Resolving Earnest Money Disputes

Question: We signed the standard Arizona Association of Realtors purchase contract (“AAR Purchase Contract”) to buy a home in Glendale. We deposited $12,000 earnest money. The seller, however, didn’t disclose that there was a “pickleball” home next door with loud pickleball tournaments on weekends. Our broker, who is a family friend, told us of this pickleball problem after talking to one of the seller’s neighbors during our home inspection. Therefore, we cancelled the AAR Purchase Contract during the 10-day inspection period. The seller says that we have no right to cancel the AAR Purchase Contract because of a pickleball hobby. The seller instructed our escrow company not to release our $12,000 earnest money back to us. Under our AAR Purchase Contract, we first have to go to mediation with the seller to get our $12,000 earnest money back. If there is no settlement with the seller at this mediation, we then have to go to arbitration under the rules of the American Arbitration Association (“AAA Arbitration”). What is AAA arbitration?

Answer: AAA arbitration requires the appointment of an arbitrator from the AAA-approved list of arbitrators. There are significant AAA administrative costs, however, such as filing for AAA arbitration, paying for the appointment of an arbitrator, and for the scheduling of the arbitration hearing. Because of these significant administrative costs, AAA Arbitration is rarely used by the seller and buyer to resolve disputes under the AAR Purchase Contract. Therefore, if there is no settlement at mediation, the seller and buyer generally go to litigation in the court system. If the seller and buyer still want to go to arbitration rather than litigation, most AAA arbitrators will also act as private arbitrators at the same hourly rate as when they are appointed as an AAA arbitrator, without the seller and buyer having to pay any administrative costs. Excellent private arbitrators (and also private mediators), including retired judges, can be located by a simple Google search.

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