Buyer Must Give a Reason for Cancelling Purchase Contract

A new Purchase Contract will be used for home sales in Arizona, effective February 1. While I am not sure the new "as is" condition is for the best (see next post), I do like the requirement that buyers give a reason for cancelling a contract. If the buyer does not give a written reason for cancelling the contract, he will forfeit his earnest money to the seller.

When a buyer gets a house under contract, he has what many agents call a 10 day "free look". The buyer can hire home inspectors, and investigate anything he wants, including building permits, flood plain status, sewer connection, zoning compliance, nearby development plans, schools, etc. This is called due diligence.

Currently, if the due diligence produces something that is unacceptable to the buyer, he can cancel the contract during the inspection period without explanation and get his earnest money back.

If fairness to the seller, the buyer should not be making shot gun offers on several houses without disclosing this to the seller. The buyer should not decide that he can't afford the house or he'd rather buy a different house. He should make a serious, good faith offer, and should only cancel the contract if he learns something new during the inspection period.

Sometimes one of my buyers is interested in a house that was under contract with a different buyer, but the first buyer cancelled the contract and the deal fell through (DFT). Sometimes the DFT was due to something unrelated to the property and my buyer's interest in it. The most common reason for a DFT is the first buyer couldn't get financing. However, if the DFT occurred because of a material fact, like a structural crack or lack of building permits, having that information will affect whether my buyer wants the house, what he should pay, and whether he can get financing.

Unfortunately, when I call a listing agent to ask why the previous sale DFTed, the agent often says he doesn't know; the buyer just flaked out. Now that the buyer is required to give a reason for cancelling, the listing agent can't claim they don't know what happened.

By the way, the seller and listing agent are required by state law and the Realtor Code of Ethics to disclose any material fact that they learn from a buyer's due diligence.

All Home Sales are "As Is" Sales!

Last week I was in the first class in Tucson to learn about the changes to the Arizona Association of Realtors Purchase Contract. This new contract goes into effect on February 1, and I expect it will take many agents by surprise.

The biggest change is that all contracts are now "as is". In current Purchase Contract, seller must provide heating, cooling, plumbing, electrical and mechanical systems that work. No longer. Seller is only obligated to transfer the property in the same condition as it was at contract acceptance. How anyone proves that a system that is not working at close of escrow was working at contract acceptance is unknown. The home inspection report may be useful in documenting any changes in the condition of the property during the escrow period.

When I started in real estate in 1995, the seller had to provide a leak-free roof and rid the house of termites. Those requirements were removed from the contract several years ago. Now the seller isn't required to do anything except fix anything that broke during the escrow period.

The State of Arizona requires that a septic system be inspected and repaired at seller's expense, and this requirement is not affected by the new "as is" clause.

The buyer still retains the right to inspect the property and can request repairs within the inspection period, which is usually 10 days from contract acceptance. The big difference is the seller doesn't have to fix anything. If the seller won't make the repairs the buyer requests, the buyer can cancel the contract and get his earnest money refunded.

This is going to create a problem for buyers who are getting an FHA or VA mortgage. Appraisers for these government-insured mortgages sometimes produce a list of required repairs, and if the seller won't make the repairs, the buyer won't get a mortgage. Requirements for conventional mortgages (non-government insured) are not as strict, but the house still must be habitable.

So if a buyer wants to make get a mortgage on a house with broken windows, leaking roof, or no water service, they should write in the contract that the seller will fix these things. If the seller is unable or unwilling to make the house habitable, the buyer shouldn't waste $400 on home inspections and $375 on an appraisal, because he is not going to get a mortgage.

The class I took was taught by one of the agents involved in writing the new Purchase Contract. She said when the committee discussed the "as is" clause, eight people were against it, and three people were for it. They asked an attorney to research how this is handled in other states where real estate agents write purchase contracts. The attorney found that aside from Arizona, no other state requires the seller to fix anything.

Another change to the purchase contract is the seller now has to provide the Seller's Property Disclosure Statement (SPDS) within three days of contract acceptance, which is a slight improvement over the current five days. It is very important for the buyer to have the SPDS before doing their home inspection so the inspector can check out any problems the seller has disclosed.

I have always tried to get the SPDS before my buyers make an offer. This is especially important now that all sales are "as is". Unfortunately, most agents don't even think about asking their seller to complete the SPDS until the house is under contract, then the seller drags his feet completing the form. Some sellers just refuse to complete the SPDS. That is the topic for another blog post.

When I have a listing, I tell my sellers we are not putting the house on the market until the SPDS is complete. I add the SPDS to the documents attached to the MLS listing and require the buyer to submit the signed SPDS with their offer. This protects the seller from buyers who want to renegotiate or cancel the contract when they learn something about the house that the seller already knew.

