What happens if either the buyer or the seller fails to comply with the terms and conditions of the contract? The Arizona Association of Realtors® purchase contract makes provisions.
There is a “cure period” which is a three day period in which the party which defaults has to “cure” that default. The party which has been breached sends a “cure notice” to the breaching party stating they have three days in which remedy the default. If the non-complying party continues the default, breach of contract is assumed. The non-breaching party can request all earnest money as liquidated damages and may cancel the contract. The non-breaching party may also bring action against the party who has breached the contract through mediation and arbitration.
Provision is made for alternative dispute resolution and all mediation costs are to be paid equally between both parties. Unresolved issues will be submitted to binding arbitration and both parties will agree on the arbitrator in accordance with the American Association of Arbitration Rules for the Real Estate Industry. The decision of the arbitrator is final.
However, if parties do not want to go to binding arbitration where the judgment is non appealable, they may elect to go to court action within 30 days after the mediation conference.
Any action by the US Government such as Internal Revenue, Small Claims Court, Judicial or Non Judicial foreclosure or any lis pendens does not constitute a breach and are excluded from the Alternative Dispute Resolution. In the event that legal action is undertaken, the prevailing party has the attorney’s fees paid by the non-prevailing party.
Section 8 consists of 29 blank lines in which any additional terms and conditions of the contract can be written. If the buyer desires something to be removed from the property such as a pile of bricks, the agent would specify “bricks at northeast corner of property to be removed from property and area to be landscaped so bare ground is not visible,” or something to that effect.
When we think about real property, we know nature can take her toll. Between the contract acceptance and close of escrow, if there is a loss to the property, such as a tree falling on the house, and the damage exceeds ten per cent or more, either the buyer or seller may cancel the contract. If it is less than ten percent, the damage must be fixed and the terms of the contract can be enforced.
The price of the property is public record and the contract reiterates that. The contract is governed by Arizona law and time is of the essence. The parties, including the Realtors® must act in a diligent manner.
Compensation to the parties is through a separate agreement, usually the Exclusive Right to Sell, otherwise known as the Listing Agreement. If the buyer is paying his/her own commission, funds are to be collected at the close of escrow.
Copies and counterparts include faxed copies, Xeroxed copies, e mailed copies, other electronic type copies and generally electronic signatures are acceptable. The only form where counterpart signatures are unacceptable is the Lead Based Paint form. All signatures must be on the same form.
All days are calendar days and begin at 12 midnight, ending at 11:59 pm. If we signed something on Tuesday, the counting of the days will begin Wednesday at 12 midnight. If close of escrow is Friday, and signing must be three days prior to close of escrow, that signing must take place on Monday. Tuesday would count as the third day, Wednesday, the second day and Thursday the day before close of escrow.
The contract must be read in its entirety and include any addenda. The buyer has the right to accept subsequent offers but any subsequent offer is a backup offer and will only go into first position if the primary offer is cancelled.
If a party wishes to cancel the contract, this may be done by writing stating the notice for cancellation and delivering the notice to the Escrow Company as well as the other party. Delivery of notice can be by hand delivery, faxed, sent by electronic mail, or by overnight courier service.
Earnest money will be made out to the Escrow Company and should not be cash. The form of earnest money will be described such as personal check, cashier’s check, money order, etc., and the place of deposit is identified.
The seller and the buyer are indemnifying the brokers for anything they can discover about the property during the inspection period and this includes loans, insurances, or other investment information.
The last section of the contract identifies when acceptance by the seller is to occur. Until acceptance, the buyer has the right to cancel the contract.
The signatory page identifies all parties to the contract, the buyer, the seller, the buyer’s agent, and the seller’s agent. If a counter offer is to be issued, the seller will indicate that on the signatory page. If the seller rejects the offer, provision is made for that condition also.
Contract documents change from time to time and are not cast in stone. The Arizona Association of Realtors® and the forms committee has spent many hours laboring over this document and other documents which are made a part of the transaction. I have attempted to explain this contract so that you understand what you are signing.

