New/Revised AAR Forms

February 2010
By K. Michelle Lind

Arizona REALTOR® Magazine - March 2010

AAR strives to keep its forms as up-to-date as possible and develops new forms as the need arises. In February, AAR introduced a Short Sale Addendum to the Commercial Listing Agreement, a Short Sale Addendum to the Commercial Purchase Contract, a Commercial Buyer’s Inspection Notice and Seller’s Response form, a revised Buyer-Broker Exclusive Employment Agreement, and a minor revision to the Domestic Water Well/Water Use Addendum.¹

Revised Buyer-Broker Exclusive Employment Agreement
The Buyer-Broker Exclusive Employment Agreement is designed to be used when a buyer employs a broker to work with the buyer exclusively. The agreement benefits the buyer by setting forth the terms of the buyer-broker relationship. The agreement benefits the broker by assuring the broker that they will be compensated the agreed-upon amount if the buyer purchases a property during the term of the agreement. The agreement can be of particular importance when representing a buyer in a short-sale transaction.

Many of the revisions to the Buyer-Broker Exclusive Employment Agreement involved reorganizing and streamlining the form for ease of use and understanding. New sections include:

• Employment section - lines 4-8
• Agency Relationship section - lines 9-11
• Due Diligence section - lines 19-20

In the employment section the broker agrees to locate the generally described property; negotiate to obtain acceptable terms and conditions for the purchase, exchange, option or lease of the property; and assist buyer during the transaction within the scope of broker’s expertise and licensing. The agency relationship between buyer and broker is as set forth in the Real Estate Agency Disclosure and Election form or other referenced document. In the Due Diligence section, the buyer agrees to conduct any inspections or investigations the buyer deems important.

The buyer agrees to pay the broker a non-refundable fee in the amount specified (may be $0), which is earned when paid, for initial consultation and research. The broker has the option of whether or not to credit the fee against any other compensation owed by the buyer to the broker pursuant to the agreement. The buyer also agrees to compensate the broker the specified amount or the compensation the broker receives from the seller or the seller’s broker, whichever is greater. In either event, the buyer authorizes the broker to accept compensation from the seller or the seller’s broker, which shall be credited against any compensation owed by the buyer pursuant to the agreement. If completion of any transaction is prevented by the buyer’s breach or with the consent of the buyer other than as provided in the purchase contract, the total compensation is due and payable by the buyer.

The buyer agrees to work exclusively with the broker and be accompanied by the broker on the first visit to any property. If the broker does not accompany the buyer on the first visit to any property, including a model home, new home/lot or “open house,” the buyer acknowledges that the builder, seller or seller’s broker may refuse to compensate the broker, which will eliminate any credit against the compensation owed by the buyer to the broker.

Once an acceptable property is located, the buyer agrees to act in good faith to acquire the property and conduct any inspections/investigations that the buyer deems material and/or important. The buyer also agrees to consult the Buyer Advisory at www.aaronline.com to assist in the inspections and investigations.

In the event of a dispute, the buyer and the broker agree to mediate. In the event that mediation does not resolve all disputes or claims, the unresolved dis¬putes or claims will be submitted for binding arbitration.

New Commercial Forms
Two commercial short sale addenda and a Commercial Buyer’s Inspection Notice and Seller’s Response form were also developed. These forms are similar to the residential forms but were revised to reflect the AAR Commercial Real Estate Purchase Contract and commercial transactions.

Short Sale Addendum to the Commercial Listing Contract
The purpose of the Short Sale Addendum to the Commercial Listing Contract is education of the seller and risk management for the broker. The addendum begins with a seller acknowledgment that the broker is not qualified to provide financial, legal or tax advice regarding a short sale transaction. Therefore, the seller is advised to obtain professional tax advice and consult independent legal counsel immediately regarding the tax implications and advisability of entering into a short sale agreement.

