The Arizona REALTORS® Residential Resale Purchase Contract – Additional Terms and Conditions & Seller Acceptance

This is Part 9 and the final article of a series discussing the major provisions in each section of the Arizona REALTORS® Residential Resale Real Estate Purchase Contract (10/22) (“Contract”).  The previous articles in this series can be located at Arizona Real Estate – A Professional’s Guide to Law & Practice. (arizonarealestateprofessionalguide.blogspot.com)

The Additional Terms and Conditions Section of the Contract may start with a page of blank lines but contains a variety of important provisions of which all parties should be aware. 

ADDITIONAL TERMS AND CONDITIONS SECTION

Blank Lines

The blank lines may be utilized for adding terms into the Contract that are not addressed in the boilerplate.  For example, you can add personal clauses, office clauses, or system clauses.

• If you are writing a contingency or clause that is not a standard Arizona REALTORS® or broker clause, consider having your broker or manager review the language before submitting the offer or counteroffer to ensure that the contingency or clause is clear and addresses all concerns.   

• Contingency clauses are a common source of ambiguity.  At a minimum, a contingency clause should specify the terms of the contingency, the exact time in which the contingency must be fulfilled, and the rights and obligations of the parties if the contingency is not met. The following are some important considerations when drafting a contingency.  
  • What is the contingency?
  • For whose benefit?
  • When must the contingency be satisfied?
  • How is the contingency satisfied?
  • What happens if the contingency is not satisfied?

Risk of Loss

If there is any loss or damage to the home prior to COE or possession, whichever is earlier, by reason of fire, vandalism, flood, earthquake, or act of God, the risk of loss is on the seller, provided, however, that if the cost of repairing the loss or damage exceeds 10% of the purchase price, either seller or buyer may cancel the contract.

• If there is a fire in the home and the cost to repair the damage is less than 10% of the purchase price, the seller has the obligation to repair the damage and disclose the damage and repairs to the buyer.  The buyer would then have five days to give notice of disapproval. 
• If the cost of repair exceeds 10%, either seller or buyer may cancel the Contract. 

Permission

Buyer and seller grant broker(s) permission to advise the public of the Contract.

Arizona Law

The Contract is governed by Arizona law and any legal action relating to the contract is to take place in Arizona.

Time is of the Essence

The parties acknowledge that time is of the essence in the performance of the contractual obligations.  

• Despite the importance of the COE date in the Contract, time may not be regarded by the courts as being of the essence for COE without the time is of the essence clause.

• The courts have determined that time should be considered of the essence in a contract when:

1. There is an express recital in the contract, that time is of the essence. 
2. Where, from the nature of the transaction or fluctuations in the value or from the terms of the agreement, the treatment of time as a nonessential will produce a hardship and delay by one party in completing or in complying with a term would necessarily subject the other party to serious injury or loss.
3. There is an express notice, given by a party who is not in default to the other party who is in default, requiring the contract to be performed within a reasonable stated time.

Compensation

The seller and buyer acknowledge that the broker(s) will be compensated for their services as previously agreed by separate written agreement(s), which shall be delivered by the brokers to the escrow company for payment at COE, if not previously paid. If the seller is obligated to pay the broker(s), the contract constitutes an irrevocable assignment of the compensation owed to the broker to be paid from the seller’s pro­ceeds at COE. If the buyer is obligated to pay broker(s), payment is to be collected from the buyer as a condition of COE.

• Broker compensation should not be addressed in the Contract. 

Copies and Counterparts

A fully executed facsimile or electronic copy of the entire Contract is to be treated as an original contract. The contract and any other related documents may be executed by facsimile or other electronic means and in any number of counterparts, however copies may be signed. All counterparts are deemed to constitute one instrument, and each counterpart is deemed an original, except that the Lead-based Paint Disclosure Statement may not be signed in counterpart.

• The MLS lead-based paint disclosure form available when an MLS listing is printed allows the lead-based paint disclosure to be made to the buyer before contract acceptance but does not satisfy the requirement for having signatures of all parties on the lead-based paint disclosure form in the files of both brokers.

• The EPA has indicated that it is permissible to have these electronic disclosures signed in counterpart (signatures on separate completed lead-based paint disclosure forms) provided that both the listing broker and the buyer’s broker retain copies of the lead-based paint disclosure forms containing signatures of all parties.

Days

All references to days are calendar days. A day begins at 12:00 a.m. and ends at 11:59 p.m.

• A party has until 11:59 p.m. to perform an act that is required by the Contract to be performed by a specific day – even if it is not feasible for the party to do so. 

Calculating Time Periods

This provision explains how time periods in the contract are to be calculated. The day of the act or event from which the time period begins to run is not included (i.e., the date of contract acceptance), and the last day of the time period is included. The provision explicitly states that contract acceptance occurs on the date that the signed contract (and any incorporated counter offer) is delivered to and received by the appropriate broker.

Acts that must be performed three days prior to the COE Date must be performed three full days prior; for example, if the COE Date is Friday, the act must be performed by 11:59 p.m. on Monday.

• If Contract acceptance occurred on Monday. The day of the act or event from which the time period begins to run is not included, so day one is Tuesday. The last day to perform any acts required to be accomplished within five days after acceptance should be completed by Saturday at 11:59 p.m.