stamp disclosure in red over white background

Section 4 of the Purchase Contract entitled “Disclosures” is one of the most important segments of the contract and does the most to protect buyers from both seen and unseen problems with the property.
The Seller’s Property Disclosure Statement, otherwise known as the SPDS, is the sellers testimony to what they know about the property and what has occurred on the property while they have owned it.
The buyer and the buyer’s agent should read the SPDS carefully because there may be tip offs to potential problems which may not be noticeable. The buyer can ask for further enumeration of any item on the SPDS and this is also a good tool to be used by the Home Inspector.
Items of material fact must be disclosed, such as a roof leak, the presence of polybutylene plumbing, structural problems, wood infestation, electrical or environmental problems, sewer and wastewater treatment problems, high noise area, flooding, water damage, or the manufacture of meth. The SPDS can be used in a court of law to illustrate that the seller was covering up a problem. Legally required disclosures are mandatory and non-disclosure is considered fraud.
The seller, when filling out the form, should not guess. If he/she does not know the answer to a specific question, he/she should say unknown. That will alert the buyer to do some further investigation for the answer to that particular question. The SPDS is an important document referenced in the Disclosure section.
Very often, agents will put the SPDS, the Lead Based Paint Disclosure, and the Insurance Claims History on the Multiple Listing Service so that any potential buyer considering that property has access to as much information as possible prior to making an offer.
The Insurance Claims History, also known as the CLUE report, provides insurance history for the property for the past five years or the length of time the seller has owned the property, whichever is less. The seller can ask the insurance company for “a letter of experience” which details any claims made. The buyer can determine what, if any, problems are with the property including burglary. The seller should be able to get this letter from the insurance agent free of charge.
Any property built before 1978 must have a lead based paint addendum initialed and signed by the seller, the buyer, the seller’s agent, and the buyer’s agent. This is federal law and the penalties for noncompliance are very stiff. The buyer may investigate for lead based paint at his/her own expense. Most properties built prior to 1978 may have lead based paint which has been covered by a non-lead based paint.
Young children in the tenements on the east coast often would “gum” the window sills while looking down at the street. The incidence of mental dysfunction was noticeable and the federal government determined that ingesting lead based paint caused mental retardation. FHA buyers must be given the lead based paint pamphlet, “Protect Your Family from Lead in Your Home”.
Property in Tucson is identified by metes and bounds and by plat. Identification by a plat would be a typical subdivision, Rainbow Sunset Subdivison Lot 33. Metes and bounds uses Township, Range and Section, such as PTN W240.33′ E374.04′ S1050.61′ SW4 NW4 4.13 AC SEC 27-11-9.
If the property is in an unincorporated area- that is out of the City of Tucson and in the county- and five or fewer parcels are being sold, the seller must complete and have notarized an Affidavit of Disclosure. The seller is attesting to the presence or non-presence of utilities, type of road, septic or sewer, legal and or physical access to the property and other pertinent information. This resulted from the state trying to curb wildcat subdivisions when people purchased homes and then realized there was no water or the piece of property was considerably smaller than they believed.
The Affidavit of Disclosure must be signed by the buyer as well as the seller and it is recorded by the escrow officer with the paperwork transferring property from seller to buyer. The buyer may disapprove any of the items on the Affidavit within the inspection period or five days after receipt of the Affidavit.
There is an entire section on Due Diligence which I will discuss within the next two days and should be considered in conjunction with this section.
If there are any changes made to the SPDS during the period the property is in escrow, the seller has an obligation to notify all parties of the change. For instance, there is a hail storm and as a result there is roof damage. The buyer has five days after this notification to disapprove the contract and withdraw.
During the period of the escrow, the seller warrants that he/she will maintain and keep the property in good repair so that all mechanical systems are working at the close of escrow. The property is to be conveyed in the condition it was in when the buyer first made an accepted offer on the property. This includes all appliances, pool systems, special electrical systems, or other systems attached to the property. The seller will remove all personal property and debris from the property. I once wrote a contract which included “all dog feces to be removed from property and all holes filled.”
There are warranties which survive closing which include the fact the sell has notified the buyer of all latent defects which materially and or adversely impact the value of the property. Any payments in the previous 150 days to contractors regarding the property have been paid by the buyer, and that information concerning wastewater treatment is current and correct.
The buyer must warranty to the seller that anything which might impact his/her ability to purchase the property has been disclosed and that the buyer has done all inspections and accepts the property at the close of escrow. If the buyer is relying on verbal representations, they must be disclosed in writing.

