Two paragraphs buried in the back of a California Association of Realtors® purchase agreement decide more about the economics of a residential real estate dispute than most of the terms the parties actually negotiated. One conditions the recovery of attorney fees on a step that must be taken before a complaint is filed. The other, if both sides initial it, can remove the dispute from California procedural law entirely and strip away a statutory protection the Legislature wrote specifically for real property buyers.
Neither result is obvious from reading the form. Both are settled.
Failing to Request Mediation Before Filing Suit Forfeits Attorney Fees, and the Courts Enforce That Literally
A party who prevails at trial on a C.A.R. purchase agreement but who filed the complaint without first attempting mediation recovers nothing in fees. Not a reduced award. Nothing.
The C.A.R. residential purchase agreement pairs a prevailing-party fee provision with a mediation provision, and it makes the first expressly subject to the second. In Frei v. Davey (2004) 124 Cal.App.4th 1506, sellers who prevailed after a full trial and an appeal lost their fee award entirely because they had refused the buyers’ request to mediate. The court held that the provision means what it says and will be enforced.
(Id. at p. 1508.) A party who receives a mediation request must respond within a reasonable time. Treating a cancelled contract as terminating the obligation to respond does not preserve the fee claim.
Four years later the Third District applied the same rule to the party on the other side of the caption. The plaintiff in Lange v. Schilling (2008) 163 Cal.App.4th 1412 filed suit first, offered mediation afterward, won at trial, and lost his fee award on appeal. Substantial compliance is unavailable, because the mediation requirement operates as a condition precedent rather than as an aspirational preference. The Court of Appeal had reached the same conclusion eight years earlier in Johnson v. Siegel (2000) 84 Cal.App.4th 1087, 1101, and the standard of review for the legal basis of a fee award had been settled in Leamon v. Krajkiewcz (2003) 107 Cal.App.4th 424, 431.
The trap that catches sophisticated parties is the symmetry of the rule. A defendant does not inherit the plaintiff’s forfeiture. In Cullen v. Corwin (2012) 206 Cal.App.4th 1074, the buyers filed suit without requesting mediation, then requested mediation twice; defense counsel refused, reasoning that discovery had to precede any productive settlement discussion. The defendants won at trial. The Third District reversed their fee award anyway. The plaintiff’s failure to request mediation before filing does not excuse the defendant from responding to a request made after filing. Both sides can forfeit fees in the same case, on the same contract, for opposite reasons.
Practical consequence for a party contemplating suit on a C.A.R. agreement: send a written mediation request, document its transmission, and preserve the response or the silence that follows. That file costs an hour. The fee exposure it protects is frequently six figures.
Where the Real Estate Arbitration Statute Lives: Code of Civil Procedure Title 9.4
California’s real estate arbitration statute sits at Code of Civil Procedure section 1298 and the sections that follow it, under the heading “Real Estate Contract Arbitration.” The misattribution to the Civil Code is common enough in secondary sources to be worth stating plainly, because a search for the wrong code produces nothing.
Section 1298 imposes drafting formalities rather than substantive limits. Any contract to convey real property that contains a binding arbitration provision must title that provision “ARBITRATION OF DISPUTES” and set it in at least 8-point bold type, or in contrasting red at 8-point type, in a printed contract. (Code Civ. Proc., § 1298, subd. (a).) Subdivision (c) then prescribes the exact text of the notice that must appear immediately before the space for initials and immediately after the arbitration provision itself, and requires that notice to be set in at least 10-point bold type or contrasting red 8-point bold type. The statutory notice tells the signer that initialing surrenders the right to a court or jury trial and the judicial rights to discovery and appeal, and it closes by stating that agreement to the provision is voluntary.
Two further subdivisions matter in litigation and are almost never discussed. Subdivision (d) preserves the authority of courts over real property matters involving court supervision, naming probate, marital dissolution, foreclosure of liens, unlawful detainer, and eminent domain. Subdivision (e) preserves an escrow holder’s right to interplead notwithstanding an arbitration provision in escrow instructions.
