Not after a deadline. I was the seller and did have an AGENT! I did sign the clause and did try to mediate the buyer a REALTOR refused as she knew if she waited me out she'd get her money back as the contracts say if there is no resolution in 120 days the money goes back to the buyer? Regardless if there is a dispute? that's BS. . I was forced to continue to pursue. the contracts are totally written for buyers with sufficient out clauses and ways for them to get recover earnest money while the sellers bend over backwards outlay money to make cosmetic repairs to make them happy and then they buyer can walk away? I don't think so. the contract was clear on when the buyer can revoke based on inspection by day X and she tried to cancel 4 days later - too bad! I just hate it had to be such a huge pursuit for me the seller.
You signed the Mediation clause, (no, it is part of the Contract, you can't skip it).
She terminated because of the INSPECTION CONTINGENCY, she can.
You need to find another Buyer.
In situations of this nature there is usually much more to the story than is being presented. Most contracts will spell out the steps in resolving conflicts over escrow money and spell out the necessary steps to resolve the issue.
It's unclear why small claims court would be preferred over mediation or arbitration? Since there is a process in place it may be beneficial to follow it as opposed to creating a whole new path.
I'm not an attorney but my pure guess is as the transaction wasn't completed, the arbitration agreement may not be valid. But it would depend on the verbiage of the arbitration agreement.
What advice has your agent given you in this situation? And have you talked to an attorney?