subterranean termite tube

It is imperative that the buyer performs “due diligence” on the property, especially if purchasing the property “AS IS”.
The inspection period is ten days from mutual acceptance of the contract. All days are included, that is calendar days, not working days or week days. Encourage your agent to schedule the home inspection as soon as possible in case other inspections may be needed.
The buyer can inspection for virtually anything at buyer’s expense: environmental, physical, specifics such as roof, HVAC, pest and in Tucson, termite, sewer or septic

connection, information about the neighborhood, CC and R’s, and or other pertinent information. During this period of time, the buyer should be making sure information is being given to the lender for loan approval if not otherwise obtained, that he/she can obtain insurance on the property, that health and safety codes have been met.
In Arizona, the seller’s agent does not have to disclose if the property is in the vicinity of a sex offender, if the property was the site of a felony, death, suicide, and/or murder. The buyer can investigate for these conditions if they are of material concern. In checking these items, the buyer should consult the Arizona Buyer Advisory which is a compilation of links where a buyer can obtain various information which may impact his/her desire to proceed with the property purchase.
The buyer’s responsibility is to provide the seller with copies of all reports obtained at no charge.
If square footage is important to the buyer, or size of rooms of significance for furniture placement, the buyer must complete these investigations during the ten day inspection period. Military people coming from Germany often have a shrunk and it is important to measure the wall space and the size of the shrunk since often, the room is not large enough.
Tucson has two types of homes, those that have termites and those which are going to get termites. Most of our termites are subterranean termites and the cost to treat is generally less than $500. Many lenders will not release loan documents (conditions to close) unless the termite treatment has been done. Generally VA and FHA loans will need termite treatment if called termites exist. Proof of treatment will be required.
The buyer’s agent should check to determine the property is not in a flood plain zone. Although Tucson is desert, there are plenty of areas which are deemed flood plain by the Army Corp of Engineers. These areas will require additional insurance, often costing the same or more than general hazard insurance.
If obtaining homeowner’s insurance is important, and it should be, this should be done during the inspection period. The lender may require insurance prior to sending loan documents for signature. The buyer should ask for quotes from the same company from which he/she purchases automobile insurance. The package of auto and home should be discounted somewhat. Purchasing insurance from the lender is often costly.
The buyer should know if the property is on sewer or septic. If septic, then the tank must be pumped and certified and documents filed with the Department of Environmental Quality. This is a cost to the seller but the buyer should know the location of the septic. Sometimes it cannot be determined if the property is on sewer in which case the buyer’s agent will have to order a dye test to confirm whether the property is on sewer.
Arizona is known for the numbers of child drownings and swimming pool barrier regulations are in effect in several towns. The buyer should receive a copy of the Arizona Department of Health Services approved private pool safety notice and know what barriers regulations exist.
The buyer must know and must initial a clause which specifies that the real estate agent and broker are simply that, real estate professionals. They are not licensed or qualified to conduct inspections and the buyer should contact professionals in the specific disciplines for professional information.
At the end of the inspection period – or the inspections – the buyer will sit down with the agent and write the Buyer’s Inspection Notice and Seller’s Response. In this, the buyer will indicate what situations are to be corrected by the buyer prior to close of escrow. The buyer will respond in writing within five days and indicate what he/she will or will not do. If the seller is unable or unwilling to do the repairs requested, the buyer may withdraw from the contract and have all earnest money returned.
If there are non-working warranted items, the buyer must let the seller know.
Home warranty plans are offered by several companies and cover basic problems. Additional coverage can be purchased for additional cost. Often the buyer will request a home warranty from the seller. The costs of these can run to $600 or more, so be aware of what you are purchasing or asking the seller to purchase.
The seller will make the home available prior to the close of escrow for a final walkthrough where the buyer checks the condition of the property and insures that all repairs have been done in a workmanship like manner. All utilities must be on and the expense is to the seller.

