Arizona’s Purchase Contract for Residential Real Estate Sales

We are referring to the Arizona Association of REALTORS residential purchase contract going into use on February 1, 2017.

This new residential purchase contract is an “As Is” contract between seller and buyer.

AAR RPC p1

For many of us, we are thrilled that there are enough lines next to “legal description” so we can accurately identify the property of a metes and bounds property.  See line 7.  

LIne 17-18: just moving the information up to page 1 from the last page of the current contract.

Line 19:  Happy days!  Reminding buyer, seller, and agents about the responsibility of buyer to show “proof of funds”.

Lines 29-30:  Seller and buyer will become aware of a “cure notice” and how it can be used as a notice to a potentially breaching party that there are consequences, such as loss of Earnest Deposits.

Line 31:  Only U S currency.  We’ve become a global economy.

AAR RPC p2

Section 1g:  Fixtures and personal property.  Did you really think you would have to tell someone that the mailbox is a fixture?  You’d be surprised how often they disappear, cement ball in the ground and all.  Usually because there’s a bit of room left in the moving van.

Then we have the refrigerator in the garage that ends up in the kitchen and the new stainless steel ‘frig is in the moving van.  It happens all too often.

How about the big pots on the patio?  They are not included, unless written into the RPC.

Solar panels:  This agreement states that anything leased or financed will be noted in the Seller Property Disclosure Statement.  I hope this works.  Buyers and agents should be careful to note and make the financing/lease documents available to buyer.  A lender may have to qualify the buyer to take over the payments separate from loan qualification or in conjunction with the ratios required by the lender for the loan on the property.

Section 2b & 2c:  Buyer’s loan contingency must be met or notification to seller’s agent/seller that buyer cannot get loan within 3 days of closing or before end of Cure Period, in order to get Earnest Deposit returned.

AAR RPC p3

Section 2j:   Seller concessions.  Describes just what can be considered a seller “concession”.

Section 2m:  Appraisal and who pays for it.  1)  If seller to pay, seller is informed that payment is required “up front”, not as part of closing costs; 2) if lender requires a 2nd appraisal (lenders are taking weeks to get appraisals done and sometimes the lender will call for a 2nd appraisal), the buyer pays.  NOTE to buyers and sellers:  This is happening in almost all parts of the country.  Fewer appraisers coming into the business.  NOTE to agents:  The purpose of an appraisal is to determine the level of risk to the lender.  Agents should make certain that their buyer receives a copy of the appraisal for their records.

Section 3b:  This is nothing new, but, it has never been stated in the RPC.  Arizona is a community property state.  If an individual uses their personal monies to purchase a property, the spouse will have to sign off to claims on the property.  Disclaimer deed, see below.  Should the spouses split (divorce) and one has signed a disclaimer deed, the spouse may have given up any right to the asset.  Seek legal advice before signing this deed.

AZ disclaimer deed p1

AZ disclaimer deed p2

Seek legal advice before signing a disclaimer deed.

AAR RPC p4

Section 3h:  Community Facilities Districts can be very costly.  Be certain you know if the property you are purchasing is in one, and be sure to determine the cost that will be your responsibility to pay.  Some communities set these up as a way to add and pay for infrastructure.  Use the link above to search.

Section 4c & 6n:  FIRPTA. Generally this is handled in escrow by the escrow company.  It is a withholding tax by IRS applied to Foreign Investors.  There are exemptions, the most notable being #1.  The withholding tax amount just went up from 10% to 15%.  Check with escrow if the buyer and the property fall under the #1 exemption.

AZ RPC p5

And here is the “As Is” portion of the RPC.

Section 5a:  Sellers may have felt they were hostages of the buyers over recent years because once an RPC is executed, the seller has no way out of the contract without the buyer opening the door with a request or a contingency that is not met.  Property Condition:  BUYER AND SELLER AGREE THE PREMISES ARE BEING SOLD IN ITS PRESENT PHYSICAL CONDITION AS OF THE DATE OF CONTRACT ACCEPTANCE.  The date of contract acceptance is the last signature/date on the RPC.  This does not preclude the inspection period where the buyer finds “issues” and requests that things be repaired or replaced, but it does give the seller a better sense of what to expect.

In current years sellers have seen buyers come in with low offers, seller counter offers, buyer decides to agree, but then wants a price reduction at the time of the inspections.  Sellers feel as if they are being “held hostage”.  The inspection period was never designed to be the place to renegotiate the purchase price of the house; but, many buyers are told by their buyer agent that they can get the price down at this time.

What if something breaks during escrow?  If it was working at the time of the contract execution, then the seller warrants the “fix”.  If the item was not working at the time of the contract date, the seller is NOT required to fix.  Buyer agents/buyers will want to see the Seller Property Disclosure Statement before making an offer – always the best way to determine the offer price, but now, even more important.  Example:  If the seller says the evaporative cooler is not working on the SPDS, the buyer may have problems asking the seller to “fix” it.

A reminder that sellers will need to disclose all latent, material defects, and allow the buyer time for an inspection in order for “as is” to have standing in an AZ Court.  Lack of disclosure in recent cases have resulted in 6-figure settlements.  Just being negligent by not disclosing is bad enough; but, if proven an “intent to deceive”, the Court will not be kind.  Example:  The buyer asks if the windows of the house have been replaced and seller says:  Yes.  It is then discovered that only 2 of the windows were replaced and all were covered with sunscreens to hide the older windows.

