Home Builders Require Mediation And Arbitration

Question: We signed the builder’s purchase contract to buy a new home in the San Tan Valley. The builder’s sales agent made numerous false statements, especially in regard to the upgrades that were available in the home. The “bottom line” is that we canceled the purchase contract and demanded our $20,000 earnest money back. The builder refuses to give the $20,000 earnest money back to us. In addition, the builder demands reimbursement for the $28,000 cost of upgrades that the builder says are worthless to any new buyer of the home. Under the builder’s purchase contract we are required to mediate this dispute and, if mediation is unsuccessful, go to arbitration. The mediation and the arbitration will be pursuant to the rules of the American Arbitration Association (“AAA”). Do we have to go to mediation and arbitration?

Answer: Yes. Builders’ purchase contracts generally require mediation and arbitration, usually with AAA. The reason for mediation and arbitration is to try to settle disputes quickly and inexpensively. In addition, the builder wants arbitration, rather than litigation, because the builder does not want the home buyer to have the right to a jury trial, because the jury could be prejudiced against the builder. Although mediation and arbitration are required, the cost of hiring a mediator and an arbitrator can be significantly reduced by not using AAA. In other words, instead of paying fees to AAA to appoint a mediator and, if the mediation is unsuccessful, then appoint an arbitrator, you and the builder can agree to directly hire the mediator or arbitrator. In Arizona there are many excellent mediators and arbitrators, including many retired judges.

Note: Arbitration is basically a mini-trial with documents as exhibits, and the testimony of witnesses. The arbitrator serves as the judge. Arbitration is usually cheaper than litigation, but there is generally no appeal from an arbitration ruling. In other words, if an arbitrator rules that grass is blue, and the sky is green, there is no appeal from that ruling even if there was overwhelming evidence that grass is green, and the sky is blue.