The Truth About Arbitration in Real Estate

If you ever made an offer on a property in California, you have read an Arbitration Clause. This clause only becomes a part of the contract if both buyer and seller agree to it, meaning they both initial the clause in the contract. And more than likely your agent told you to agree to it because “everyone does” or “it’s better than court” or for no reason at all. Well, agreeing to Arbitration may not be the right decision for you. Let me break it down for you.

Before You Get to Arbitration There’s Mediation

If a dispute arises in a real estate transaction over more than $10,000, buyers and sellers in California are required to go to mediation. Mediation is designed for both parties to find a compromise. You may find yourself in a situation where you don’t believe you should compromise. It doesn’t matter — you have to go to mediation. However, as long as you show up to mediation, you have met your contractual obligation. You aren’t required to come to a meeting of the minds. (If the value in question is less than $10,000, you would go to small claims court which is a lot cheaper and expedient.)

Next Step Arbitration

Assuming you have tried Mediation or you showed up for Mediation and promptly left, then your next step is Arbitration if you have agreed to it. Arbitration is voluntary but the decision is binding.

Advantages of Arbitration over Court

1. Your case will be heard faster.
2. The case will be resolved more quickly.
3. It will cost less.

Disadvantages of Arbitration

1. You don’t get a jury trial. If you go to court, your case will be heard by a jury of your peers.
2. There is no appeal process; the decision is binding.
3. Although it’s cheaper than court, you have to pay for it in a shorter amount of time while court & lawyer fees are spread out over
a longer period of time.

When I explain this to my clients, they typically don’t sign the Arbitration clauses. They understand that it’s still an option later on. But if a seller is dead set on it, then it can be agreed to in a counter offer. I will say that I’ve never had an client who’s an attorney that was willing to sign an Arbitration clause. And for that matter, the E&O insurance companies typically don’t want Brokers to sign these clauses in listing agreements, because they want to leave their options open.

It’s always a good idea to ask legal counsel if you are unsure of what to do.

The Truth About Appraisals

Let’s face it, appraisals are one of the scariest parts of a real estate transaction. It can cause a deal to implode very quickly. It’s one of the reasons why having an experienced listing agent on your side is crucial. An agent has to sell a home twice: first to the buyer then to the agent.

My Strategies to Help Overcome Challenging Appraisals:

Appraisal Appointment

I never let an appraiser go to a property unaccompanied. Many appraisers have supra keys; if they think a property is vacant, they will go on their own and then you’ve missed your only opportunity to make an impact on the appraisal. I always meet the appraiser. And I make sure I come armed with recent sales, detailed information about the subject property, and any market stats that may prove helpful.

Engage the Appraiser

It never hurts to engage the appraiser. I’ve often heard complaints that an appraiser wasn’t interested in what the agent had to say. I’ve never had that experience. And I always found that if you position yourself in a supporting role and on the appraiser’s team, they are typically receptive to what you have to say and appreciate the effort you’ve made.

Demonstrate Value

If there’s something special about the property, I make sure I highlight it. Showing value to the appraiser is crucial to their calculations. I have put together shiny marketing materials specifically targeting the appraiser in order to illustrate what makes the house unique and worth the price we have sold it at.

Support Your Price with Other Offers

If you had multiple offers on a property, show those offers to the appraiser to reinforce the sales price. Buyers ultimately set the price and if you have more than one buyer making similar offers, it’s only more proof that your sales price is justifiable.

 

Additional Tips for Appraisals

It’s also good to know the rules that the appraiser needs to adhere to. When doing¬†appraisals, they can use comps as far back as one year. Lenders always want to see a comp at the asking price, a comp below the asking price, and one above the asking price. If you have a challenging property, you may want to consider getting an appraisal done prior to going on the market. It will help prepare you for what to expect and if the appraisal is strong, I share it with the appraiser in the transaction.

Housing Inventory Climbing in Redondo Beach

Over the past few months, we have seen an increase of homes on the market in Redondo Beach. Properties are sitting for a longer amount of time. There aren’t as many buyers clamoring over listings, creating bidding wars. And sellers are accepting offers that a year ago they wouldn’t have looked twice at, including contingent offers. All of these factors reflect the slow down that has been expected and seemed imminent, and quite frankly inevitable.

Increased Housing Inventory – What does It Mean?

There is definitely a change in the air. Buyers are having an attitude adjustment. They aren’t exhibiting the anxiety that was the driving force behind the real estate market these last five years. Now, they seem to be taking their time and are not rushing to make an offer on a property the minute they see it.

This all seems to indicate that we are on a “turn” in the market. We’re shifting from a seller’s market to supposedly a balanced market where neither buyer or seller has the upper hand. Last go round, we skipped the balanced market altogether. We went from the buyer’s market (2010 – 2012) right into a seller’s market. This time I think it will be a slower transition.

Rising interest rates will also contribute to this market slowdown. Buyers may take pause as they adjust to new rates. If the rates climb high enough, it should put downward pressure on pricing as well which should ultimately propel housing inventory even higher.

What does this mean for Buyers and Sellers?

As housing inventory increases and the market becomes more challenging for sellers, it is more crucial than ever that sellers properly prepare their homes for sale. Curb appeal and the emotional reaction from buyers is more important than ever if you don’t want your home to grow stale on the market collecting dust, not offers. Some staging may be necessary. Professional photos are more important than ever. A smart pricing strategy is important in any market, but again more than ever you want to be smart about your marketing strategy. On the other hand, buyers can finally take a deep breath and possibly take back some of the power. They could find themselves in the driver’s seat if properties start to languish on the market.

If this is a true balanced market, then there will be more negotiating and more concessions. Buyers won’t have to go above and beyond to get a deal done, but sellers will still get a fair price for their homes. I will continue to monitor the market and keep you apprised of any more changes in housing inventory and the health of the market.