DEAR BERNICE: We just received an offer on our home. In the offer, the buyers had checked both the binding arbitration provision and the mediation provision. It also said that if we agreed to these provisions, we would be giving up our right to sue. What should we do? Our agent said she couldn’t advise us on this. –Randy P.
DEAR RANDY: First, your agent was correct. Unless the agent is a licensed attorney, the agent could lose his or her license for giving you legal advice. Having said that, many Realtor associations have this language in the boilerplate of their contracts.
When I was selling in California, the state-approved contracts allowed the buyers and sellers to agree to mediation and/or arbitration. During mediation a professionally trained mediator helps the parties arrive at their own resolution to the problem. Based upon the research from the dispute resolution department of the Pepperdine Law School, people are more likely to perform when they reach an agreement through mediation as opposed to arbitration or litigation.
In binding arbitration, the parties agree to give up their right to go to court and to permit an arbitration firm to determine the outcome of any future disputes. Many people prefer arbitration because it is often faster and less expensive than litigation. For example, if you were in a dispute about a home in Los Angeles, it could take up to five years to get your case on the Superior Court docket. Arbitrations can be scheduled within weeks or even days.
Arbitrations are normally less expensive than litigation. If you were litigating a dispute, you could easily spend tens of thousands of dollars in depositions and pretrial preparation. If you fail to resolve the dispute and go to trial, you could face tens of thousands more in fees.
Even if you win, you still have the issue of collecting the judgment. One tactic I saw some builders and developers use was to form a separate LLC (limited liability company) for each project they did. If there was a judgment against the LLC, they just bankrupted the LLC and continued doing business under a new LLC.
Even though binding arbitration has some advantages, there has been considerable controversy about its use. If you don’t like the outcome, you will find it difficult to appeal the decision. You probably won’t have access to a jury trial. There are a number of other issues that might make you think twice before agreeing to binding arbitration.
The best course of action is to mediate any dispute if at all possible. In terms of arbitration vs. litigation, speak with a competent attorney who can advise you on which solution is best for you and your circumstances.
DEAR BERNICE: We have lived in our home for 30 years and will be moving to a retirement community near our children. We have never sold a home before and we’re wondering about how much we can expect to net from our sale. I know many agents charge a 5 or 6 percent commission, but are there other fees as well? –Sue R. …CONTINUED
DEAR SUE: There is a rule of thumb that is pretty accurate when it comes to estimating how much you will pay to close your transaction. Generally, it’s how much you negotiate as the commission plus 2 percent. For example, if you sold your home for $200,000 and paid a 6 percent commission, your total closing costs would be approximately $12,000 in commissions and another $4,000 in additional fees for a total of approximately $16,000.
The additional fees you will pay include a title insurance policy that insures the chain of title on the property, recording fees, and an escrow (closing) fee that pays the company who handles the closing of the transaction. If you live in a state where they have attorneys close transactions, you may pay extra in attorney fees. Some states and cities also charge additional taxes on the transfer of property.
There’s one other reason the seller’s closing costs are high. If you have a loan on your property, you may have to make one or two payments to close your transaction. Unlike rent where you pay a month in advance, the mortgage payment you make on June 1 is for the month of May. This amount will be prorated by whoever is responsible for closing the transaction. This means that they will charge you only for the days that you owned the property.
In addition to closing costs, it’s common for buyers to ask you to make repairs as part of the physical inspection process. Personally, I prefer to have my own inspection to uncover what I need to do and handle it before putting the property on the market.
Most real estate contracts also call for a termite inspection. If you have not had your home treated for termites in the last two years, there’s a pretty high probability that there will be termite damage in your home.
If you decide to list with a Realtor, which I highly recommend, be sure to interview at least three agents to find the one who will be best for you. Also, ask for references and research the agent’s reputation on the Web. Good luck on your sale!
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com.
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