The Arizona REALTORS® Residential Resale Real Estate Purchase Contract: The Property Section
This is Part 2 of a series of articles discussing the major provisions in each of the sections of the Arizona REALTORS® Residential Resale Real Estate Purchase Contract (10/22) (“Contract”). The previous article in this series can be located at Arizona Real Estate – A Professional’s Guide to Law & Practice. (arizonarealestateprofessionalguide.blogspot.com)
The Property Section of the Contract contains the major terms of the agreement and will likely be the focus of most buyers and sellers.
Buyer & Seller
Both the buyer and the seller are identified at the beginning of the Contract and the agreement to buy and sell is spelled out. If the buyer’s broker does not know the seller’s name when writing the offer, the buyer’s broker can simply check “□ as identified in section 9c,” which is the acceptance section.
- If the buyer(s) is married, both spouses must sign the Contract for the community property to be obligated.
- If one spouse is not available to sign, either may authorize the signature of the other by executing a Power of Attorney. Alternately, you may insert the clause from the Additional Clause Addendum that the signing buyer has five days to obtain the signature of the absent buyer spouse or deliver a disclaimer deed that eliminates the need for the signature of the absent spouse.
- If either party is a legal entity (corporation, limited liability company or trust) all pertinent information should be included, including the authority of the individual signing on behalf of the entity.
The description of the property to be conveyed is defined as the “Premises.” The Premises can be identified by address or legal description, as long as it is identified sufficiently to be ascertained.
- If you are describing the Premises by legal description, consider attaching a copy of the legal description to the Contract as an exhibit and referencing the exhibit as “See Exhibit A” on the legal description line to avoid any errors in writing it out by hand.
- The Contract also prompts for the Assessor’s number which can be found on the county assessor’s website if not otherwise available.
Full Purchase Price and Earnest Money
The full purchase price, earnest money, down payment, and any other payment terms are indicated in this section. The form of earnest money – personal check, wire transfer or other form of payment must be identified. The byer should also indicate whether funds will be deposited with the Escrow Company or in the Broker’s Trust Account upon acceptance.
Regarding the earnest money, be aware that:
- The earnest money will serve as liquidated damages in the event of a breach.
- If there is an unreasonably large amount of earnest money, the court may refuse to enforce the liquidated damages clause and deem it an unenforceable penalty.
All Cash Sale
If the sale is an all-cash sale, attach documentation such as a letter of credit or a source of funds from a financial institution showing that the buyer has the funds available to close escrow.
Close of Escrow
The Close of Escrow (COE) is defined as when the deed is recorded at the appropriate county recorder’s office. In the event that either the escrow company or the recorder’s office is closed on the COE Date, COE will occur on the next day that both are open for business.
- This provision applies to a cure notice as well. For example, in a situation where the COE Date is Wednesday, and the buyer fails to deliver funds on Wednesday and the seller issues a cure notice on Thursday. The cure period (three days after delivery of the cure notice) ends on Sunday. The contract has been interpreted to allow for the extra day under these limited circumstances due to lines 24-25, which state that if the escrow company or recorder’s office is closed on the COE Date that COE shall occur on the next day that both are open.
The buyer and seller agree to comply with all terms and conditions, execute and deliver to the escrow company all closing documents, and take all other necessary actions in sufficient time to allow COE to occur on the COE Date.
The buyer is obligated to deliver to the escrow company a cashier’s check, wired funds or other immediately available funds to pay any down payment, additional deposits, or buyer’s closing costs, and to instruct the lender to deliver immediately available funds to the escrow company, in a sufficient amount and in sufficient time to allow COE to occur on the COE Date. If the Buyer fails to do so, if not cured after a cure notice is delivered, the buyer is in material breach and the buyer’s earnest money is subject to forfeiture.
- Educate the buyer about wire fraud with the Wire Fraud Advisory and Wire Transfer Fraud Flyer.
