Advice to Home Buyers
The first thing I tell my Buyer clients when the subject of post-sale legal recourse comes up is, “if you have a bad vibe about this home or this Seller . . . move on.”
With that out of the way, I generally provide this counsel when the subject of arbitration vs. litigation comes up:
Once a sale closes and the Seller has received their money, 99.9% of all legal actions involving residential home sales concern Buyers pursuing Sellers for some defect in the home’s condition.
Specifically, Buyers pursue Sellers when they believe that the Seller knew — or should have known — about some material issue with the home that existed before they transferred title (sold it) to the Buyer.
That’s the legal standard for recovery.
While binding arbitration is faster and cheaper than litigation, the mere threat of litigation can be powerful leverage, and can induce a Seller to settle on terms advantageous to the Buyer.
So, don’t voluntarily waive it.
Reinforcing that stance: if there’s a problem with the home, post-sale, Buyers can always agree to mandatory arbitration later.
“Trust But Verify”
The problem with the foregoing advice is that it makes (at least some) Sellers nervous.
Especially if the Buyer happens to be an attorney (or, two of them!).
So, they may insist on an Arbitration Clause.
Which prompts me to give this advice:
Buyers’ best protection against post-sale legal issues is to scrupulously inspect the home they’re buying (of course, that’s once they’ve reached agreement on terms with the Seller).
A good home inspector will check out the foundation, roof, mechanical’s, etc., and will either flag existing/potential problems, or recommend bringing in a contractor who’s qualified to do so.
“An Ounce of Prevention”
Once those steps have been taken, it’s always smart to buy a home warranty for the first year of ownership, just for added protection (many Sellers will pop for that, depending on what comes up during the Buyer’s inspection).
Once Buyers have done all those things, have meticulously reviewed the Seller’s Disclosure, and have a good vibe about both the home and the owner — the odds of a post-sale lawsuit are infinitesimal.
So, it’s not a major concession to a Seller who insists upon to it to agree to binding Arbitration.
Which is what I recommend my Buyers do in such a situation.
P.S.: My advice to Sellers regarding Arbitration?
If the Buyer includes an Arbitration Addendum . . . sign it! (which — I take pains to point out — in no way relieves their duty to thoroughly disclose what they know about their home’s condition).