The pre-printed real estate contract used by most Maryland real estate companies requires buyers and sellers to mediate any dispute arising out of the contract before filing a lawsuit or instituting an administrative proceeding.
Mediation often is effective in settling disputes. The parties are brought together with a neutral mediator who often can assist them in resolving their conflict. But the real-estate contract does not disclose that each party must pay a $100 administrative fee to initiate mediation and that mediators charge each party $100 for two hours.
Mediation procedures also are not explained - they often take months to complete. While the parties work their way through the process, their legal rights may be impaired and their damages may continue to accrue.
Suppose a seller wrongfully refuses to settle. The buyers want to immediately sue for specific performance, to require the seller to complete the property transfer. The form contract bars this suit until mandatory mediation occurs. In the meantime, the buyers may incur increasing monetary losses.
The contract does not bind real estate brokers to mediate their disputes with buyers and sellers. If a broker claimed a commission from the seller, the broker can sue immediately. The form's mediation paragraph is ambiguous as to whether a claim against an agent or broker must be mediated.
Since mediation can impact legal rights and remedies and involves additional costs and time delays, the real estate industry should fully advise buyers and sellers regarding the pros and cons of mandatory mediation. Mediation is nonbinding, so the parties do not waive their legal rights if the mediation is unsuccessful. But the mediation provision currently used in real estate contracts can be improved through better explanation and an addendum to the contract that outlines costs and procedures.