Arbitration clause can help buyers and sellers alike
Most preprinted offer forms today include an arbitration clause that can speed the resolution of any disputes that may arise in a real estate deal and save both parties lots of money in legal fees.
Q. We are considering making an offer on a home. The thing that is troubling us is that the preprinted offer form includes a paragraph stating that any dispute that might arise between us and the sellers would have to be settled by an arbitrator rather than a judge. I have read stories that homebuyers should never sign an arbitration clause because it gives up their right to sue if something goes wrong. What do you think? Also, do we have to accept the arbitration clause because it's printed in the contract?
A. No, you are not obligated to sign the arbitration agreement simply because it's in the preprinted offer form. Most offer forms today include such a clause, but you can strike it by crossing out the paragraph, initialing by its side, and then having the sellers put their own initials next to yours.
I, too, have read many articles lately that try to persuade homebuyers to reject an arbitration clause. Many of them are written by lawyers who would obviously make a lot more money if a real estate dispute goes to court rather than to a mediator or arbitrator.
I personally favor arbitration clauses because they allow the arbitrator to quickly make a low-cost decision about a potential dispute rather than wrapping the home up in lengthy legal proceedings that could force both the buyer and seller to spend thousands of dollars in attorney fees. It's also worth noting that refusing a seller's arbitration clause can make the seller wary about the deal, in part because he or she might feel that you will sue over the smallest thing that could go wrong.
If you're seriously concerned that the deal is headed for trouble or that the seller is dishonest, cancel the sale now and start looking for a different property that's offered by someone who makes you feel more comfortable.
Q. Last year, I received a check for $6,230 from my insurance company to repair the damage that was done when a pipe inside my bathroom walls broke. Do I have to report this amount on my tax return, even though all the money was used for repairs?
A. No. The check that you got from your insurance company simply allowed you to restore the home to its previous condition, so there's no need to report the reimbursement on your income-tax return. Understandably, the fact that your loss was completely reimbursed also will prevent you from claiming a casualty-loss deduction on the return.
Q. Our insurance agent has sent us a few letters offering us something called a "law-and-ordinance endorsement." It seems like it would simply duplicate the coverage we already have. Can you explain how these endorsements work?
A. Sure. Adding a law-and-ordinance endorsement to your homeowners insurance policy would allow you to be reimbursed if your home was damaged or destroyed but extra construction costs were incurred because the property would have to meet higher building standards today than when it was first erected.
For example, many communities across the nation have recently raised the requirements that a new home's electrical system must meet, but waived the new standards for older homes unless the owner seeks a remodeling permit or has to rebuild after a fire or other catastrophe. If your policy did not include a law-and-order endorsement, the insurer would only be required to restore the home to its original condition and you would pay the extra cost of meeting the higher codes. But if the policy instead carried such an endorsement, the insurance company would have to pick up the tab.
• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.
© 2009, Cowles Syndicate Inc.