They Breached the AAR Purchase Contract – Now What?

 Most real estate transactions are completed without dispute. However, there are times when a buyer or seller refuses to comply with the contract and perform a contractual duty, such as a refusal to close escrow or to make agreed upon repairs.  Although you cannot give legal advice (unless you are also an attorney), it is important to know the options so you can point your client in the right direction. 

 

Under the AAR contract, a party is given an opportunity to cure these types of potential breach of contract. If a party fails to comply with the contract, the other party must deliver a cure notice before declaring a breach. If the non-compliance is not cured within three days after delivery of the cure notice (the cure period), the failure to comply becomes a breach of contract.

 

The cure notice provides a second chance to fix a problem before it becomes a breach – the cure notice does not address what happens when there is a breach.

 

All AAR contracts also contain a remedies section and alternative dispute provisions for dispute resolution.  If the situation arises – point these provisions out to your client. 

 

Remedies for Breach of Contract

Upon a breach, the party seeking relief generally has one of the following remedies:

 

1.      Contract Cancellation:  A contract may be cancelled for a material breach, misrepresentation, or fraud. However, contract cancellation is not the remedy for every breach. To justify cancellation, the breach generally must relate to a vital contract provision. Cancellation is generally not warranted for a breach of a minor contract provision that can be addressed by monetary damages.

 

2.      Specific Performance:  Specific performance may be available for a breach such as the failure to close escrow.  However, the court has wide discretion in these types of cases and specific performance is never a matter of absolute right.

 

3.      Damages:  Damages are monetary compensation for the loss suffered due to a breach of contract. The amount of damages will depend upon the circumstances and the specific breach. Generally, emotional distress damages will not be awarded for breach of contract. Similarly, punitive damages, which are damages designed to punish, are seldom awarded. However, a damage award may include an award of attorney’s fees to the prevailing party.

 

4.      Liquidated Damages:  Liquidated damages are a specific sum of money that has been agreed upon in the contract as the amount of damages to be recovered for breach of contract. The earnest money is designated as liquidated damages in the AAR contracts.  However, if there is an unreasonably large amount of earnest money, the court may refuse to award the earnest money as liquidated damages.  

 

Alternative Dispute Resolution

The AAR contract requires mediation and, if unsuccessful, defaults to binding arbitration, unless one of the parties opts out to litigate in court. https://www.aaronline.com/resolve-disputes/buyer-seller-disputes/  

 

·         Mediation is a process in which the parties meet with an impartial person who helps to resolve the dispute informally and confidentially. Agreeing to mediate does not mean that the parties are agreeing to settle, but simply means the parties are trying to resolve a dispute without going to court. The parties do not give up any right to pursue other legal remedies if mediation is not successful.

 

·         Arbitration is a process that is similar to court litigation but is generally quicker and more cost effective. Pursuant to the AAR contract, if mediation does not resolve the dispute, the unresolved dispute must be submitted to binding arbitration, unless either party opts out within 30 days after the conclusion of the mediation conference by written notice to the other.

 

Court Litigation

If the parties do not resolve their dispute through alternative dispute resolution, court litigation may be the only option.

 

·         Small Claims Court:  Many disputes in which the amount at issue is $3,500 or less can be resolved in small-claims court. The AAR contracts do not require mediation if the parties file a small claims court action. The case will be heard by either a judge or hearing officer, who then makes a decision that is final.  https://www.azcourts.gov/selfservicecenter/Small-Claims

 

·         Justice Court:  A lawsuit may be filed in the Justice Court if the amount involved is less than $10,000.  https://www.azcourts.gov/AZ-Courts/Justice-Courts

 

·         Superior Court:  If the claim exceeds $10,000, the claim must be filed in the Superior Court. Superior Court cases can take years to resolve at a substantial cost – both financially and emotionally.  https://www.azcourts.gov/AZ-Courts/Superior-Court

 

If you are involved in a transaction in which one of the parties alleges a breach of contract, immediately notify your designated broker or manager, and advise your client to obtain independent legal counsel.  https://www.azbar.org/for-the-public/public-service-center/

 

 

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.  

Important Contract Considerations to Protect You and Your Client

 The contract in a real estate transaction can prevent problems or cause disputes.  The Arizona REALTORS® standardized contract forms reduce risk, but the forms must be completed and utilized correctly.  Unfortunately, that is not always the case, and contract disputes result in the majority of the calls to the Arizona REALTORS® Legal Hotline.  Many of these disputes can be avoided by following basic contract law. 

 

Contract Legal Requirements

For any valid contract to exist there must be an (1) offer, (2) acceptance, (3) consideration, and (4) sufficient specificity so that the obligations involved can be ascertained.

