By AAR Legal Counsel Michelle Lind, Esq.

Q: Does the Contract allow the buyer a “free look”?

A: No. A buyer and seller have legal duties to each other arising out of their contractual relationship, which includes the covenant of good faith and fair dealing. Lombardo v. Albu, 14 P.3d 288 (Ariz. 2000). An implied covenant of good faith forbids arbitrary action by one party that disadvantages the other. Therefore, even though the Contract allows the buyer to disapprove of items during the inspection period in the buyer’s “sole discretion, ” the buyer must act in good faith if the buyer furnishes a notice of cancellation because of disapproval of any items.
Note: “Contract” refers to the 2005 Arizona Association of REALTORS® (“AAR”) Residential Resale Real Estate Purchase Contract.

By AAR General Counsel Michelle Lind

Q: The parties signed the Contract and incorporated the AAR Short Sale Addendum. When is the Contract “fully” executed — when it is signed by the parties or when the lender approves the short sale?

A: When all parties sign the Contract and the Short Sale Addendum the Contract is “fully” executed.  By incorporating the Short Sale Addendum they are agreeing that the Contract will be contingent on an acceptable short sale agreement between the seller and the lender. This contingency is similar to the buyer’s financing contingency. The Addendum also obligates the seller to diligently work to obtain short sale approval (again, similar to the buyer’s obligation to diligently work to obtain loan approval) and promptly provide the lender with all additional documentation, including an appraisal at the seller’s expense, if required.

By Michelle Lind, AAR General Counsel

Q: The buyer and seller have entered into a Contract, but are now in a dispute about its terms. How do the parties resolve their dispute?

A: Pursuant to the Contract, the parties agree to resolve any dispute via mediation or arbitration. The buyer and seller agree to mediate any dispute or claim arising out of or relating to the Contract in accordance with the REALTORS® Dispute Resolution System ("DRS"), or as otherwise agreed. Instructions on how to request mediation and a list of mediators is available at: www.aaronline.com/documents/drs_packet.pdf. If mediation does not resolve the dispute, the unresolved dispute must be submitted to binding arbitration, unless either party opts out within thirty days after the conclusion of the mediation conference by written notice to the other.

Note: "Contract" refers to the 2005 Arizona Association of REALTORS® ("AAR") Residential Resale Real Estate Purchase Contract.