The January 1, 2025 Amendment Pulled Buyer-Broker Representation Agreements Into the Statute
Assembly Bill 2992 (Stats. 2024, ch. 516) amended section 1298, and the amendment is narrow, specific, and consequential. Subdivision (b) previously reached contracts between principals and agents in real property sales transactions, including listing agreements.
As of January 1, 2025, it reaches those contracts including, but not limited to, listing agreements
and buyer-broker representation agreements, as defined in Section 2079.13 of the Civil Code.
Nothing else in the section changed.
The significance is a matter of timing rather than text. The same bill added Civil Code section 1670.50 and amended Civil Code section 2079.13 to require a written buyer-broker representation agreement, executed no later than the buyer’s offer to purchase. Before 2025 California required a written listing agreement between a seller and the listing broker but required no written agreement between a buyer and the buyer’s agent. Now every represented California buyer signs one, and the Department of Real Estate has adopted implementing regulations fixing the meaning of the statutory three-month term limit at 90 calendar days.
An arbitration provision inside that newly mandatory agreement is now subject to section 1298’s captioning, type-size, notice, and separate-initialing requirements. A buyer who initials an arbitration clause in a broker representation agreement has agreed to arbitrate claims against the broker, including commission disputes and claims arising from the broker’s inspection and disclosure duties under Civil Code section 2079. That is a distinct arbitration agreement from the one in the purchase contract, with a distinct counterparty, and it may exist even where the purchase agreement’s arbitration paragraph was left uninitialed.
One Word in the Arbitration Paragraph Determines Whether California or Federal Procedural Law Applies
This is the point on which C.A.R. arbitration litigation now turns, and it developed across three published decisions and one quiet revision to the form.
Start with the protection at stake. Code of Civil Procedure section 1281.2, subdivision (c), permits a California court to refuse to compel arbitration when a party to the arbitration agreement is also a party to pending litigation with a third party arising out of the same transaction, and there is a possibility of conflicting rulings on a common issue. In a real estate case that circumstance is ordinary rather than exceptional. The buyer sues the seller, both brokers, an inspector, and a contractor; only the seller signed the arbitration paragraph; the court keeps the whole dispute in one forum. The Federal Arbitration Act contains no equivalent, so the availability of section 1281.2(c) frequently determines whether the case is tried or arbitrated.
In Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 784, the Court of Appeal held that a C.A.R. form directing arbitration as provided by California law
made the motion to compel a question of California procedural law, and it remanded for the trial court to apply section 1281.2(c). C.A.R. responded by adding a sentence stating that interpretation of the arbitration agreement would be governed by the Federal Arbitration Act. That did not work. Valencia v. Smyth (2010) 185 Cal.App.4th 153, 176–179, held that agreeing to interpret an arbitration agreement under federal law does not displace section 1281.2(c), because the two statutory schemes employ the same rules of contract interpretation.
C.A.R. then substituted one word. The form began providing that enforcement of the agreement to arbitrate would be governed by the Federal Arbitration Act. In Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, the Second District held that the substitution accomplished what the earlier language had not. Because chapter 2 of title 9 of part 3 of the Code of Civil Procedure is itself captioned “Enforcement of Arbitration Agreements,” a contractual election of federal law to govern enforcement removes the trial court’s authority under section 1281.2(c). (See Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 387, 394.) Competing references to California law elsewhere in the same paragraph did not change the result, because a specific provision controls over a general one and because a statement that a party “may” be compelled to arbitrate under California law is permissive while the federal election is mandatory.