The addendum also notifies the seller that a short sale may adversely affect their credit score and informs the seller that even if the creditor agrees to a short sale, the creditor may not agree to forgive the debt entirely. The addendum advises the seller that a short sale in which the debt is forgiven is a relief of debt and may be treated as income for tax purposes. Finally, the seller is advised to explore options other than a short sale.

Short Sale Addendum to the Commercial Purchase Contract
When the parties execute the Short Sale Addendum to the Commercial Purchase Contract, they are agreeing that the contract will be contingent on an acceptable short sale agreement. The addendum also obligates the seller to submit a copy of the contract and any other documentation required by the lender for approval of the sale within five days after contract acceptance. The seller agrees to work diligently to obtain short sale approval and promptly provide the lender with all additional documentation, including an appraisal at the seller’s expense, if required.

If the seller and the lender enter into a short sale agreement, the seller must immediately deliver notice to the buyer that the seller and the lender have entered into a short sale agreement. This notice is defined in the addendum form as the “Short Sale Agreement Notice.” The date of the seller’s delivery of the Short Sale Agreement Notice to the buyer is deemed the date of opening of escrow for purposes of all applicable contract time periods. In other words, although the parties have entered into an enforceable contract, the time periods do not begin to run until the seller has delivered the agreement notice.

The buyer is obligated to promptly open escrow and deposit the earnest money upon receipt of the agreement notice. All loan costs will be paid by the buyer, and the buyer waives the seller’s warranties, except that the seller warrants maintaining and repairing the premises so that at close of escrow the premises will be in substantially the same condition as the date of contract acceptance.

Once again, the recommendation that the seller obtain legal and tax advice is emphasized. The addendum provides that the buyer is entitled to cancel the contract at any time before receipt of a Short Sale Agreement Notice from the seller. And in the event that the seller and lender are unable to reach an acceptable short sale agreement, the seller must notify the buyer, and the contract is cancelled due to the unfulfilled short sale contingency.

Commercial Buyer’s Inspection Notice and Seller’s Response Form (BINSR)
This new Commercial Buyer’s Inspection Notice and Seller's Response form is designed for use with the AAR Commercial Purchase Contract. The form evidences that the buyer has completed and verified all desired due diligence and inspections pursuant to lines 64-65 of the Commercial Purchase Contract, and the buyer has verified all important information. The form also evidences the buyer’s election to: accept the property in its present condition with no corrections or repairs requested; disapprove of the listed items and immediately cancel the contract; or provide the seller an opportunity to correct the listed disapproved items.

The form includes a section for the seller’s response if the buyer provides seller an opportunity to correct the items disapproved. The seller may agree to: correct the items disapproved; refuse to correct any of the items disapproved; or provide an alternate response.

If the seller does not agree to correct all the items disapproved, the buyer’s election section should be completed. The buyer may elect to cancel the contract or accept the seller's responseand agree to close escrow without correction of those items the seller has not agreed in writing to correct.

Revised Domestic Water Well/Water Use Addendum
The Arizona Department of Water Resources requested minor changes to the Domestic Water Well/Water Use Addendum to broaden “forms” and update contact phone numbers. Thus, lines 29-31 of the addendum were changed to: “For details regarding water uses and the watersheds affected by these adjudications or to obtain necessary forms, contact the Arizona Department of Water Resources at 1-800-352-8488, 1-866-246-1414 or log on to the website www.azwater.gov.”

K. Michelle Lind, Esq. K. Michelle Lind is General Counsel/Assistant CEO to the Arizona Association of REALTORS® (AAR). She serves as the primary legal advisor to the association. Michelle oversees AAR’s Risk Management Committee, which includes professional standards administration for twenty of the state’s local REALTOR® associations, and the development of standard real estate forms. She is the author of Arizona Real Estate: A Professional’s Guide to Law & Practice and a regular contributor to the Arizona REALTOR® and the Arizona Journal of Real Estate & Business. Please note that this article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.