You’ve placed your home on the market. You’ve completed the escrow process and you’ve received the money and closed your residential real estate transaction. Months go by and then, much to your surprise, you receive a Demand for Mediation from the buyer. 

What is a Demand for Mediation in the Context of a California Real Estate Purchase Agreement?

The Demand for Mediation usually originates from the buyer or the buyer’s attorney and demands that the buyer and seller mediate a dispute between them pursuant to a specific term of the California Real Estate Purchase Agreement. Often times the claims asserted by the buyer are breach of contract, negligent misrepresentation, and/or intentional misrepresentation. 

What Steps Need to Be Taken After Receiving a Demand for Mediation?

The first thing a seller will need to do after receiving a Demand for Mediation is to understand the specific nature of the allegations. What exactly is the buyer alleging? What particular information was allegedly not disclosed? Was the information important to determining the purchase price of the transaction?

The rights and duties of the buyer, the seller, and the brokers are usually explained in a document entitled Statewide Buyer and Seller Advisory, which is provided before or during escrow in residential real estate transactions in California. Other important documents are the Seller’s Questionnaire, the Transfer Disclosure Statement, and the Home Inspection Report. Usually, the real estate agent will have provided the buyer with the Buyer’s Inspection Advisory and all other documents required by the California Civil Code.

The Transfer Disclosure Statement is required by law under California Civil Code section 1102 et seq. The Transfer Disclosure Statement requires the seller to answer numerous questions regarding the condition and characteristics of the property at issue. The Buyer’s Inspection Advisory is a document that provides the buyer with specific notice of important items, such as noting that the physical condition of the land and improvements being purchased is not guaranteed by the sellers or brokers. The Buyer’s Inspection Advisory advises the buyer to investigate the condition and suitability of all aspects of the property. The Buyer’s Advisory also explains the buyer’s duty to exercise reasonable care to protect him or herself in connection with the purchase transaction. The impact of these disclosure documents on your matter will need to be carefully evaluated before participating in mediation. 

What Can I Expect During the Mediation Process?

It is important to note that a mediator has no power to order a party to do anything. Rather, the mediator uses his or her skills to create common ground and to hopefully bring the case to a reasonable resolution. Sometimes the issue is simple and can be resolved in a short mediation between the parties or sometimes even through negotiations between counsel before the mediation. Often the parties strongly disagree regarding the facts surrounding the transaction and they are unable to settle their dispute in mediation. At that point the matter may proceed to a binding arbitration or to Superior Court.

During the mediation process, most skilled mediators will seek to understand and acknowledge the parties’ respective positions and attempt to facilitate settlement communications in order to bring the matter to a resolution. In addition to a facilitative approach, some mediators will take an evaluative approach in weighing the strengths and weaknesses of the parties’ positions, all the while maintaining neutrality. If the matter does settle, it is crucial that the parties enter into a written settlement agreement with proper releases and waivers. Ideally, the parties will be prepared to sign the written settlement agreement upon completion of the mediation or very soon thereafter.  While there are common situations, each case is unique and must be considered based upon its specific facts.

Generally speaking, a buyer alleging breach of contract will be required to establish that the seller breached a specific provision of the real estate purchase agreement and that the breach was the cause of damages suffered by the buyer. In a claim for nondisclosure, the buyer will be required to establish that the seller failed to disclose important information regarding the value or desirability of the property. A matter can become even more complex when the buyer or seller is unhappy with the advice received from their real estate agents. Real estate agents owe fiduciary duties to their clients and there may be situations where this duty is breached.

What Can a Buyer and Seller Do to Avoid Risk Arising out of the Purchase/Sale Transaction? 

On the buyer’s side of the equation, it is critical that appropriate inspections are obtained, that the Seller’s Questionnaire and Transfer Disclosure Statement are carefully read, and that follow up questions are asked prior to closing escrow. On the seller’s side of the equation, it important that the Seller’s Questionnaire and the Transfer Disclosure Statement are accurately completed. It is also advisable to carefully review the Statewide Buyer and Seller Advisory. Whether you are the buyer or the seller, navigating these waters can be extremely tricky and it is important that you seek counsel from an experienced real estate attorney. The good news is that only a small percentage of residential real estate transactions result in a Demand for Mediation and most matters are resolved without the need for binding arbitration or trial in Superior Court.