The second holding in Victrola is the one that surprises buyers. Code of Civil Procedure section 1298.7 provides that an arbitration provision in a covered real estate contract does not preclude or limit any action for bodily injury or wrongful death, or any action governed by the construction-defect limitations periods of sections 337.1 and 337.15. On its face that carve-out lets a buyer litigate defect claims regardless of the arbitration clause. It is preempted where the Federal Arbitration Act governs, because it is a state rule applicable only to arbitration agreements. (Victrola, supra, 46 Cal.App.5th 337; Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 235; Basura v. U.S. Home Corp. (2002) 98 Cal.App.4th 1205, 1212.) A buyer suing over undisclosed construction defects who assumed section 1298.7 preserved a judicial forum discovers otherwise at the hearing on the motion to compel.
Read the executed contract rather than a summary of the form. Paragraph numbering moves between C.A.R. revisions, and the arbitration paragraph a party signed in 2009 is not the paragraph a party signed in 2019. The operative question is whether the document elects federal law for enforcement, and that sentence has to be located in the version actually signed.
Brokers Are Not Bound to Arbitrate Unless They Separately Agree in Writing
The C.A.R. arbitration provision extends to disputes with brokers only where the broker agrees in writing to arbitrate, either before the claim is presented or within a reasonable time afterward. (See Victrola, supra, 46 Cal.App.5th 337 [quoting the form].) A broker facing a claim it prefers to try before a jury simply declines. A broker facing a claim it prefers to arbitrate consents.
That election is not merely the broker’s problem. Where the broker stays out, the buyer is litigating against a nonsignatory in the same transaction, which is precisely the predicate for section 1281.2(c) — assuming the contract has not elected federal law and taken that section off the table.
Nonsignatories on the other side present the mirror image. Equitable estoppel permits a nonsignatory defendant to compel a signatory plaintiff to arbitrate where the claims against the nonsignatory are intimately founded in and intertwined with the contract. In Victrola the seller’s affiliated entity and its principal, neither of whom signed the purchase agreement, were held entitled to enforce the arbitration provision because the buyer had named them in seven of nine causes of action, all resting on the purchase agreement and the transaction it produced. (Victrola, supra, 46 Cal.App.5th 337.) Pleading around the arbitration clause by suing the entity’s principal does not work when the claims depend on the contract.
Mediation Confidentiality Is Broader Than Most Parties Expect and Admits No Judicial Exceptions
California mediation confidentiality is governed by Evidence Code sections 1115 through 1129. Section 1119 bars evidence of anything said, and any writing prepared, for the purpose of or in the course of a mediation, and makes those communications inadmissible and not subject to discovery.
The California Supreme Court has refused to create exceptions. There are no judicially crafted carve-outs beyond those the Legislature enacted. (Foxgate Homeowners’ Assn. v. Bramalea California, Inc. (2001) 26 Cal.4th 1; Rojas v. Superior Court (2004) 33 Cal.4th 407, 416.) The privilege cannot be impliedly waived by litigation conduct; waiver requires express agreement conforming to the statutes. (Simmons v. Ghaderi (2008) 44 Cal.4th 570, 582–583, 586.) And in Cassel v. Superior Court (2011) 51 Cal.4th 113, the court held that private discussions between a client and his own attorneys, conducted for the purpose of a mediation, remain confidential even in the client’s later malpractice action alleging that those attorneys coerced him into a bad settlement.
Cassel produced the statute that most California attorneys still overlook. Evidence Code section 1129, effective January 1, 2019, requires an attorney representing a client in a mediation or a mediation consultation to provide the client a printed disclosure of the confidentiality restrictions and to obtain the client’s signed acknowledgment, as soon as reasonably possible before the client agrees to participate. The disclosure must be in the client’s preferred language, in at least 12-point font, on a single page not attached to any other document, and signed and dated by both attorney and client. Subdivision (d) supplies safe-harbor language. Class and representative actions are excepted. Noncompliance does not invalidate a mediated settlement, but it is admissible in an attorney disciplinary proceeding.
A Mediated Settlement Is Unenforceable Unless the Writing Says It Is Binding
Parties who reach terms at mediation and memorialize them in a signed document routinely discover that the document cannot be shown to a judge.
