Representing a Buyer in a New Home Subdivision

 

Representing a buyer who is purchasing a home in a new home subdivision involves different considerations than representing a buyer in a resale home transaction.  A new home purchase transaction is generally much different than a resale transaction, but the role of a buyer’s agent is just as important. 

 

Ensure that the Buyer Understands that You Should Accompany Them to Their First Visit to any Model Home or New Home Sales Office

Generally, a buyer’s agent must accompany the buyer on their first visit to a new home subdivision and register to be eligible to receive a commission. As a buyer’s agent, if you do not accompany the buyer on the first visit to any property, including a model home, new home/lot or “open house” the builder, seller or seller’s broker may refuse to compensate you.  Consider using the Arizona REALTORS® Buyer-Broker Exclusive Employment Agreement, which confirms the buyer’s agreement not to make a first new home visit without you.  https://www.aaronline.com/wp-content/uploads/2021/01/12/Buyer-Broker-Exclusive-Agreement-BBEEA-SAMPLE-FEB-2021-1.pdf

 

The Buyer Should Always Read the Public Report Before Signing the Purchase Contract

A subdivider (anyone who offers six or more lots for sale in a subdivision) must give a prospective new home buyer a copy of the 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).   Encourage your buyer client to read the Public Report thoroughly before signing a purchase contract because the report contains important information, such as:

• disclosure of conditions or provisions that may limit the use or occupancy of the home;
• homeowners association information;
• whether the subdivision is subject to any known flooding or drainage problems;
• existing and proposed adjacent land use, including any unusual safety factors and uses that may cause a nuisance or adversely affect homeowners;
• street and road maintenance;
• available utilities;
• any environmental factors;
• whether any portion of the subdivision is located in territory in the vicinity of a military or public airport;
• locations and availability of schools, shopping facilities, public transportation, medical facilities, ambulance service, and police service.

 

The purpose of the law requiring a Public Report for subdivided lands “is to insure that consumers who purchase lots in residential developments are provided with adequate streets, utilities, drainage, and generally pleasant, healthy and livable surroundings.” Alaface v. National Investment Co., 181 Ariz. 586, 596, 892 P.2d 1375, 1385 (App. 1994).

 

The Buyer Should Always Read the CC&Rs and Other Homeowners Association Rules Before Signing the Purchase Contract

Most new homes are in a homeowner’s association. Covenants, Conditions and Restrictions (CC&Rs) generally empower a homeowner’s association to control certain aspects of home’s use. The CC&Rs may be very strict, especially those addressing landscaping, RV parking, and play equipment. It is essential that the buyer review and agree to these restrictions prior to entering a contract; afterwards is generally too late. In addition to the CC&Rs, a homeowner’s association may be governed by articles of incorporation, bylaws, rules and regulations, and often architectural control standards, which should also be reviewed.

 

The Buyer Should Always Read the Purchase Contract Before Signing

Each new home seller/builder/subdivider generally has its own purchase contract, so there is no “standard” contract as there is in the resale market. And these new home purchase contracts are generally much different than the Arizona REALTORS® Resale contract. Therefore, buyers must read the purchase contract carefully before signing and be advised to keep the following questions in mind: 

 

• Who will hold the earnest money and other advance deposits? If possible, all earnest money and other advance deposits should be held by the escrow company.  If the deposits are held by the seller, the buyer may have a difficult time recovering those funds in the event the seller fails to perform.

 

• Does the contract contain a financing contingency for the benefit of the buyer?  Unless the buyer plans to pay cash, the contract should contain a financing contingency stating that the contract is contingent upon the buyer qualifying for a loan. If the buyer is unable to qualify for a loan to buy the home, the buyer should be entitled to a return of the earnest money. Some new home contracts provide only that the seller has the right to cancel the contract if the buyer fails to qualify for a loan, which does not protect the buyer.

 

• If the home is still under construction, when will the home be completed? The seller should be asked to include a realistic estimate as to when construction will be completed in the contract. A realistic completion date is important so that the quality of the construction will not be compromised by a contractor who is rushing to complete the home. If the completion date is critical, the buyer may be able to negotiate a contract provision in which the seller agrees to pay a certain dollar amount to the buyer per day for late completion.

 

• What are the buyer’s remedies if there is a problem? The remedies for problems are likely specifically set forth in the contract. The contract may require that any disputes be resolved by binding arbitration, which may eliminate the right to a trial by judge or jury and the right to appeal.   

 

Remember, educate the buyer about the importance of a buyer’s agent when purchasing a new home to guide them through the process and advocate on their behalf.  And, remind the buyer that the subdivision sales agent represents the seller and, as nice as they may be, is looking out for the seller’s best interests – not the buyer’s. 

 

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.