 

1.       Offer:  An offer creates a power of acceptance, permitting the offeree - usually the seller - to accept and transform the offer into a contract.  Remember, when an offer (or counteroffer) is not supported by independent consideration (which it generally is not), the offer can be withdrawn at any time prior to acceptance.

 

2.       Acceptance:  If the offer specifies the time and manner for acceptance, like the terms in the Arizona REALTORS® contract forms, those provisions will control.  For example, if the contract must be accepted by a specific date and time, the offer expires thereafter and cannot be accepted.  And any attempt to change the terms of the offer, such as a change in escrow/title company or the close of escrow date, constitutes a counteroffer, which rejects the offer.

 

3.       Consideration:  Although consideration is necessary to a valid contract, consideration is easily demonstrated. Consideration need not be money but may involve a promise for a promise, which is the case in the Arizona REALTORS® contract forms. 

 

4.       Sufficient Specificity:  The contract must be sufficiently specific and contain all the material legal rights and obligations regarding the transaction. For example:

o   The Parties:  The identity of the buyer and seller should be set forth with specificity. If either party is a corporation, limited liability company or partnership, all pertinent information about the entity should be included, such as the entity’s name, address, and state of formation. And the signer’s authority to bind the entity should be confirmed and documented in writing. 

In addition, to prevent a voidable contract, both parties must be adults – 18 years or older.  The parties must also be competent. Competency may be an issue if dealing with an elderly or infirm buyer or seller, or a party with a mental disability or incapacity.  However, to invalidate a contract based on incompetency, the party must have been incompetent at the time of the execution of the contract – not at some time thereafter.

o   The Property:  Identifying the property must be done with specificity. Generally, the property’s street address is legally sufficient to identify the property.  However, if the property is identified by legal description, it is best to simply attach the legal description obtained from the title company as an exhibit and reference the exhibit on the line indicated on the Arizona REALTORS® form, rather than to rewrite the description and risk typographical errors.

o   Contingencies:  A contingency is a clause that requires the completion of a certain act before the parties are obligated to perform their contractual obligations, such as obtaining financing.  Contingency clauses must be drafted precisely because contingencies frequently become the subject of dispute. When trying to write a contingency that has not been standardized in the Arizona REALTORS® Additional Clause Addendum, consult with your broker or manager to make sure that the clause is sufficiently specific, clear, and complete.  Remember, if any handwritten provisions in the contract are inconsistent with the printed, boilerplate provisions on the standardized form, the handwritten provisions will prevail.

Additional Legal Requirements Specific to Real Estate:

Real property contracts must meet certain additional requirements to be valid. 

 

o   Signed Writing:  While some verbal contracts are valid (although difficult to prove), a contract for the sale of real property must be in writing and signed by the party to be charged to be enforceable (Statute of Frauds - A.R.S. section 44-101(6)).  All material modifications and amendments must also be evidenced by a signed writing.

o   Both Spouses Must Sign:  Both husband and wife must sign a real estate contract for the community property to be obligated. Therefore, both husband and wife must sign the contract and any modifications and amendments to the contract as well.

Arizona REALTORS® Standardized Contract Forms

The Arizona REALTORS® maintains transaction forms produced by the Association that have been adopted for use by members statewide. The Arizona REALTORS® currently has 70+ forms that are often revised or supplemented to address new legal issues, market changes, or simply to clarify a provision.  Several forms are currently being revised, including the SPDS and the BINSR. 

 

There are numerous benefits of the Arizona REALTORS® standardized forms, such as:

o   Prompts in the forms to ensure all the contract law basics are covered.

o   Uniformity of practice, which reduces ambiguity and disputes.

o   Regular updates to comply with state and federal law/regulations.

o   Increasing the value of being represented by a REALTOR®.

o   Eliminating the need of the broker to review boilerplate language of each form during the 10-day broker review required by statute.

o   Eliminating the need of salespersons to read each form’s boilerplate provisions when writing or reviewing an offer.

 

It is critical that REALTORS® understand all the terms of the Arizona REALTORS® forms they are using in a transaction and how they are interpreted.  But it is also important to remember to cover all the contract law basics. 

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.  

A Baker’s Dozen Tips to Avoid Disputes & Complaints

The following tips will assist you in better serving your client and reduce the possibility of costly and time-consuming disputes and complaints.

 

1. Get to Know Your Client:  Is your client experienced in real estate transactions or a first-time buyer?  Do your clients have any particular concerns about the property they are buying or selling?  Remember, the disclosures, advice and counsel required depend upon the facts of each transaction; the knowledge and the experience of the client; the questions asked by the client; the nature of the property; and the terms of sale.

