Legal Rights & Remedies

What Is Mandatory Arbitration in a Builder Contract?

Quick Answer

A mandatory arbitration clause requires you to resolve disputes with the builder through a private arbitrator instead of going to court. You give up your right to a jury trial and, in most cases, your right to appeal.

The Short Answer

Mandatory arbitration means that if you have a dispute with your builder — whether it is about defective construction, broken promises, or contract violations — you cannot sue them in court. Instead, you must go through arbitration, a private process where a third-party arbitrator (not a judge or jury) decides the outcome.

Almost every major production builder includes a mandatory arbitration clause in their purchase agreements.

How Arbitration Works

In arbitration, both sides present their case to an arbitrator (usually a retired judge or attorney). The arbitrator reviews the evidence and makes a decision, which is typically binding — meaning you cannot appeal to a court even if you believe the decision was wrong.

Arbitration is private. There is no public record of the proceedings or the outcome. This means patterns of builder misconduct may never come to light.

Why Builders Prefer Arbitration

Arbitration tends to favor repeat players. Builders use arbitration frequently and become familiar with the process and the arbitrators. Individual homebuyers typically go through it once.

There is no jury. Studies have shown that arbitrators tend to award lower damages than juries in consumer disputes.

Arbitration is private, so a builder's track record of defects and disputes stays confidential.

Limited discovery rules make it harder for buyers to obtain internal builder documents that might prove their case.

What Rights You Give Up

Your right to a trial by jury.

Your right to appeal the decision in most cases.

Your right to participate in a class action lawsuit against the builder (usually paired with a separate class action waiver).

Your right to a public proceeding where the outcome is on the record.

Is It Enforceable?

In most states, mandatory arbitration clauses are enforceable under the Federal Arbitration Act. However, some states have pushed back.

A few states have found specific arbitration clauses unconscionable when combined with other one-sided contract terms.

The enforceability can depend on the specific language of the clause, the state, and the circumstances of the dispute.