When buying or selling a home, most of the focus is naturally on negotiations, inspections, and closing dates. However, standard purchase agreements also include decisions about how potential disputes after closing will be handled.
At MOVE, our commitment to client education means ensuring you have the information you need to make informed choices. One option available to buyers and sellers in Minnesota is Residential Real Property Arbitration.
Because real estate brokers and agents are legally prohibited from providing legal advice under Minnesota and Wisconsin state statutes, we cannot advise you on whether you should or should not agree to arbitration. Instead, this guide breaks down how arbitration works, outlines its pros and cons, and answers frequently asked questions based on information published by Minnesota Realtors® and administered by the National Center for Dispute Settlement (NCDS).
What is Residential Real Property Arbitration?
Arbitration is an out-of-court dispute resolution process. Instead of going to court and presenting a case before a judge or jury, the parties present their case to an independent, neutral third party called an arbitrator.
In Minnesota, the residential real property arbitration program is specifically designed to resolve post-closing disputes regarding material facts affecting the use or enjoyment of the property (such as non-disclosure of known property defects, water intrusion, or undisclosed physical issues).
Key Rules to Know:
- Voluntary Agreement: You are not required to sign an arbitration agreement. To be valid and binding, the agreement must be signed by all buyers, sellers, and their respective real estate agents/licensees at the time the Purchase Agreement is signed.
- Exclusion of Small Claims: The Minnesota arbitration program excludes claims for $20,000 or less (the Minnesota Conciliation Court limit). Claims under this threshold are typically handled in Conciliation Court (small claims court), which is already designed to be fast and inexpensive.
- Binding Decision: The decision made by an arbitrator is final and legally binding, with extremely limited rights to appeal.
Pros and Cons of Real Estate Arbitration
To help you decide whether arbitration aligns with your preferences, consider the following general comparison between arbitration and traditional court litigation:
Frequently Asked Questions (FAQs)
1. Who makes up the arbitration panel, and who chooses the arbitrator?
Arbitration for Minnesota residential real property is administered by the National Center for Dispute Settlement (NCDS). NCDS provides a list of qualified arbitrators (experienced real estate attorneys, inspectors, contractors, etc.) to all parties involved. Each party ranks their choices and strikes unapproved names to mutually select an arbitrator. Standard cases are decided by a single arbitrator, though a 3-member panel can be requested for an additional fee.
2. Is there a deadline to file an arbitration claim?
Yes. Under the program rules, a Demand for Arbitration must be filed within 24 months of the property closing date, unless actual fraud is alleged.
3. Do I need an attorney if I choose arbitration?
While you are not required to have an attorney, you have the right to hire one to represent you during arbitration proceedings. If you decide to be represented by counsel, you must give proper notice to NCDS and the other parties prior to the hearing.
4. Can an arbitration agreement be signed after closing?
If an arbitration agreement was not signed at the time of the Purchase Agreement, the parties can still mutually agree in writing to submit a dispute to arbitration after a problem arises.
5. Does arbitration cover commission disputes?
No. This arbitration program is strictly for resolving material non-disclosure disputes related to the physical property. Commission disputes between real estate brokerages are handled separately through the Realtor® Code of Ethics enforcement process or standard commercial channels.
6. What happens if the losing party does not pay the award?
Neither NCDS nor Minnesota Realtors® collects or enforces arbitration awards. Under Minnesota law (Minn. Stat. Ch. 572B), an arbitration award can be filed and confirmed in state district court to obtain an enforceable court judgment (which can then be collected via standard procedures such as bank levies or garnishments).
Making Your Decision
Deciding whether to sign an arbitration agreement is an individual choice that depends on your comfort level with dispute processes, risk tolerance, and personal preferences regarding speed, privacy, and court access.
Because real estate agents cannot offer legal guidance or advise you on whether or not to choose arbitration, we strongly recommend consulting a licensed real estate attorney if you have legal questions or want personalized advice prior to signing the Purchase Agreement.
For further reading, you can review the full Minnesota Residential Real Property Arbitration Rules provided by the National Center for Dispute Settlement (NCDS) and Minnesota Realtors®.