 

2. Read & Understand the Purchase Contract & Related Forms:  Understanding all of the forms is critical to giving good advice to your client and handling the transaction competently.  Take a contract class from a respected instructor, keep up to date on forms revisions, and if you have a question about a form or how it should be interpreted, talk to your broker or manager – before it is an issue.  

 

3. Educate Your Client:  Before your client makes or receives an offer, educate them on the contract, CC&Rs, title report, public report, and any other important matters.  Explain the transaction process from start to finish.  This will help you manage your clients’ expectations from the beginning so they will look to you as the expert for the professional advice they need.   

 

4. Avoid Shortcuts:  Shortcuts such as giving the buyer a list of properties to see at open houses unaccompanied, incorporating the MLS form into the contract, referring to the inspection report items in the BINSR without detail, or failing to write contingencies completely all lead to ambiguity and the potential for disputes.  Take the time to write everything out clearly and always accompany your clients when they are viewing properties.   

 

5. Handle Offers Properly:  Submit all offers to the seller promptly.  If the offer is rejected, ask the seller to initial and date line 473 of the Arizona REALTORS® resale purchase contract and return it to the buyer.  The seller’s initials evidence that both the listing broker and the buyer’s broker complied with the Commissioner’s Rule that requires a broker to promptly submit all offers.  If the seller refuses to initial and date line 473, the listing broker should send an email or other writing to the buyer’s broker stating that the offer was submitted to the seller and rejected.   

 

6. Practice Within Your Area of Expertise:  The practice of real estate may involve residential, commercial, multifamily, vacant land, or businesses.  Each area of practice has its own unique considerations.  Additionally, Arizona is geographically diverse, from desert to mountains and from small communities to large cities.  Therefore, it is important to know about the characteristics of the geographical area in which you are practicing so that you can convey all the pertinent information to your client.  When representing a client in an unfamiliar area, either get familiar with the area, refer your client to a REALTOR® who is familiar with the area, engage the assistance of a REALTOR® who is familiar with the area, or disclose to your client in writing that you are unfamiliar with the area.   

 

7. When in Doubt, Disclose:  Allegations of a failure to disclose defects, and associated misrepresentation claims, make up the majority of real estate disputes. As a REALTOR® you have a fiduciary duty of a complete and full disclosure of all known material facts that might affect your client’s decision to sell or buy a property. Therefore, if you have actual knowledge of a material defect – disclose it. If you notice a suspicious condition – point it out to your client and recommend the appropriate technical or professional investigation.

 

8. Assist the Buyer with Due Diligence:  Insist on buyer inspections and if you are representing the buyer, attend the inspections and walkthrough if possible. If the buyer wants to waive the inspection, document your advice in writing. Supply the buyer with the tools to obtain information about the property, such as the Buyer Advisory. And recommend that the buyer seek professional or technical advice on any matter that is beyond your expertise.

 

9. Think Before You Speak:  When providing information or answering a question, do not speculate or guess. It is far better to say “I don’t know, but I will help you find out” than to give inaccurate or incomplete information. Also, make sure to identify the source of any information you provide to your client and direct your client straight to the source if possible.

 

10. Verify Questionable Information:  If you have reason to question the accuracy of any information being provided in a transaction or if your client questions the accuracy of any disclosures, take steps to assist them in confirming or verifying the information, including recommending that your client obtain independent professional or technical advice.  

 

11. Follow Through:  Make sure you follow through on all aspects of the transaction.  Use the Arizona REALTORS® Critical Date List (which is available in a fillable format on the Arizona REALTORS® website) to help you make sure that all the contractual obligations are completed on time.                             

 

12. Document the Transaction:  When discussing important issues with your client, take contemporaneous notes and confirm important discussions or decisions issues in writing.  In the event of a dispute, a complete and organized file with an e-mail/phone log will be invaluable.  

 

13. Communicate:  Many complaints and disputes can be avoided by prompt and effective communication. Conversations either in person or on the phone are always better than texts or emails if there is an issue to resolve. Those conversations can be followed up in writing. So always promptly return calls to your client and others involved in the transaction. And provide regular updates to your client - even if nothing is happening – so that they know that you are working hard for them and that they have not been forgotten.  

 

If you consistently follow these simple tips, you will have more satisfied clients, earn the respect of your peers, and avoid many unnecessary complaints and disputes.  Finally, remember that if you do have a question or receive a complaint, talk to your broker or manager.  

