“Whiskey is for Drinking; Water is for Fighting Over” . . . What Buyers Need to Know
Inside the Arizona New Home Industry
February 1, 2023
Arizona Association of REALTORS ®
The quote “whiskey is for drinking; water is for fighting over” has often been attributed (possibly incorrectly) to Mark Twain. However, regardless of where the quote originated, it reflects the fact that “fighting” over water in the West has had a very long and storied history. For a little background, see the US Department of the Interior Bureau of Reclamation summary of Arizona’s “fights” for an assured water supply over the last century.
Arizona’s water supply, and the water supply in the entire western United States, continues to be a focus in the media and with the state’s elected officials. And, water supply is an extremely complex issue, just take a look at the Arizona Department of Water Resources (ADWR) News Blog.
A real estate licensee is not required to be a water expert. However, buyers need to know the source of a property’s water supply and if there are any water issues before purchasing that property. A real estate licensee should be knowledgeable as to where to direct a buyer to obtain this information.
New Home Subdivision Public Report: A subdivider (anyone who offers six or more lots for sale in a subdivision) must give a prospective new home buyer a copy of an Arizona Department of Real Estate (ADRE) issued 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). The Public Report is required to include a great deal of information on water supply to the development. A.A.C. R4-28-A1205. A resale buyer can obtain a copy of a home’s Public Report from the ADRE Public Report Database.
Buyer Advisory: The Arizona REALTORS® Buyer Advisory advises the buyer to investigate the availability and quality of the water to the property and provides several resources.
Water/Well Issues The property may receive water from a municipal system, a private water company, or a well. You should investigate the availability and quality of the water to the property, as well as the water provider.
A list of Arizona’s water companies is available at the Arizona Corporation Commission. https://www.azcc.gov/utilities/water (Arizona Corporation Commission – Utilities-Water) https://new.azwater.gov/aaws/statutes-rules (Assured and Adequate Water Supply),
Adjudications: Arizona is undertaking several Stream Adjudications, which are court proceedings to determine the extent and priority of water rights in an entire river system. For information regarding water uses and watersheds affected by these adjudications, and the forms upon sale of the property, visit the Department of Water Resources online.
https://new.azwater.gov/adjudications (Department of Water Resources – Adjudications).
CAGRDs: The Central Arizona Groundwater Replenishment District (CAGRD) functions to replenish groundwater used by its members, individual subdivisions and service areas of member water providers. Homeowners in a CAGRD pay an annual assessment fee which is collected through the county property tax process based on the amount of ground water served to member homes. www.cagrd.com (Central Arizona Ground Water Replenishment District)
Property owners obtain their water from a variety of sources depending upon their location: public municipalities, private water companies, private wells, shared wells, and hauled water. According to the Arizona Corporation Commission (ACC), there are more than 400 individual water systems operated by almost 350 companies under their jurisdiction. The ACC can assist in obtaining information about the water company servicing a particular area.
SPDS: Sellers should disclose their property’s water source to the buyers on the Arizona REALTORS® Seller’s Property Disclosure Statement (SPDS). And, if the seller is aware of any past or present drinking water problems, those should be disclosed on the SPDS as well.
The SPDS specifically advises the buyer that if the property is served by a well, private water company or municipal water provider that the ADWR may not have made a water supply determination and the buyer should contact the water provider during their Inspection/Due Diligence Period.
Water Well Disclosures: If the property is served by a well, the Arizona REALTORS® Domestic Water Well Addendum to the purchase contract and the Domestic Water Well/Water Use Addendum to the Seller’s Property Disclosure Statement should be completed and provided to the buyers to assist them in their inspection and provide additional disclosures.
Disclosures of Other Known Water Issues: Sellers and real estate licensees who are aware of other adverse water issues are obligated to disclose those facts to a buyer. These water issues may occur in “wildcat subdivisions” (in which land is split into five or fewer parcels and are not required to obtain an ADRE Public Report) or in other areas in the state. Water issues that may need to be disclosed include curtailments, moratoriums, impending water cutoffs, water quality issues, and operational problems with a private utility.
The lack of an adequate and safe water supply to a property is undoubtably a material fact. Where a seller of real property knows of facts materially affecting the value of the property that are not readily observable and are not known to the buyer, the seller is under a duty to disclose those facts to the buyer. Hill v. Jones, 151 Ariz. 81, 725 P.2d 1115 (App. 1986).
Additionally, pursuant to the Arizona REALTORS® Residential Resale Purchase Contract the seller warrants that the seller has disclosed to the buyer and real estate agent all material latent defects and any information concerning the home known to seller, excluding opinions of value, which materially and adversely affect the purchase price to be paid by the buyer.
Additionally, the Arizona Department of Real Estate Commissioner’s Rules R4-28-1101 requires a real estate licensee participating in a real estate transaction to disclose to all other parties any information which the licensee possesses that materially and adversely affects the consideration to be paid by any party to the transaction, including any material defect existing in the property being transferred.
Don’t become a Party to a Water “Fight”
With the appropriate disclosures and the buyer’s due diligence, a real estate licensee, seller, and buyer can avoid becoming involved in a water “fight” after close of escrow. If there is any question about the source, availability, quality of the water to the property, water rights, or water costs, assist the buyer in investigating the issue during the Inspection/Due Diligence Period by directing them to the appropriate sources of information.
Michelle Lind is Of Counsel to the Arizona REALTORS® and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice. 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. 10/25/2022