Arbitration Clauses in Real Estate
An arbitration clause is a contract provision that requires the parties to resolve disputes through arbitration rather than litigation (court). In real estate, arbitration clauses appear in purchase contracts, lease agreements, brokerage agreements, and partnership documents. The goal is faster, cheaper, and more private dispute resolution.
How arbitration works
When a dispute arises, the parties select a neutral arbitrator (or panel) — often an experienced real estate attorney or retired judge. Both sides present their case in a hearing that is less formal than court. The arbitrator issues a decision, which may be binding (final and enforceable like a court judgment) or non-binding (advisory, with the option to proceed to court).
Binding vs non-binding
Binding arbitration: The arbitrator's decision is final. You give up your right to a jury trial. Most commercial real estate contracts use binding arbitration. Appeals are extremely limited — courts will overturn an arbitration decision only in cases of fraud, bias, or exceeding the arbitrator's authority.
Non-binding arbitration: The arbitrator's decision is a recommendation. Either party can reject it and proceed to court. This is sometimes used as a mandatory step before litigation to encourage settlement.
Pros and cons
Pros: Faster than court (weeks to months vs years), lower legal costs, private (no public record), arbitrator may have industry expertise, more flexible scheduling.
Cons: Limited discovery (harder to get information from the other side), limited appeal rights, arbitrator fees (the parties pay the arbitrator directly), may favor repeat players (companies that arbitrate frequently), gives up jury trial right.
In wholesale contracts
Whether to include an arbitration clause in your wholesale contracts depends on your risk tolerance. Arbitration is generally faster and cheaper, which favors the party who wants to resolve disputes quickly. If you are the one more likely to be sued (as the wholesaler between buyer and seller), arbitration may be advantageous.