Arizona is not an attorney state and people purchasing property here who hail from the east coast are often baffled because the Realtor® does everything, there is no attorney involved. If the seller and/or buyer want legal representation, he/she can hire an attorney, but under Arizona statutes, the real estate agent has the power granted to attorneys in other states.

Arizona is often called a “title company” state. It is the title company which investigates the chain of title and provides “title insurance”. If the deed is faulty, it is the title company which must make restitution. In attorney states, it is the attorney who researches the chain of title and does the “closing” which would be the function of escrow companies here in Arizona.
We have talked about preparing the offer for the buyer, how it is going to be financed, when we are going to close escrow, and the appraisal contingency. When the seller’s agent receives an executable contract, that agent “opens escrow”. Evidence of earnest money is taken to the escrow company and “escrow is opened”.  A receipt for the earnest money is given to the agent who then should give a copy to the buyer and seller.  The escrow company begins the process of checking the documentation and orders title documents from the title company.
In Arizona, escrow company and title company are often used interchangeably. However, they can be different companies. Many of the large real estate companies have relationships with title companies and escrow companies; the information on the contract will read abc title company/xyz agency.  Sometimes this is more expensive for the buyer and seller.
The buyer must determine how to take title to the property.  There are several methods in Arizona in which to take title with legal and taxable ramifications to each method. Legal and/or tax information cannot be dispensed by the agent or the title company but the agent or title company can give you an informational sheet on methods.
The commitment for title insurance will be delivered to the agent and to the buyer and these documents should be read by both the buyer and the buyer’s agent to insure there is no “clouded title”. Problems with title must be resolved prior to close of escrow. A common problem is a living person who is on title, and the co title holder is deceased.  The estate of the deceased must be reconciled prior to transfer of title and any and all taxes paid.
Before listing a property, a good agent will make sure there are no title problems and may ask for a certified death certificate as well as trust documents.   When an offer is being negotiated, the horrible title problems will not rear their ugly heads. Sometimes it takes months to clear a title since people must be tracked down and documents must be notarized.
Any exceptions to title insurance must be listed. Title insurance generally covers anything which can be determined from public records. Items not recorded in public records are usually not covered. Deed restrictions, easements, covenants, codes and restrictions should all be public records.

The escrow company must provide the Homeowner’s Association (HOA) information about the buyer and must provide the HOA a closing protection letter indemnifying the buyer and seller from any losses or fraudulent acts by the escrow company. The purchase contract is the instructions to the title and escrow companies.

The buyer has five days from receipt of these documents to review them and disapprove of any item.  A buyer who has three 150 pound dogs may want to withdraw from the contract since the HOA regulations permit only one dog weighing no more than 50 pounds.  More commonly, a person has an RV or a large truck and will not be permitted to park the vehicle on the property. If in an active adult community, often young children are prohibited for more than an overnight. Grandparents who find themselves caring for grandchildren may have to move from an active adult community or give up caring for their grandchildren.  CC and R’s impact the way you can live in your property.  Pay attention to them!

The date of close of escrow is the date of proration for taxes, insurances, HOA dues, or other fees. The buyer should make sure all utilities are turned on at the close of escrow so a reconnect fee will not be charged.
If there is a dispute between the buyer and seller regarding any earnest money deposited with the escrow company, the final arbiter is the escrow company. This may arise because one or the other party fails to fulfill the terms of the contract. Each agent may petition the escrow officer on behalf of his/her client, but there is a hold harmless clause indemnifying the escrow company.
The contract provides for assessment liens to be split between buyer and seller, paid in full by either the buyer or seller, but any lien filed after the close of escrow is the responsibility of the buyer.
FIRPTA, the Foreign Investors in Real Property Act, must be complied with at the close of escrow and it is the responsibility of the BUYER to withhold a tax equal to 10% of the purchase price if the seller is a Foreign Person or non resident alien who does not have a tax number.

Realtors® who sell to foreign persons have an ethical responsibility to explain FIRPA and the need to obtain a tax number to these buyers when selling a property in the United States. Trying to comply with the federal mandate when selling a home in order to close escrow is difficult at best.

Tucson  has many benefits other parts of the country don’t enjoy…warmth, sun, an environment for outdoor activities including golf, hiking, camping, or just wandering around. But especially on this morning, I am so grateful we do not change the clocks!

