Arbitration (from Investopedia dictionary) is defined as:
An informal hearing regarding a dispute. The dispute is judged by a group of people (generally three) who have been selected by an impartial panel. Once a decision has been reached, there is no further appeal process.
Speed is an important aspect to winning in business and real estate investing. Having a step ahead in the game is a key to success. Litigation is a great way to get mired down. It is costly in terms of time, money and focus. Can you imagine the shift in focus when you get served a petition? Ignoring it is the last thing you want to do – it must be dealt with.
Disputes, however, are common place. The truth is, confusion over the true nature or expectations of an agreement is often revealed much later than one would like – and sometimes someone’s true colors have surfaced far too late to avoid conflict.
As a consequence, I urge you to consider using binding arbitration in any agreement you enter into where it is allowed by law. It may not be available in the landlord tenant arena in your state – so as always consult with counsel before acting on my opinion.
So if you are interested in using this approach note the following advantages:
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5 Advantages to Arbitration
In my book, this is one of the most important reasons to use arbitration. If there is a genuine dispute to the facts of how an outcome should be resolved, arbitration will shave many months or even years it will take to get certainty of the outcome
2. Subject Matter Experts Deciding Outcome
The parties to the agreement will be in position to identify who shall sit on the panel that will decide the outcome. With respect to judges and law juries, sometimes the facts are complex in real estate. Educated subject matter experts can utilized to greatly reduce the risk of a poor decision being made by someone unfamiliar with the subject matter.
3. Cost Effective
Due to the speed and ability to fast track resolution, hourly billing will be a fraction of what preparation for an execution of litigation.
4. More Leverage for the Party in the Right
This one is also of huge importance to me. If you are in the right, the other side will be unable to use court clog as leverage against you. Deep pocket defendants have used this time honored technique to force less favorable settlements.
This is another possible benefit. The ability to resolve disputes away from public scrutiny is sometimes an excellent benefit as well, depending on the situation. As an investor, it’s probably a good idea to keep the nature of your holdings limited to your investors and bankers right?!
Have you used arbitration in your real estate investing? Would you? Leave your comments or questions below!
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