service (PRDS) Real Estate Purchase Contract, that is used most frequently in purchases and sales of residential properties up to four units in parts of Silicon Valley, has gotten an overhaul. It is available now for use by all Realtors in our area.

One Example of change from the Contract:  Arbitration

Both versions of the contract have an arbitration clause that, when initialed by both the Buyer(s) and Seller(s), causes for any disputes to be handled by an arbitrator, resulting in a final and binding decision which cannot be appealed.  

The previous PRDS Contract (Version 04/07) had an explanation of arbitration in paragraph 7A which read as follows:

"Explanation: Arbitration is a private dispute resolution process in which Parties (by themselves or through their attorneys) submit disputes to a neutral arbitrator who is charged with rendering a fair and impartial decision as to all issues presented. When arbitration is selected, the Parties give up their rights to trial by judge or jury and to full and formal court process. Basic discovery rights (e.g., depositions, document production) are provided for under California law. Rules of evidence and procedure are less rigid than in trial court. Arbitration fees are typically on an hourly basis. The decision of the arbitrator is final and binding on all Parties to the arbitration agreement (Paragraph 7B). The arbitrator can award compensatory damages, punitive damages, and/or order specific performance, injunctive relief and declaratory relief. No trial or other court process is available to re-try the case or to appeal the merits of the arbitrator's ruling. This means that even when a party claims the arbitrator made a clearly wrong decision, based on a misunderstanding of fact or of law or an unwillingness to follow the law, that decision nevertheless remains final and unappealable. Only in cases of actual fraud in the arbitration process, corruption, bias, lack of due process or jurisdiction, or arbitrator's computation error, can an award be vacated or modified. The Parties are advised to confer with legal counsel for advice before committing to binding arbitration."

Some brokerages advise Realtors not to give advice with regards to arbitration.  It is the Buyer(s) and Seller(s) responsibility to decide if they want to initial this clause, which includes it as part of the contract.  In my experience, when I show the highlighted sentence in the explanation to my clients, most have chosen not to initial the Arbitration clause.

The new PRDS Real Estate Purchase Contract (Version 5/11) has Arbitration moved to paragraph 27B, which consequently, is page 8 of 9 in the contract.  Having it be located later in the contract may cause for less enthusiasm when covering this subject, yet still has heavy implications.  This new section reads:

"By initialing below, Buyer and Seller agree to submit any disputes between them concerning and/or arising out of this Contract to binding arbitration if those disputes are not resolved by mediation. Arbitration is a dispute resolution process in which the Parties, either on their own or represented by their attorney, submit disputes to a neutral arbitrator. The arbitrator shall be a retired Superior Court judge or a licensed California attorney with at least five years’ real estate experience. If the Parties cannot agree on an arbitrator, the Superior Court shall appoint the arbitrator. By agreeing to arbitration, the Parties give up their rights to a trial by judge or jury. The decision of the arbitrator is final and the Parties are giving up their right to appeal, except as provided by California law. Arbitration shall be conducted pursuant to Title 9 of the California Code of Civil Procedure including, but not limited to, the right of discovery under Section 1283.05. The decision of the arbitrator is final and binding on all Parties to the arbitration agreement. The real estate licensees are not required to arbitrate. The Parties are advised to consult with an attorney before agreeing to binding arbitration."

Notice that the highlighted sentence from the older version of the contract has been left out of the new explanation. 

I took the time this week to discuss this matter with two of the attorneys who wrote the contract. The conclusion is that the sentence highlighted above is still implied as truth.  This means that when initialed, arbitration is still final and binding on all parties even when the Arbitrator was unwilling to follow the law!

Summary

I've highlighted one nuance that stands out in the new contract that has affect on all parties to the contract.  There are 32 paragraphs in the new contract.  It is nine pages long.  Using a Realtor who is absolutely familiar with what your contract really says is essential when you're buying or selling a home in our area.