I never knew if we had to go forwards or backwards despite that ditty many of us learned, fall forward, spring back. I remember one Sunday I showed up for the Sunday School class I was teaching an hour early. That was painful, I hung around waiting, thinking “oh, I could be in bed!”

When I was a teenager, I had an 11 pm curfew when staying at my Grandmother’s. I was invited to a dance by a young man whom I thought was an Adonis, and I came home an hour later. My poor Grandmother was frantic, but I just flippantly said, “Well it’s really 11 pm, not midnight” not thinking clocks don’t get turned back until 2 am.

I especially love Arizona twice a year when I don’t have to think about turning clocks ahead or moving them back. It makes it hard for people who call Arizonans because they never know what time it is…we are Pacific time during the summers and Central time during the winters.
But now, instead of getting phone calls from the east coast at 5 am in the summer, it will be 6 – and I will have had my first cup of coffee.

Admittedly Halloween is my favorite holiday and the concept of El Dia De Los Muertos is an occasion I never knew about, having been raised in Connecticut. To conscientiously remember those in life who have died and commemorate them is such a nice tradition. Families and friends will spread picnics of foods and drink enjoyed by the deceased as well as music and mementos at local cemeteries. And in homes, altars will be built to those who have died in remembrance.

Especially for those who do not know about El Dia De Los Muertos, various venues about town will commemorate the day with exhibitions, art work, and altars and include Banda Calaca, a band of “musicians” marching to Altar, which is a community memorial altar in conjunction with the Tucson Museum of Art. Tohono Chul Park will have an exhibition of art work and All Souls Procession will put the finishing touches on the All Souls Procession which takes place the following week.

Congress Street will be the site of the costume contest parade and in a different event, children can trick or treat along Fourth Avenue, venue for a Spooky Kids Costume Contest at 6 pm October 30. Trunk or Treat will be at 604 North 6th Avenue October 31 and will be the site of carnival games, a kids train, petting zoo, music and more.

Nightfall at Old Tucson is designed to scare adults and children alike with ghosts and goblins darting about and appearing as if from no place. Haunted Histories of Tucson will delight those who like macabre history October 31 at Fort Lowell Park, by the Arizona Historical Society. And for those who want to go to the deep dark caves, Howl at the Cave is taking place October 30 and 31 at Colossal Cave
on Old Spanish Trail.

For a complete list of what is happening this weekend, visit www.visittucson.org and check the calendar. Then go out and have a howling good time!

The buyer should have been pre-approved by a lender in order to purchase a property.  There is a difference between being pre-qualified and being pre-approved.    To be pre-qualified means that according to what you have told the lender, he believes you can purchase the property for whatever sum.  Being pre-approved means the lender has checked the assets and liabilities and feels that the buyer can afford to own this property…the buyer is “good to go”.  The buyer wants to be pre approved.

But a pre-qualification form should accompany every offer.   However all offers using the AAR Contract are contingent upon loan approval, if the buyer suddenly cannot qualify for any reason, he/she is out of the contract, and if the property does not appraise, the loan cannot usually  be granted and the buyer is out of the contract. Earnest money will be returned to the buyer.

If the lender has “Prior to Document” conditions on the loan, then the specified conditions must be met prior to documents being issued by the lender.  For example, a termite treatment may be required by a lender for a VA loan.  Documents cannot be issued and therefore the loan documents will not be issued, nor the loan funded without this condition being met.  (A loan cannot fund without the signatures of the buyers.)

If the buyer had been offered an interest rate but failed to lock the rate because he/she thought the rate would go down, this is not sufficient reason for the contract to be cancelled.  Failure to have the necessary funds to close escrow is likewise, not a reason for the contract to be cancelled.

The buyer must provide the lender the name  of the buyer, social security number, address of the property to be purchased, buyer’s income , estimated value of the property, and the amount of the loan requested.  The buyer grants the lender permission to obtain a tri-merged credit report.

The Loan Status Update must be delivered to the seller with appropriate information describing the current status of the loan.  The update must be provided by the lender when requested by the seller.

