What are the differences between arbitration and mediation?

If you don’t know the differences between arbitration and mediation, they could catch you off guard.

That’s what happened to one home inspector, whose client wanted to rescind their purchase a year and a half after buying the property. Their complaint? The air conditioning unit was too noisy.

Sound ridiculous? The buyer’s counsel would agree. She thought her client’s allegation was outlandish and not even worth arguing as a defect. 

The inspector’s pre-inspection agreement included a dispute resolution provision, which dictates the method the claimant should follow if there are any disputes. It stated arbitration as the resolution method. Unfortunately, the arbitration company the inspector chose had gone out of business. 

Because our claims team couldn’t pursue arbitration, the case went to mediation—where even the mediator agreed the inspector wasn’t liable. Case closed, right?

That’s where the differences between arbitration and mediation come into play.

Unlike arbitration, mediation is a non-binding process. So although the mediator agreed with the inspector, he couldn’t enforce a solution in the inspector’s favor. 

After much bickering between the inspector and the buyer, their respective councils agreed mediation wasn’t going anywhere. Because litigation would cost significantly more than the demand, they settled for $5,000.

What are the differences between arbitration and mediation?

Mediation and arbitration are two types of alternative dispute resolutions (ADR). As a substitute for going through the public court system, these methods can make resolving claims easier and more cost effective for inspectors and claimants.

At InspectorPro, we get a lot of questions about arbitration vs mediation. Inspectors want to know:

• What is arbitration?
• What is mediation?
• What happens at arbitration?
• How do mediation and arbitration differ?
• What is better: mediation or arbitration?
• What are the pros and cons of arbitration?
• How much do they cost?

Hopefully you’ll never have to witness the differences between arbitration and mediation firsthand. But knowing can help you navigate a stressful claim with heightened confidence. It also makes it easier to understand the home inspection arbitration clause in your pre-inspection agreement.

Here’s what a home inspector should know about arbitration vs mediation.

What is mediation?

What is mediation in conflict resolution? What happens during mediation? 

Through mediation, both parties voluntarily work with a neutral, third party known as the “mediator.” The mediator chats with each party individually to help them find a mutually acceptable solution. While the mediator can propose their own solution, they can’t enforce one.

In other words, the mediator has no binding power. If the claimant and the defendant can’t reach an understanding, they’ll move on to court or a different ADR, like arbitration.

What is arbitration?

What is arbitration in dispute resolution?

Like mediation, arbitration is an ADR that uses a neutral, third party. However, that’s where the similarities between arbitration and mediation end. 

What is the primary difference between mediation and arbitration? The key difference between mediation and arbitration is that decisions reached through arbitration are binding. 

Here’s what happens at arbitration: Both parties present evidence and arguments to an arbitrator or panel of arbitrators, much like they would in court. It’s more formal and structured than mediation. Additionally, whatever verdict or course of action the arbitrator reaches is final and legally binding. 

The main difference between mediation and arbitration is that arbitration leads to a final, legally binding decision.

Mediation vs Arbitration: Pros and Cons

You might still be wondering when to use arbitration or mediation. And what is better: mediation or arbitration? Are the differences between arbitration and mediation really that noticeable?

Many experts recommend arbitration for handling home inspection claims. To understand why, let’s break down the differences between arbitration and mediation so they’re easy to see.

1. The Third Party

Arbitration uses an “arbitrator,” who acts like a private judge in an abbreviated trial. Mediation uses a “mediator,” who listens to both arguments and tries to bring the parties to agreement.

2. The Formality

Arbitration follows a more formal process than mediation. Mediation acts more like a conversation between the two parties with more room for disagreement.

3. The Outcome

The main difference between mediation and arbitration is that arbitration leads to a final, legally binding decision. When inspectors ask “Why do people avoid mediation,” this is why. 

Both kinds of ADR cost money. Either way, you’re paying a mediator or an arbitrator (and potentially your defense counsel) for their time. 

But in the arbitration vs mediation debate, arbitration is ideal for home inspectors because you’re paying for a clear, final decision. The outcome isn’t voluntary. Plus, there are fewer grounds to appeal it. This means you’re less likely to go to court. It expedites the claims process, resulting in fewer delays and fewer expenses for both parties. Especially for home inspectors (whose claims are often frivolous), the extra formality of arbitration pays off.

Now, what are the disadvantages of mediation?

By comparison, a mediated decision relies more on the parties’ ability to cooperate and communicate. The goal is to help the opposing parties reach a common ground. (Which isn’t ideal when the parties are at complete odds, like in our earlier story.) 

Although nice in theory, this process doesn’t bode well when you and an angry client aren’t feeling very collaborative. If you can’t agree, then the case goes back to square one (with either a different ADR or a full trial). With a lower success rate, experts recommend going straight to arbitration to avoid paying for a process that’s unlikely to work out.

4. The Costs

Home inspectors often want to know: Does it cost more to go to arbitration or mediation?

If you can reach a fast decision, then it’s possible for mediation to cost less than arbitration. But this requires two parties who are willing to negotiate in good faith. Otherwise, as our story in the beginning showed, you and the claimant will argue back and forth with no clear resolution.

Ultimately, in a straight comparison between arbitration vs mediation, they can cost about the same. In fact, depending on the arbitration company you’ve selected, arbitration can be even less expensive.

5. The Home Inspection Arbitration Clause

Not all mediators and arbitrators are familiar with your industry. They may not understand inspectors’ limitations, standards of practice, or what makes your risk factors unique.

A key difference between mediation and arbitration is, with binding arbitration, an arbitration company that’s more knowledgeable about construction and inspections can facilitate a better outcome. 

That’s where we see the beauty of the home inspection arbitration clause. If your pre-inspection agreement has an arbitration provision, you can designate two things:

• Binding arbitration as your preferred method of resolving a claim.
• Which arbitration company you want to use. (Just be sure to avoid our earlier inspector’s mistake and verify your arbitrator is still in business!)

It gets better. Imagine your agreement uses a home inspection arbitration clause. But your claimant refuses to comply and takes you to court, anyway. We’ve seen cases where the courts ruled in favor of the inspector and dismissed the lawsuit altogether because they had an arbitration clause to enforce. 

The defense you deserve shouldn’t be a hassle.

At InspectorPro, we know the differences between arbitration and mediation inside and out. That’s because we’ve spent more than 15 years studying home inspection claims and case law to provide the defense inspectors deserve.

Don’t waste time and money guessing what home inspector E&O insurance should be like. Experience it yourself with InspectorPro. With our industry knowledge, stellar customer service, easy claims submissions, and expertly crafted pre-inspection agreements, we make insurance easy.

Apply for a free, no-obligation quote with our online app to get started.

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• Your Home Inspection Pre-Inspection Agreement: | Your First Line of Defense
• Your Pre-Inspection Agreement: | Arbitration
• Your Pre-Inspection Agreement: | Dispute Resolution