Don’t automatically sign optional arbitration agreements: stop, think, and

In Minnesota (and probably many other states), there is a document called an arbitration agreement that often shows up in home purchase documents, either with the purchase agreement or at closing. This is an optional document. You don’t have to sign it. And you probably don’t want to.

Arbitration is just like court, except with some key differences. You try your case to an arbitrator, which is a retired judge if you are lucky, but more likely a lawyer who works for the arbitration company (usually the American Arbitration Association or National Arbitration Forums). The rules of procedure and evidence are different, and often looser. You have no right of appeal to the court system, only to an internal panel of more arbitrators–or sometimes to the arbitrator you tried the case in front of. Filing fees are several times more expensive than filing fees in court, and unlike a judge, you pay the arbitrator by the hour. Finally, you may also be agreeing to arbitrate in a state in another part of the country instead of suing in your local district court.

What are the advantages? If you are a large company that gets sued often, arbitration ends up being cheaper than court due to attorney fees–arbitration is less formal and therefore less work for an attorney–and arbitrators tend not to bite the hand that feeds them, so corporations seem to do better in arbitration rather than court, where they must face an impartial judge or jury.

Finally, you can always change your mind later. If the seller, lender, realtor, etc. wants to arbitrate now, they would probably be happy to arbitrate later.

In court, your rights are protected by transparency, well-established and well-examined rules of procedure, case law, and appellate review. None of these apply in a closed-door arbitration proceeding. Since the arbitration agreement is optional, don’t sign it unless you know what it says, you like what it says, and you know what you are getting into by signing. And be thankful it isn’t mandatory.