Due Diligence

The Arizona Association of REALTORS residential purchase contract is 9 pages long. Section 6 is about Due Diligence on the part of the buyer. Inspections, square footage, termites, sewers, swimming pool barriers, home warranties and a final walk through are all covered. It's a very important part of the contract.



The default for the inspection period is 10 days from contract acceptance. This means that the buyer has 10 days to have any inspections done (usually a whole house inspector and an Insect or termite inspection) and to submit a BINSR (Buyer's Inspection Notice and Seller's Response).



Quite often the inspection is not handled well at all, by the new or inexperienced agent. Here are the steps I think should be followed in the best interest of all parties.

First, hire a licensed home inspector that will inspect the entire home. Don't hire a roofer for the roof. A plumber for the plumbing. An A/C guy, a landscaper, a structural engineer, an electrician and so forth. Too many cooks in the kitchen. And don't hire your uncle Stu who once had a job on a construction site. A licensed home inspector looks at homes every day, knows what to look for and will advise you if you need to hire a specialist to look at a particular part of the home.

Second, know the objective of the home inspection. It's not to have everything fixed so that the home is brand spanking new. If that is what you want, then you need to buy the more expensive new home that is being sold down the street by the builder. It's not to have the home upgraded so that it meets todays code standards. It's not to fix cosmetic items like the tile that looks ugly in the hall bathroom. It's not to ask for new features to be put on the home like a ceiling fan in the basement or sunscreens on the back of the home.

The objective of a home inspection is two fold. First, it's to create a long term document for the new buyer so that they can fix, replace and upgrade their new home as time and money allow. Hopefully, when you were making an offer your agent and you discussed a fair price based on condition of the property. The buyer should have this document to refer to over the next few years. Then, they should call the inspector up and have him do a new inspection. Yes, have your home inspected every 3-4 years, regardless of your plans to sell it. Second, the home inspection should disclose safety items and any big ticket items.

Safety items are things that might cause a fire, be hazardess to your health or make the home less safe to live in (such as security locks). These items the buyer should expect to be repaired, unless the buyer knew about them going into the transaction. I've been in home where the front door did not lock. We made offers on it based on the fact that my client would need to fix this problem.

Big ticket items or those that are expensive to fix - a home that needs a new roof, the a/c is shot, or a home has inadequate that electrical or plumbing systems. The last thing a buyer needs is to be told a week after moving in that something needs to be fixed and it is going to cost $5,000. When a big ticket item is discovered during the inspection, the buyer can safely say that the offer they made did not take into account this cost and can then negotiate with the seller on this item.

After the buyer has hired a licensed inspector and knows the objective of the inspection, he can then go on to the third step. Reviewing the inspection with his agent and the inspector. Deciding which items are safety related or beyond a reasonable expense and asking the seller to correct these issues. In Arizona, the buyer cannot dictate who fixes the items, just that they are fixed. A buyer cannot ask for money alone. The buyer can request that the items be fixed or a be given credit to fix the items after the purchase. For the buyer, receiving the money for the repairs might be the best outcome. Sellers sometimes will do the work on the cheap, since they will no longer be living in the home.
Finally, the buyer needs to verify the work is done. Which often times means having the inspector come out again at an additional charge to the buyer. Or, asking for receipts to show that the work is done.

This is just the first part of the Due Diligence section of the contract. We'll leave the rest for later. If you have questions about the inspection of a home purchase, feel free to leave a comment.

Fixtures and Leased Items Not Included

That's what it says on line 48 of the AAR Residential Resale Contract. There's a space to put in those items. But, how does the buyer and/or buyer's agent know if there are any. I was taught by my broker, to write, "to be disclosed during the inspection period, if any".

Security systems and soft water systems are sometimes leased. Window coverings, ceiling fans, microwaves and all kinds of things are dear to the seller and don't always convey.

I've heard many a time, " Oh, they wanted to take that." Or, "it says does not convey on the mls plano."

The mls plano or fact sheet does not become part of the contract. Therefore, the seller needs to disclose these things right away, not at close of escrow.

Does It Exist?

Lines 28 and 29 on the Arizona Association of REALTORS Residential Resale purchase contract states, "Fixtures and Personal Property: Seller agrees that all existing fixtures on the Premises, and any existing personal property specified herein, shall be included in the sale, including the following:" Lines 30-39 go on to list many items that are disputed the most. What most people don't read is the word 'existing'. For instance, towel rods should be left. But, if the towel rod was missing at the time the buyer looked at the property and made an offer, than it does not have to appear at closing. It didn't exist. Now, if it was there and the seller took it with him or replaced it with a cheap alternative, then the seller has breached the contract.

The one item I see causing problems these days is the 'garage door openers and controls'. People lose remotes or their cars are programmed to open the GDO's without the use of a remote. They forget this detail, sell the house and then the buyer asks for the remotes. If the seller didn't have a remote when the buyer looked at the home, then the remote doesn't exist and the buyer needs to buy their own remote.

I'm sure you could ask four different people and get four different interpretations. The easiest solution? If you're the buyer's agent is to write on line 43 that the seller is to provide two (2) garage door remotes at close of escrow.

Update (January/2008):

This is from the Arizona Association of REALTORS.

Seller not required to purchase garage door openers

The Seller has used the garage for storage, and parks his car in the driveway. Although the garage door works properly, the Seller states that the garage door openers have been missing for more than a year. The Buyer is demanding that the Seller purchase new garage door openers. Does the Seller have to purchase new garage door openers?

Answer: No. Under Lines 19-27 of the Contract the Seller is only required to furnish to the Buyer any garage door openers “existing” at the time of the Contract. If the garage door openers were missing at the time of the Contract, the Seller is under no obligation to purchase new garage door openers.

Arizona REALTOR® Digest August 2004