- The failure to close escrow on the COE date has been determined by several court cases to be a material breach due in part to the “time is of the essence clause” in the Contract. However, the Contract requires the non-breaching party to issue a notice and opportunity for the potential breaching party to cure the potential breach before declaring a breach.
The seller agrees to deliver possession, occupancy, existing keys and/or means to operate all locks, mailbox, security system/alarms, and all common area facilities to the buyer at COE or as otherwise indicated.
- Prepare the seller to vacate the property and leave all keys by the time that the deed is recorded at COE.
- Avoid pre-possession or post-possession agreements if at all possible
The advisory required by the Arizona Administrative Code, also known as the ADRE Commissioner’s Rules, regarding the risks of pre-possession or post-possession agreements is included in the Contract. The parties are advised to seek independent counsel from insurance, legal, tax, and accounting professionals regarding those risks. See, Arizona Real Estate – A Professional’s Guide to Law & Practice.: The Risky Facts of Real Estate Life – Pre and Post Possession Agreements (arizonarealestateprofessionalguide.blogspot.com)
The listed addenda include:
- Additional Clause
- Buyer Contingency
- Domestic Water Well
- Lead-based Paint Disclosure
- Loan Assumption
- On-site Wastewater Treatment Facility
- Seller Financing
- Short Sale, and
- Solar Addendum
Each of these addenda should be carefully reviewed prior to use.
- These Addenda can be critical depending upon the transaction. Make sure you identify and include all Addenda applicable to the transaction.
- You can find language on a variety of other issues that you may want to address in the Contract in the Additional Clause Addendum, such as:
- Back-up Contract — Contingent upon Cancellation of Prior Contract
- Signature of Absent Buyer Spouse or Co-buyer
- Corporate Relocation Approval
- Nonrefundable Earnest Money
- Waiver of Appraisal
- Appraisal Shortfall
- All Cash Sale Appraisal Contingency
- Tax-Deferred Exchange
Fixtures and Personal Property
The fixtures and personal property to be included in the sale are listed in this section.
- Urge the seller to review this list of Fixtures and Personal Property before receiving an offer and advise the seller to let you know if they do not want an item(s) included in the sale. If the seller receives an offer including an item that the seller does not want to transfer, a counteroffer excluding that item will be necessary.
Additional personal property, such as the refrigerator, washer and dryer, and above-ground spa/hot tub, which are commonly included in the sale, are to be included if checked.
- A line is provided to describe or include the model number of the appliance. Describing the appliance and taking photos can resolve disputes, for example if the buyer alleges that the seller replaced the appliance with a different model prior to COE or the seller moves a refrigerator from the garage into the kitchen because the Contract stated: “refrigerator as seen on Contract date.”
The refrigerator, washer, dryer, and any other specified additional existing personal property included are not considered part of the premises and are transferred with no monetary value, free and clear of all liens or encumbrances.
The seller warrants that all additional personal property included in the sale will be in substantially the same condition as on the date of Contract acceptance.
- The seller can document the condition of the personal property in the Contract, on the Seller’s Property Disclosure Statement (SPDS) or in some other contemporaneous writing. For example, if the refrigerator is included in the sale and the ice maker does not work, the seller can note the nonworking ice maker in the “Other Conditions and Factors” section of the SPDS.
Leased items are not included in the sale and are to be disclosed within three days after Contract acceptance. The Buyer must provide notice of any leased items disapproved within the Inspection Period or five days after receipt of the seller’s notice, whichever is later.
The Property Section contains some of the most critical terms in the Contract to the buyer and seller. Ensure that both you and your client have reviewed and discussed this section thoroughly before making or accepting an offer.
Next Article – Financing Section
Michelle Lind, Esq. is an attorney who currently serves Of Counsel to the Arizona REALTORS®. She is also the author of the book – Arizona Real Estate: A Professional’s Guide to Law and Practice (3rd Ed.)
For more real estate related articles, visit Michelle’s Blog at Arizona Real Estate – A Professional’s Guide to Law & Practice. (arizonarealestateprofessionalguide.blogspot.com)
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. 2/24/23