The Subdivision Public Report law regulates the sale or lease of subdivided land, which is defined as land divided or proposed to be divided for sale or lease into six or more lots or parcels. A.R.S. §32-2181 et seq. A “subdivider” is anyone who offers for sale or lease six or more lots, parcels or fractional interests in a subdivision or subdivides land into a subdivision, or who undertakes to develop a subdivision. A.R.S. §32-2101(55). A subdivider may not sell or lease or offer for sale or lease any lots, parcels or fractional interests in a subdivision without first obtaining a public report from the ADRE. A.R.S. §32-2183. A subdivider must give a prospective new home buyer a copy of the public report and an opportunity to read and review it before the prospective buyer signs a contract to purchase a home in the subdivision. A.R.S. §32-2183(A).

Purchasing a newly constructed home or a home to be constructed in a new home subdivision involves different considerations than buying a resale home in an established neighborhood.

Buyer Considerations When Entering into a Contract for a New Home to be Constructed

When a buyer decides to buy a new home that has yet to be constructed, there are many important decisions to make, such as design, flooring, countertops and colors. With all these decisions and all the excitement of buying a new home, the legal issues are often forgotten or ignored. However, there are a few issues that demand a buyer’s attention.

For example, before signing a new home contract, buyers should do the following:

 Read the Subdivision Public Report As discussed above, the purpose of the public report is to disclose important information about the subdivision. Therefore, a new home buyer should always read the public report before signing a purchase contract.

Read the CC&Rs and Other Homeowners Association Rules Most new homes are in a homeowners association. Covenants, Conditions and Restrictions (CC&Rs) generally empower a homeowners association to control certain aspects of home’s use. The CC&Rs may be very strict, especially those addressing landscaping, RV parking, and play equipment. It is essential that the buyer review and agree to these restrictions prior to entering into a contract; afterwards is generally too late.

In addition to the CC&Rs, a homeowners association may be governed by articles of incorporation, bylaws, rules and regulations, and often architectural control standards, which should also be reviewed.

Read the Purchase Contract Buyers must understand the importance of reading the purchase contract carefully and should be advised to keep the following questions in mind:

•Who will hold the earnest money and other advance deposits? If possible, all earnest money and other advance deposits should be held by the escrow company. If the deposits are held by the seller, the buyer may have a difficult time recovering those funds in the event the seller fails to perform.

•Does the contract contain a financing contingency for the benefit of the buyer? Unless the buyer plans to pay cash, the contract should contain a financing contingency stating that the contract is contingent upon the buyer qualifying for a loan. If the buyer is unable to qualify for a loan to buy the home, the buyer should be entitled to a return of the earnest money. Some new home contracts provide only that the seller has the right to cancel the contract if the buyer fails to qualify for a loan, which does not protect the buyer.

•When will the home be completed? The seller should be asked to give a realistic estimate as to when construction will be completed. A realistic completion date is important so that the quality of the construction will not be compromised by a contractor who is rushing to complete the home. A realistic completion date will help the buyer plan the move and avoid unanticipated housing costs. If the completion date is critical, the buyer may be able to negotiate a contract provision in which the seller agrees to pay a certain dollar amount to the buyer per day for late completion.

•What are the buyer’s remedies if there is a problem? The remedies for problems may be specifically set forth in the contract. The contract should direct the buyer to the Arizona Registrar of Contractors (ROC), a governmental agency that regulates home builders. This agency can assist buyers with some construction defects. The contract may require that any disputes be resolved by binding arbitration, which may eliminate the right to a trial by judge or jury and the right to appeal.

This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel

K. Michelle Lind is an attorney and the Chief Executive Officer for the Arizona Association of REALTORS^®, the largest trade association in Arizona, representing approximately 52,000 members. She is the author of Arizona Real Estate: A Professional’s Guide to Law & Practice. 

K. Michelle Lind, Esq

Chief Executive Officer
michellelind@aaronline.com