The Binding Arbitration Clause

Why You Should Never Sign a Real Estate Contract with a Binding Arbitration Clause

I never fully realized how the entire system is designed to enable real estate dishonesty against buyers—from insurance policies to the binding arbitration clauses in standard real estate contracts. The moment a buyer signs, they are disenfranchised, even though most real estate lawsuits involve buyers suing because realtors or sellers failed to disclose key information, or a home inspection was misleading.

1. Buyers bear the full financial burden.

   • Buyers must pay out-of-pocket for their attorney, serving fees, and arbitration costs—which are not shared with the seller or realtor.

   • Since most real estate lawsuits are brought by buyers, this shifts the burden of dishonest realtors and sellers onto the buyer. You also pay for the arbiter who is generally a judge when in a trial you don't have to pay for the judge. It is a complete scam on buyers of real estate to enable dihonest realtors at the expense of buyers.

   
   

2. Insurance companies fund defendants — but not the buyers who 99% of the time are the plaintiffs.

   • Defendants—realtors, sellers, and even home inspectors—often have attorneys paid for by insurance while buyers must pay for their own legal representation.

   • If a buyer is harmed by non-disclosure, they have no insurance support to cover legal costs.

     
     

3. Limited discovery hurts the buyer.

   • Unlike normal litigation, arbitration restricts discovery, preventing buyers from gathering full evidence.

   • Why should buyers be denied the ability to properly investigate fraud?

     
     

4. Third-party blame can lead to automatic losses.

   • Real estate transactions often involve third parties (e.g., home inspectors).

   • If those third parties aren’t included in the arbitration, sellers and realtors can simply shift blame to someone who isn’t present—leaving the buyer with no recourse.

     
     

5. No right to appeal.

   • Arbitration is binding, meaning the buyer loses the right to appeal, even if the decision is unfair or biased.

   • The arbitrator has no accountability and no obligation to ensure a just outcome.

     
     

6. Potential conflicts of interest.

   • Arbitrators may have prior relationships with insurance attorneys—introducing bias.

     
     

7. Risk of legal repercussions for pro se plaintiffs.

   • If a buyer represents themselves ("pro per"), their case can be used against them in future legal battles due to CCP 391 (California’s law against “vexatious litigants”).

     
     

Conclusion: Do NOT Sign a Binding Arbitration Clause

Signing a real estate contract with a binding arbitration clause protects dishonest realtors and sellers while forcing buyers to pay out of pocket. It limits their legal options, weakens their case, and removes their right to appeal. Meanwhile, defendants get their attorneys paid for by insurance—creating an unfair playing field.

To protect yourself, always negotiate to remove the arbitration clause before signing a real estate contract. It could make all the difference if you ever need to fight for your rights.