Doing what I can to reduce the chaos in the world!

My Kind of White Christmas

The view of the Santa Catalina Mountains from Tumamoc Hill on Christmas morn:

After the hike, we had a lovely Christmas dinner in the sunny, cactusy back yard of friends. So grateful that I can see snow but don't have to shovel it, drive in it, or wear boots to climb over mounds of it.

Tucson's Food Gains International Attention Again

The National Geographic has named Tucson as one of 10 recommended winter vacation destinations. The choices span the world, and we are the only place chosen in the USA. I have to question their praise for the Sonoran hot dog, but I've never had one, so maybe they are amazing. For unique fare in a lovely environment, I say get the beer-batter fried avocado tacos at Seis in the Mercado San Agustin at the western end of the modern street car line. Or the cornmeal-crusted chile relleno at LaCocina in the delightful Old Town Artisans. Thank you, I think I will.

And by now everyone knows that UNESCO named Tucson the first City of Gastronomy in the USA. I love traveling the world, but I sure miss the food of of the Old Pueblo when I'm in places that are less culinarily enlightened than my Sweet Desert Home.

When's the Best Time to Buy a Townhouse?

Dear friends of mine are moving back to Tucson and I am looking forward to helping them buy a townhouse when they get here next week. They are getting discouraged because the properties they like best are being sold so quickly. They wondered whether the snowbirds are buying the properties, and asked whether they would have better luck in June. This is what I said:

Check out this link to the Tucson Residential Sales Statistics for November.

The number of escrow closings of all types of real estate (single family, townhouse, condo, etc), is highest in June. At the bottom of page 4 in the link above, you can see that there were 150 closings of townhouses in April and 109 in August. This is contrary to the overall trend of sales peaking in June. Because townhouses are only about 9% of the sales, and the sample size is so small, I don't think this indicates anything about the best time to buy a townhouse. The sales that closed in April got under contract in March. This is when snowbirds are leaving.

Snowbirds tend to rent, not buy. I don't think you're in competition with snowbirds for townhouses in December, or any other time. I have shown many, many properties to snowbirds, but I can't remember ever selling anything to a snowbird. They come to their senses when they realize the expense and risk of owning a property that's vacant most of the time.

You can see on page 6 that sale prices peak in June. This is because most of the closings are in June, and that's because we have more buyers competing for the properties in May than in other months. Seems weird that people would want to move in June, but the school calendar is driving that.

The problem from a buyer's perspective is that demand is high and supply is low. On page 4 of the November sale statistics, you see there were 1,266 sales (buyers = demand). On page 10, you see there were 4,069 listings (sellers = supply). 4,069 divided by 1,266 = 3.21 month supply of listings. This is very low. Anything under a six month supply is considered a seller's market.

Why is demand high? Could be the down payment assistance program for low income buyers, and also the insanely low interest rates. Rates have gone up 0.5% since the election. Apparently this is because investors think the bond market rates will go up as the Republicans spend money on infrastructure without raising taxes to pay for it. When bond market rates go up, mortgage interest rates go up. So the disappearing down payment assistance funds and the rising interest rates may be what is motivating some people to get off the fence and buy. Also, there just isn't much to buy, so well-maintained, well-priced properties are often selling in bidding wars. Yes, bidding wars are back.

I think you need to buy when the property you want is on the market. Trying to predict when you will have less competition or greater inventory is probably not going to work.

Sorry, I wish this were easier, but that's the way it is now.

Frida at the Botanical Garden!

This is the best idea I've heard all week. A Frida Kahlo exhibit that broke attendance records at the New York Botanical Garden is coming to our very own Tucson Botanical Gardens October 10. This is the only other garden where this touring exhibit will be displayed. Another reason to be grateful for our lives in Tucson.

Enchanted Plaza.

 You will fall in love with the Enchanted Plaza. Secluded little 19-unit compound is like nothing you've ever seen on this side of the Mexican border. 

Touches of colonial Mexico are everywhere you look. Talavera tile, beehive fireplace, blown glass sconces. 

Half bath on first floor, with full bath between the upstairs bedrooms. 

Front bedroom has a sink & French door. 

Private patio faces the beautifully landscaped courtyard. Refreshing pool & spa. 

Ramada with sink & gas grill. Only 2 miles to UofA. Closer to Reid Park, Randolph Golf, Loft Cinema, Whole Foods, Rincon Market. HOA fee covers pool, spa, landscaping, hazard insurance, roof, building exterior maintenance, water/sewer/garbage. See interactive floor plan here. This unique plazuela will surprise, delight and enchant you. This condo sold for $105,000 on November 16, 2016.