LAYING DOWN THE LAW – CAVEAT EMPTOR: UPDATED AAR PURCHASE CONTRACT REMOVES SELLER WARRANTIES

Laying Down the Law, Legal Forum

Christopher J. Charles, Esq.

 

Andy Anderson, Esq.

 

Change can be a mixed bag. For sellers, the recent changes to the standard residential real estate purchase contract can be favorably viewed, but buyers should pay careful attention to the warranty provisions.

The Arizona Association of REALTORS® (AAR) periodically updates the Residential Resale Real Estate Purchase Contract form, which REALTORS® licensed in Arizona are authorized to utilize for real estate transactions. The most recent version was released in 2017, and it modifies the previous version updated in 2016.

For recent history, the standard AAR purchase contract provided the buyer with express warranties covering “all heating, cooling, mechanical, plumbing, and electrical systems (including swimming pool and/or spa, motors, filter systems, cleaning systems, and heaters, if any), free-standing range/oven, and built-in appliances” at the close of escrow, even if they were not in good working order at the time of contract acceptance:

That language was a boon to buyers and ensured not only that all such systems were functional, but also provided, on occasion, leverage for negotiations during the inspection period.

However, per the updated AAR purchase contract, the above warranty has now been removed, and every transaction is essentially an “as-is” transaction:

This new section indicates that the property will convey in its condition as of the date of contract acceptance, with no guarantee that the previously warrantied systems of the home are in good working order, and with no promise that the seller will repair those systems. For example, if a buyer contracts to purchase a home, and at the time of contract the HVAC system is not working, the seller now has no obligation to repair or replace it.

Under the updated purchase contract, buyers still have the opportunity (and are advised) to inspect the condition of the premises, and they can request that the seller make certain repairs. But sellers now have no obligation to make any repairs unless the system stopped working after the date of contract acceptance.

Of course, the previous language concerning warranties could be added back into the contract if all parties agree. But agents should first check with their broker before making any modifications to the standard form contract; some E&O policies contain an exclusion to coverage if the agent modifies the standard contract.

While this change is helpful for sellers, it does not relieve the sellers from their obligation to make complete disclosures about the condition of the property. Sellers are still required to disclose anything that would materially adversely affect the consideration to be paid concerning the real estate transaction (Hill v. Jones, 151 Ariz. 81, 725 P.2d 1115 [Ct. App. 1986]).

Under the updated purchase contract, buyers still have the opportunity (and are advised) to inspect the condition of the premises, and they can request that the seller make certain repairs. But sellers now have no obligation to make any repairs unless the system stopped working after the date of contract acceptance.

The takeaway from the removal of the above warranty is that buyers should approach residential transactions just like most commercial transactions. That is, the property is conveyed in its “as-is, where-is” condition, with all faults and defects.

If you or someone you know has a question regarding real estate transactions, please call our office today to schedule a meeting with Christopher J. Charles or Philip A. Overcash.

 

Philip A. Overcash is an attorney with Provident Law®. Mr. Overcash practices in the areas of complex commercial and real estate litigation. He has successfully represented numerous international, national, and Arizona-based corporations and individuals, government entities, and insurance companies in an array of legal disputes involving real estate, contracts, construction defects, insurance coverage and bad faith, employment law, trademark and trade secrets, and appeals. Philip is admitted to practice in Arizona’s state and federal courts, and he is a member of the Arizona State Bar Association and Maricopa County Bar Association. He can be reached via email at philip@providentlawyers.com or at 480.388.3343.

Christopher J. Charles is the founder and managing partner of Provident Law®. He is a state bar–certified real estate specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS® (the “AAR”). He also serves as an arbitrator and mediator for the AAR regarding real estate disputes, and he served on the State Bar of Arizona’s Civil Jury Instructions Committee, where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher is a licensed real estate instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at chris@providentlawyers.com or at 480.388.3343.