Binding Arbitration

Definition of "Binding arbitration"

Written by

Donna Campbell

Fowlkes Realty Co.

A binding arbitration is a way to solve disputes without going to court.

An alternative to the more expensive and lengthy legal procedures, a binding arbitration is basically the process of two parties agreeing (binding themselves) to the decision of an assigned impartial third party that will act as the judge of their dispute.

When a real estate dispute is to be solved by a binding arbitration, this impartial arbitrator – or a panel of arbitrators - must listen to the arguments of the two parties before issuing its judgment;  which both parties must comply with. The ruling of a binding arbitration rarely gets reversed later in the court of law.

The whole binding arbitration process starts with a binding agreement in which both parties select the arbitrator (or panel of arbitrators) and the procedures or rules that will govern the judging of possible future grievances. After that, the binding parts can engage in a time-period called “discovery”, where both parties produce factual evidence to protect themselves in the case of a future dispute. That is: they can invoke documentation from the opposing party and even require witness statements regarding specific subjects to be recorded in front of the arbitrator. This is done and recorded as part of the binding arbitration as a way to outline everyone’s view of the case prior to any possible problem arising. With this material serving as evidence, should something happen, all parties can guide themselves toward a fair resolution.

Although most binding arbitrations are voluntary by nature, there are some states - Minnesota, New York and New Jersey, for example - that have adopted obligatory arbitrations on specific cases - mostly dealing with insurance - as a way to clear up litigation workload from courtrooms and speed the traditional legal justice system as a whole.

In many ways, binding arbitrations trumps litigation. It’s more efficient by being faster and less expensive, and has more way room to decide over things that lack legal jurisprudence.

Real Estate tip:

Although once signed you’re basically on your own, it’s a good idea to have a real estate agent and a real estate lawyer to advise you when drafting the binding agreement. Find the best one for you in The OFFICIAL Real Estate Agent Directory®.