The buyer will sign all loan documents no later than three days prior to the Close of Escrow date.

The financing portion of the contract indicates the type of loan, and if there is a change, all parties and the escrow company must be notified.  The buyer pays all loan costs unless otherwise indicated, and if concession from the seller to the buyer are a part of the contract, this must be spelled out.  If the loan is a VA loan, certain fees cannot be paid by the veteran and must be paid by the seller.   The appraisal fees which are to be paid, is designated either paid by the seller or by the buyer.

These provisions also act as instructions to the lender and the title company and permit the seller to know the details of the loan.  Both the buyer’s agent and the seller’s agent will monitor the loan process to make sure all time frames are being met.

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The Arizona Residential Purchase Contract identifies both the buyer(s) and the seller(s) of the property and indicates the buyer’s desires to purchase the property identified in section 1 b. This identifies the address of the property, the tax identification number, and the legal description. Three methods insures all identifications point to the same property.

The next section details the offering price of the property, the amount of earnest money, and the method of payment for the property. Earnest money shows that the buyer is serious about purchasing the property and certain conditions can cause the buyer to lose his earnest money.

Additional funds at the close of escrow are indicated, and the amount of loan and type of loan is spelled out. For instance, a property is $200,000 with 20% conventional loan and $2,000 earnest money.

The financing portion of the contract is further enumerated in Section 2. We know the offer is for $200,000 with $2,000 earnest money, $38,000 additional funds at close of escrow, and a conventional first loan of $160,000.

Close of Escrow is defined as recordation, not when the signing takes place. Often close of escrow is close to the last day of the month because the buyer can bring less funds to the closing table.

Interest is paid on a per diem basis and if our interest is 3.875%, our interest would be about $6200 or about $16.99 a day. If we close on the 15th of the month, we have 15 days of interest or $254.85 to bring to the closing table, but if we close the 30th of the month, we only have $16.99 in interest.

Possession is at the close of escrow, or when the property transfer is recorded with the Pima County Recorder’s office.

Any addenda which is made a part of this contract; an “AS IS” addendum, a HOA (homeowners association) addendum, short sale addendum, lead based paint disclosure, water well or septic system addendum, a loan assumption, or seller financing, or an additional clause addendum are listed.

All items attached to the property stay with the property, including landscaping.  And if the buyer wants the washer, dryer, refrigerator, or other appliances with the exception of the stove, they must be listed. Pool and spa equipment, fireplace equipment, water system and security systems transfer with the property.  Furniture and personal items should be conveyed with a bill of sale.

The cover page of the Residential Resale Real Estate Purchase Contract has boldfaced capital letters ending with an exclamation point, ATTENTION BUYER!

And underneath the exclamatory phrase is “You are entering into a legally binding agreement” in large letters.

The Arizona Association of Realtors® is nearly screaming at you to pay attention to what you are about to sign.

There are eight caveats:  Read the entire contract before you sign it.  If you don’t understand something, ask!

It will tell you to review the Residential Seller’s Property Disclosure Statement, otherwise known as the SPDS.    This will be given to you after mutual acceptance of the contract, if not before.  The seller discloses all that he knows about the house to the best of his ability.  With your agent, you should review all information to ascertain if there is additional information you may want to investigate during the ten day inspection period.  On the basis of information in the SPDS, you may decide not to proceed with the contract.  This is an important document.

The third item has to do with Inspections.  The buyer can inspect for anything that is important to the buyer.  This will include the Covenants, Codes and Restrictions (item 7) and other governing documents.  If you have three 150 pound dogs, it is important to read the CC and R’s to make sure they are allowed in the community.  But you may inspect for mold, have a roof inspection, a pest inspection, a pool inspection, and an HVAC inspection or anything else the buyer deems important.

During the inspection period, confirm that you can obtain insurance on the property.  And you should have verified you can obtain a home loan.  Any information requested by the lender should be provided immediately.

Your agent will review the title commitment with you and if there are problems with the title, they will be have to be resolved prior to close of escrow.

And finally, the buyer should conduct a final walk through to make sure the property is in the same condition as when originally seen and if repairs were requested, they were done in a workman like manner.

The cover page is explicit:  “Verify anything important to you.”