Evidence Code section 1123 exempts a written settlement agreement prepared in the course of a mediation from section 1119 only if the writing is signed by the settling parties and satisfies one of three conditions: it provides that it is admissible or subject to disclosure, or words to that effect; it provides that it is enforceable or binding, or words to that effect; or all parties expressly agree in writing, or orally under section 1118, to its disclosure.
The Supreme Court has construed the “words to that effect” language strictly. In Fair v. Bakhtiari (2006) 40 Cal.4th 189, a settlement memorandum signed by the parties and the mediator, containing complete terms and an arbitration clause, was held inadmissible because it contained no direct statement that the parties intended to be bound. The writing must directly express the parties’ agreement to be bound by the document they sign.
(Id. at p. 197.) An arbitration provision does not imply that intent. The agreement need not be in finished form, but the statement of binding effect is not optional.
The remedy is a single sentence, drafted before the mediation rather than at midnight when everyone is tired. Confirm as well that every settling party signed the writing, because section 1123 and Fair both condition admissibility on the parties’ signatures.
Recording a Lis Pendens or Seeking a Provisional Remedy Does Not Waive Arbitration
Code of Civil Procedure section 1298.5 resolves a conflict that arises constantly in specific performance and title disputes. A party who files an action in order to record a notice of pending action does not thereby waive the right to arbitrate or the right to petition to compel arbitration, provided the party simultaneously presents an application to stay the action pending arbitration of the arbitrable dispute.
The conditional clause is the operative part. Filing to record the lis pendens and then litigating preserves nothing. The application for a stay must accompany the filing.
What to Confirm Before Signing and Before Suing
- Whether both parties initialed the arbitration provision. Absent both sets of initials there is no agreement to arbitrate between buyer and seller, and the dispute proceeds in court.
- Whether the arbitration paragraph elects the Federal Arbitration Act to govern enforcement. If it does, Code of Civil Procedure section 1281.2(c) is unavailable and section 1298.7’s construction-defect carve-out is preempted.
- Whether a separate arbitration provision appears in the buyer-broker representation agreement or the listing agreement. Since January 1, 2025, section 1298 expressly covers buyer-broker representation agreements, and those agreements are now mandatory.
- Whether a written mediation request went out before the complaint was filed. If not, the prevailing-party fee provision is forfeited under Lange.
- Whether a mediation request received from the other side was answered within a reasonable time. If not, fees are forfeited under Frei and Cullen, regardless of who filed first.
- Whether the Evidence Code section 1129 disclosure was delivered and signed. The obligation attaches before the client agrees to mediate.
- Whether the settlement document states that it is binding or enforceable. Without that statement it is inadmissible under section 1119 and cannot be enforced.
Speak With a California Real Estate Litigation Attorney
Guiding Legal Counsel, APC represents California buyers, sellers, landlords, and brokers in purchase agreement disputes, nondisclosure and construction defect claims, and petitions to compel or resist arbitration. The firm also handles real estate transactions and disputes, civil litigation, and real estate license defense. To discuss your circumstances, call (916) 818-1838 or use the contact form. Consultations are available at the firm’s Rocklin and Sacramento offices.
About the Author
Ronald R. Roundy, Esq. is the principal attorney at Guiding Legal Counsel, APC, with offices in Rocklin and Sacramento, California. Admitted to the California State Bar in 2011 (Bar No. 276879), Mr. Roundy represents clients in real estate, business, and estate planning matters, with a particular focus on the litigation and transactional issues confronting California landowners and business owners. This article reflects California law as of the publication date. Subsequent legislative or judicial developments may change the analysis.
This article is intended for general informational purposes and does not constitute legal advice. Reading this article does not create an attorney-client relationship with Guiding Legal Counsel, APC or Ronald R. Roundy. Every matter depends on facts, objectives, and circumstances unique to the individual client. Before acting on any point discussed above, consult a California-licensed attorney who has reviewed your specific situation.