• If the cure period notice was sent at 5 p.m. on Monday, the three-day cure period expires at 11:59 Thursday night. This time period is calculated as follows: 
  • the day of the act or event from which the time period begins to run is not included, in this example, Monday. Therefore, Tuesday is day one, Wednesday is day two and Thursday is day three. 
  • The last day of the time period is included, in the example above, Thursday. Therefore, the non-complying party would be in breach at 12 a.m. on Friday.

Entire Agreement

The contract, addenda and attachments constitute the entire agreement, supersede any other written or oral agreements and can be modified only by a signed writing. The failure to initial any page of the contract does not affect its validity or terms.

Subsequent Offers

The buyer acknowledges that the seller has the right to accept subsequent offers until COE. However, any subsequent offer accepted must be a backup offer contingent on the cancellation of the contract.

Cancellation

A party who wishes to exercise any right of cancellation allowed in the contract may cancel the contract by delivering a notice stating the reason for cancellation to the other party or to the escrow company. Cancellation becomes effective immediately upon delivery of the cancellation notice.

• Brokers are often faced with a transaction in which one party has breached the purchase contract and the non-breaching party is threatening cancellation. Although there is a remedy for every breach of contract, the remedy is not always cancellation. The remedy may be limited to compensation for financial losses.

• To justify cancellation, the breach generally must relate to a vital provision of the contract (a material term); the breach cannot relate simply to an incidental or minor contract provision.

• A party threatening cancellation of a contract over the objections of the other party should be referred to legal counsel for advice.

Notice

Unless otherwise provided, (i.e., for delivery of the title commitment, acceptance or cancellation), delivery of all notices and documentation required or permitted in the contract must be in writing, addressed as indicated in the referenced sections (Section 8q and Section 9a, which provide the identity and contact information for the brokers and salespersons involved in the transaction) and are deemed delivered and received when:

1. hand-delivered;
2. sent via facsimile transmission;
3. sent via electronic mail, if e-mail addresses are provided; or
4. sent by recognized overnight courier service.

Therefore, the broker must check the office, fax and e-mail provided in the notice sections daily.

• The notice is deemed received even if the notice is not picked up from the office, the fax machine is out of paper, or the e-mail is not opened. 

Release of Broker(s)

The parties expressly release, hold harmless and indemnify the broker(s) from liability and responsibility for the listed items relating to the premises as well as the price and terms of sale and return on investment.

• This provision emphasizes to the buyer the importance of conducting their due diligence investigation and inspection of the premises utilizing the appropriate professionals.

• A hold harmless clause is enforceable under certain circumstances. Such a clause will be given effect by the courts when it represents “an intentional relinquishment of a known right.” Further, there must be no public policy impediment to the limitation and the parties must “bargain” for the limitation.

• The provision in the Contract should not be considered against public policy, the seller’s and the buyer’s initials evidence that the provision was discussed, and the language clearly helps to clarify the broker’s role in the transaction. Therefore, although this provision will likely be strictly construed against the brokers in a transaction, the provision should be given effect according to its terms. 

Terms of Acceptance

Contract acceptance occurs and the offer becomes a binding contract when acceptance is signed by the seller, and a signed copy delivered in person, by mail, facsimile or electronically and received by the specified broker by the specified time and date. 

Broker on Behalf of Buyer

The broker and salesperson contact information are included in this paragraph for addressing the notice to the buyer, for agency confirmation and for earnest money receipt. All notices must be sent to the salesperson indicated unless otherwise provided.

• An additional line has been provided in the event a buyer is represented by more than one agent. This typically occurs when the agents are members of a team. 

Agency Confirmation

The agency relationship of the broker writing the offer is confirmed in this section.

• Both agency confirmations (buyer and seller) are contained on the same page so that any inconsistencies will be obvious.

SELLER ACCEPTANCE SECTION

Broker on Behalf of Seller

The listing broker’s information is contained in this section. All notices to the seller must be sent to the salesperson indicated unless otherwise provided.

• An additional line has been provided in the event a Seller is represented by more than one agent, again for example, when the agents are members of a team.

Agency Confirmation

The agency relationship of the listing broker is confirmed in this section.

Seller Receipt of Copy

The seller acknowledges receipt of a copy of the contract and grants permission to the broker to deliver a copy to the buyer.

Counter Offer

If a counter offer is attached, the seller must sign and deliver both the offer set forth in the contract form and the counter offer.

• If there is a conflict between the offer and the counter offer, the provisions of the counter offer are controlling.

Offer Rejected by Seller

If the offer is rejected, the seller should initial and date this provision.

• Many complaints against real estate licensees involve allegations that an offer was not submitted to the seller or not submitted to the seller in a timely manner. As a result, a box was added to the contract to prompt the seller to acknowledge that an offer was submitted and rejected on the date specified.

• The seller’s initials evidence that both the listing broker and the buyer’s broker complied with the Commissioner’s Rule, R4-28-802(B), which requires a broker to promptly submit all offers to the broker’s client. 

CONCLUSION

While no contract form is perfect, the Arizona REALTORS® Contract is designed to make transactions proceed more smoothly, set forth the obligations of the parties with specificity, and reduce liability for the parties and the brokers. Further, the advantages of a standardized resale purchase contract for both the brokers and the parties involved cannot be overstated.

K. 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 (3^rd 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.  5/12/23

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