Buyers should be certain to hire a very good residential home inspector and have contractor bids on inspector “issues”.

Section 6d:  Flood insurance is becoming more predominant in Arizona.  If the property has a loan, flood insurance will be required if the property falls into a flood plain or fringe.  Check the county and the city.  Flood maps are available online and at the appropriate county or city location.  Listing agents help their sellers when they provide the flood information in the document section of the MLS.

AAR RPC p6

Section 6f:  Not sure why the word “conventional” was inserted before “septic”.  Personally, it appears to be redundancy.  Arizona defines a conventional septic system as one that has a septic tank followed by a trench, bed, chamber or seepage pit. An alternative system is anything else.  Sort of like saying “joint tenancy” which implies “with right of survivorship” or “warranty” deed which assumes “general warranty” deed.

Section 6j:  Thanks AAR.  Line 265 makes it contractual that buyer/buyer’s agent must deliver a “signed” notice of disapproved items.  More specificity than current contract:  “If Buyer’s notice specifies disapproval of items as allowed herein, the Earnest Money shall be released to Buyer.”  If the buyer does not specify a reason under the inspection area, the seller/seller’s agent should execute a cure notice.  Buyer then has 3 days to give an appropriate reason so as to get back their Earnest Deposit.

A buyer who states the property does not suit their needs and does not respond to the cure notice, will not get their earnest deposit back.

Buyer agents and escrow agents need to wait until the seller has reviewed the buyer disapproval before the return of the Earnest Deposit.  Too many instances of late whereby the buyer’s agent picks up the Earnest Deposit check for the buyer from the escrow company before the seller/seller’s agent have had a chance to review it.  The contract will now put buyer’s agent and escrow company in a liability situation without seller/seller agent review.

AAR RPC p7

Section 6k:  The Arizona Department of Real Estate gets complaints from buyers that they weren’t offered a home warranty.  Now the buyer must initial the section.  This should reduce the number of complaints.

Section 7a:  Cure Period.  Finally listing agents and buyer agents are beginning to use this tool properly.  Some have felt their client didn’t want to cancel the transaction, just move it along.  The cure notice is used by a non-breaching party to serve notice to the other party that “time is of the essence” and should they not comply within the “cure period”, a breach is established and “rendering the contract subject to cancellation.”(line 324)  IMPORTANT:  The breach does not say there will be cancellation, only that it could be subject to cancellation.  It is important for agents to protect their client.  NOTE:  the 3 day period may be changed to any number of days.  Instead of issuing an addendum when escrow does not close on time, the agent may consider issuing a cure notice that will cover the period of time necessary for the buyer to complete the transaction.

AAR RPC p8

More lines for writing in additional terms and conditions.  NOTE:  If an agent is modifying a clause or term of the boilerplate language, agent should refer to the line or section to be modified and state what the modification is to be.

AAR RPC p9

Nothing major on the above page… notation regarding lead-based paint doc and the fact there are 10 pages to the RPC.

AAR RPC p10

This is the last page of the RPC (minus any addenda).  Agents and brokerages are now required to have their license numbers on the RPC.

Most important part of this page is Line 467:  Seller must sign and deliver both this offer and the Counter Offer.  Verbal acceptance is not delivery.  Agents MUST deliver the signed documents, including all addenda, to the other party in order to “execute” the RPC.

Story:  Recently a newer agent acted for the buyer and wrote a signed offer and delivered it to the listing agent who presented it to the seller, who countered the offer with a 72 hour period for acceptance.  It must be noted here that just because the seller GAVE 72 hours for an answer, does not mean the seller cannot accept another offer during that time.  Well, as luck would have it,, the next day an agent with a different buyer wanted to know if the property was still available and the listing agent said there was a counter offer out on the property.  Buyer agent #2 took the buyers to the property, wrote an offer above list price and immediately submitted it to the listing agent who submitted it to the seller.  Seller accepted the buyer #2’s offer and instructed the listing agent to cancel the counter offer with buyer #1.  Listing agent had trouble getting ahold of buyer agent #1, sent a cancellation email, and waited.  Buyer agent #1 finally called and said:  “You can’t do this because I have a signed counter offer”.  Listing agent says, “But I don’t have it.  Why didn’t you send it to me?”  Buyer agent #1 said:  “Well, I had a Doctor’s appointment and some shopping to do.”

Remember:  Delivery must happen.

This information comes to you from how2educate LLC, an Arizona real estate school.  The “Sample” RPC is a product and copyrighted by the Arizona Association of REALTORS.  Non-AAR members may not use the actual form in any way shape or form without prior AAR approval which may require monetary consideration.

This RPC will be used as of February 1, 2017.  The changes in the addenda are not available at the time of this writing.  We will update you when forms are presented to the membership.

The comments are those of Kathy Howe, Owner/Educator/Administrator/Broker.  Agents should discuss this agreement with their broker and look to their broker for training and policies.  In all cases, the consumer should refer questions to their agent and/or legal counsel.

The information as presented is thought to be accurate. We refer you to AAR for additional information:  602-248-7787

  • how2educate LLC
  • Lifestyles of Arizona LLC
  • 1120 W SR89A
  • Sedona, AZ 86336
  • 928-274-4088

Leave a Reply

Your email address will not be published. Required fields are marked *

* Copy This Password *

* Type Or Paste Password Here *