Every 5 years the purchase contract in AZ is overhauled and updated. On Feb 1st the Arizona Association of Realtors rolled out the newest version taking the 9 page contract to a whopping 10 pages (and necessitating the updating of 15 ancillary forms). We’re grateful to work with some of the best in the business and honored that our very own Broker-Extraordinaire, Gerry Russell, was on the committee working on it for the last several months.
In the class I took about the new contract it was shared that last year (from Jan-Sept) there were 3,841 contracts submitted on the WRONG version of the purchase contract…yikes! 192 of them were on a version that was more than 10 years outdated!
We’re exactly one month in to the new contract now and have 14 accepted contracts under our belts. I figured it was high time we shared about it! There are several things that have been moved around, clarified, capitalized, etc. I’m going to focus on the things that have actually changed with regards to how we do business and how those relate to either a buyer or seller. Here we go:
All Cash Sale:
This one’s pretty easy and self-explanatory. If the buyer is paying cash (and don’t we just love those?) then proof of funds will be supplied with the contract. This was fairly standard practice for the most part anyway but some buyers get a little squirrelly about showing anyone that they actually have the cash. I don’t know why an agent or a seller would want to accept an offer without proof? Remind me to tell you about the *friend* of mine who forged proof of funds sometime…
Buyer Down Payment:
Again, pretty self-explanatory but it’s amazing what needs to be put in writing. This essentially says that the buyer can’t just say they don’t have their down-payment or closing costs so they cancel. It does put the obligation on the seller/listing agent to CURE the buyer and give them 3 days to correct that issue. Additionally, all funds must be in U.S. currency.
Leased Item Disclosure:
Sellers are now obligated to let buyers know what is leased within 3 days of contract acceptance. This is helpful with solar systems, water filtration systems, etc. No one wants to get to closing and have the water softener company come remove the water softener that we thought was owned.
Loan Contingency Must Match Pre-qualification:
This adjustment says that the buyer’s obligation to complete the purchase contract is contingent upon them qualifying for the loan that their lender described in either the pre-qualification form or the Loan Status Update (due 5 days after acceptance of the contract). This means that the buyer can’t change their loan type and then cancel later because they don’t qualify for a different loan type.
Clarification on Seller’s Obligation to CURE Buyer for Unfulfilled Loan Contingency:
This section says that the buyer can cancel the contract up to 3 days prior to closing if they’re not able to obtain the loan they were getting…that’s been that way for a while. If the buyer is unable to obtain their loan and fails to give the seller notice 3 days prior to closing the seller needs to send a CURE notice to the buyer and then the buyer has 3 days to fix that breach of contract and to receive their earnest deposit back. This one really gets my goat (did I really just say that?!). It’s the sellers’ job to remind the buyer that they need to supply notice of their inability to get the loan?!? You’re kidding me, right? Are you with me? How is that in the best interest of the seller? {sigh} I don’t like this section…but I didn’t sit on the committee to re-write it. Maybe next time.
Updated Verbiage on Closing Costs:
This much more clearly defines what items are considered closing costs that the seller would be paying for when a buyer asks the seller to pay part of their closing costs. It’s not uncommon to ask for 3% and then if there’s extra money in that amount to try to creatively spend it instead of *leaving it on the table* so it goes back to the seller. I’ve done it…guilty as charged. I’ve ordered mac-daddy multi-year home warranties, had buyers buy down their interest rate, whatever could be done to eat up all of the funds agreed upon. This allows the seller to know that they’re paying for specific things as named. I really like this for sellers, not so much for buyers.
Clarification on Appraisal Charges:
The appraisal costs area has been updated to indicate that the appraisal is non-refundable. It also clarifies that in the event the buyer’s lender requires a second appraisal or a re-inspection of the property those fees are buyer costs. This would be common in the event of a flip sometimes or if there was a property condition that was called out on the appraisal.
Disclaimer Deed:
This section indicates that if the buyer is married and purchasing the property without their spouse a disclaimer deed MAY be required. I’ve never seen a situation where it wasn’t required. This is notice upfront to the buyer to make sure that their spouse will sign it. It’s not pretty when you get down to closing and the spouse or soon-to-be ex-spouse doesn’t want to sign the disclaimer deed.
Communities Facilities Districts Added to Assessment Liens:
This section talks about assessment liens and the new verbiage specifically includes Communities Facilities Districts (as found in one of our favorite Mesa communities, Eastmark, and a handful of other masterplanned communities). Those fees will be prorated as of close of escrow.
Seller’s Property Disclosure Statement (SPDS, not SPUDS):
The seller has 3 days to supply their disclosure statement now instead of the 5 days they previously had.
Foreign Sellers (FIRPTA):
Sellers are now agreeing in the purchase contract to supply the title company with a document indicating whether they’re considered foreign investors. There’s a disclosure that they may owe taxes and they’re responsible for obtaining legal and tax advice.
AS IS:
This is a BIGGIE. The previous contract included a section indicating that the seller warranted certain items to be in proper working condition. This section was super frustrating because 1/2 of the REALTORS didn’t seem to understand it or use it properly and they sure as heck didn’t explain it to their sellers and there was much left to interpretation regarding what was actually warranted. Sellers were essentially agreeing to write a blank check for any number of possible repairs. This section indicates that the property is being purchased in its current condition with no guarantee of repairs. Buyers can certainly still have their inspection and request repairs but the sellers have no obligation to fix anything UNLESS it’s something that stopped working after the contract was finalized. This is a great swing in sellers’ favor!
Buyer Disapproval of Property and Seller’s Obligation to CURE:
The contract requires that in the event a buyer wants to cancel the contract during the inspection period, the buyer MUST indicate what ABOUT THE HOUSE they disapprove of. There must be a reason. If the buyer (or their agent) doesn’t give a reason, the seller needs to CURE the buyer (remind them) and allow the buyer 3 days to properly cancel. <rant> OK, this is another section that drives me nuts. Do you see the problem here, again? It seems counter intuitive in representing my sellers for me to be reminding the buyer to cancel properly.
Home Warranty:
This hasn’t changed much except that there’s the option to split the home warranty cost now. And the buyer must initial whether they want a home warranty or not and who’s paying for it. Just calling attention to this area.
Buyer’s Obligation Regarding FIRPTA:
More about foreign investors and a disclosure to buyers regarding the possible tax implications if they’re buying from a foreign investor.
CURE Period Timelines:
This is a great addition clarifying that if either party has been in breach of the contract and CURED but can’t close the contract due to the title company or county recorder’s office being closed, COE shall occur on the next business day when they both are open.
Whew! Did you make it through that with me? It was a bit! We’re excited about the new contract. It has long been a feeling that the previous contract was heavily weighted toward the buyer. This contract swings the pendulum back a little bit offering some much needed seller protections.
We hope that if you’re ready to buy, sell, or lease a property that we’ll be the ones you call. But if not, please, please, please…make sure that whomever you choose knows the contract inside out, upside down and backwards. This is the pivotal piece of your real estate transaction!
**I’m not a broker (I still need to finish that), I’m not an attorney and I don’t play on on TV or the internet. Please check with your Broker and your REALTOR for their interpretation of the contract and how it may specifically apply to your situation.
As always, I’d love to earn your real estate business. You can reach me at 480.560.7255 or shar@phoenixrealestateguy.com with questions!
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