 

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.  6/7/22

 

Two Simple Ways to Avoid Multiple Offer Ethics & ADRE Complaints

 Low housing inventory and high buyer demand make multiple offer situations common and offers from investors with cash are often accepted by sellers over traditional buyers planning on buying with financing.  As a result, an increasing number of disappointed buyers believe that they have been treated unfairly and file an ethics or ADRE complaint.  

 

While little can be done to alleviate an unsuccessful buyer’s disappointment, there are two simple ways to make it more likely that an unsuccessful buyer will feel they were treated fairly and less likely that an ethics or ADRE complaint is filed.

 

#1 - Submit All Offers to the Seller

The Commissioner’s Rules require a broker to promptly submit to the client all offers during the term of the listing. The duty to submit all offers prior to closing does not end with the client’s acceptance of an offer unless the client instructs the salesperson or broker in writing to cease submitting offers or unless otherwise provided in the listing agreement, lease, or purchase contract. A broker may voluntarily submit offers to the seller or lessor regardless of any limitations contained in the listing agreement and may submit offers after the listing agreement is terminated.  

 

#2 – Acknowledge Offers Rejected by Seller in Writing

If the offer is rejected, the seller should initial and date line 473 of the Arizona REALTORS® resale purchase contract and return it to the buyer.  The seller’s initials evidence that both the listing broker and the buyer’s broker complied with the Commissioner’s Rule that requires a broker to promptly submit all offers.  If the seller refuses to initial and date line 473. The listing broker should send an email or other writing to the buyer’s broker stating that the offer was submitted and rejected.   

 

Many complaints involve allegations that an offer was not submitted to the seller or not submitted to the seller in a timely manner. These two simple steps can reduce the number of these types of complaints.  

 

 

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.  

 

 

What REALTOR®, Coke®, and Kleenex® Have in Common

 “REALTOR^®” (pronounced “Real-tor”) is not synonymous with “real estate agent” just like “Coke^® is not synonymous with “soda” and “Kleenex^®” is not synonymous with “tissue.” So, what REALTOR^®, Coke^®, and Kleenex^® have in common is that they are all trademarks.  Trademarks that are not properly protected may be lost forever. Aspirin, cellophane, nylon, thermos, escalator, and yo-yo all started out as names for specific products but became generic words of ordinary use because they were not properly protected. 

 

The term REALTOR^® is a federally registered collective membership trademark owned by the NATIONAL ASSOCIATION OF REALTORS^® (“NAR”). The term REALTOR^® was first used in 1915 and since that time NAR has vigilantly protected the valuable REALTOR^® trademark. 

 

The REALTOR^® membership trademark identifies and distinguishes members of NAR. Therefore, REALTOR^® may be used only by members in a way that indicates their membership in NAR. 

 

REALTOR® Rules for Members

·      Members using REALTOR^® in connection with their business or corporate name should always separate REALTOR^® from their name by appropriate symbols or punctuation. For example, “John Doe, REALTOR^®” or “Doe Real Estate, Inc., REALTORS^®.”

 

·      When using REALTOR^® as a part of a website address or email address, members always must refer to the member or member’s firm name, such as, JohnSmithRealtor.com or RealtorJaneDoeRealty@xyz.com.

·      In print, REALTOR^® should always stand out in relation to adjoining print by, capital letters, boldface print or italics; separating punctuation where appropriate; and use of the federal registration symbol “®.”  

 

·      Members may only use REALTOR^® in connection with their real estate businesses. 

 

Prohibited Uses of REALTOR®

·      REALTOR^® members are never authorized to use the term REALTOR^® as part of their business name with descriptive words, such as “Number One REALTOR^®.” 

 

·      Members are never authorized to use REALTOR^® with geographical terms, such as “Arizona’s Top REALTOR^®.”

 

·      The term should never be used in reference to non-members. Do not use the term “non-REALTOR^®”.

·      Non-members are never authorized to use the term REALTOR^® in their business name, for example “REALTOR Inspection Company, Inc.” would be prohibited.  

 

In regards to the use of REALTOR® in the media, most newspapers follow either the Associated Press (“AP”) Style Book or the United Press International (“UPI”) Style Book, which do not call for use of full capitals or a federal registration symbol "®" even for registered marks. Therefore, initial capitalization of “Realtor” is sufficient in news stories.

 

For answers to other questions about use of the REALTOR^® trademark, visit the NAR website at https://www.nar.realtor/logos-and-trademark-rules/logo-trademark-faq.

 

K. Michelle Lind, Esq.
Michelle is ‘Of Counsel’ to the Arizona REALTORS®.  Please note that 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.

 

4/25/22