Mandatory Arbitration
Also known as: Binding Arbitration, Forced Arbitration
A contract clause that requires disputes to be resolved through a private arbitrator instead of a court. The buyer gives up the right to a jury trial and, in most cases, the right to appeal.
Detailed Explanation
Mandatory arbitration replaces the court system with a private process. Instead of a judge and jury, a single arbitrator (typically a retired judge or attorney) hears both sides and makes a decision that is usually final and binding.
Almost every major production builder includes a mandatory arbitration clause in their purchase agreements. The clause requires any disputes — about construction defects, contract breaches, or misrepresentations — to go through arbitration rather than court.
Arbitration is private, discovery is limited, and there is generally no right to appeal. Studies have shown that arbitration tends to favor repeat participants (like builders) over one-time participants (like individual homebuyers).
In Your Contract
Look for "arbitration," "dispute resolution," "binding arbitration," or "alternative dispute resolution" sections. The clause may specify the arbitration organization (like AAA or JAMS), the location, and who pays the costs.
Key Points
- 1Requires private arbitration instead of court for disputes.
- 2You give up the right to a jury trial and meaningful appeal.
- 3Proceedings are private — no public record.
- 4Discovery is limited, making it harder to obtain builder documents.
- 5Generally enforceable under the Federal Arbitration Act.
- 6Nearly every major production builder includes this clause.
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