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Posted by on in Uncategorized

There are many myths that exist in the practice of real estate by real estate agents.  I'm going to deal with three that I believe cover the full range of a real estate deal:  "Confidential" offers, "the rule of three" and requesting repairs by a licensed contractor in the BINSR.

Many realtors have been in a situation where at certain price points sellers get multiple offers.  The myth is that all the offers that the seller gets are confidential.  Where does this come from?  Nowhere in the purchase contract does it say that "this offer is confidential" or "do not disclose the contents of this offer."  With this myth planted firmly in their head, selling agents deal with the multiple offers by telling buyers' agents that they have multiple offers and please give us your "highest and best."  But think about this logically.  If you have a seller isn't your prime duty to get them the best price for their house?  If so, wouldn't you want the buyers to know what the highest offer is so they know what to beat?  Also, if you're the seller's agent, put yourself in the buyer's agent's shoes.  Why would you offer $10,000 more when you only need to offer $5000 more? You need to know what the highest offer is in order to correctly counsel your client. Of course you cannot disclose anything to anyone without your client's permission but your counsel to them should be to allow you tell all the bidders what the highest offer is.  You could add a caveat, with your seller's approval that you will only accept new offers in higher multiples of say $5000.  But PLEASE keep the bidding going buy telling everyone what the highest offer is.  As an aside, some bidder may request to see the highest offer to make sure there is one.  You can redact out the name of the bidder if you wish before providing it.  THERE IS NO SUCH THING AS AN OFFER BEING CONFIDENTIAL.

Many a client will ask their agent for referrals for different contractors to do work on the home.  The myth surrounding referrals is that to avoid being sued you have to give three names when you refer a contractor.  This fear of litigation, pervasive in the real estate industry despite the low number of agents actually sued, stems from what some call the doctrine of "negligent referral."  First and foremost, THE DOCTRINE OF NEGLIGENT REFERRAL HAS NOT BEEN ADOPTED IN ARIZONA.  It should go without saying that if you recommend a contractor to a client you must know that they are qualified, licensed etc. to do the work.  Under the doctrine of negligent referral you would be negligent if you referred someone that you KNEW was not qualified to perform the requested work.  So the way it would play out is, you refer your client to a contractor, the contractor messes up the work causing your client damage and they turn around a sue you for knowing that the person wasn't qualified.  It is not enough that the contractor botched the job, they must also prove that you knew the contractor wasn't qualified.  Common sense tells us that even if you give your client three names to pick from, or if you give them 100 names, if the contractor they select botches the job they can still sue you if the can prove you knew they weren't qualified.  THERE IS NO RULE THAT YOU MUST GIVE THREE REFERRALS.  You can give one name as long as you know the contractor is qualified, able, licensed etc. to do the work.  Just make sure you don't hire any contractors for your client.  The client makes the selection of the contractor, the client does the hiring and the client supervises any work done by the contractor.  Even in the one case in West Virginia where they held a broker liable for negligent referral, the BROKER hired the contractor who messed up.

If you're buying a home that needs repairs don't you want a licensed contractor to make the repairs?  Many a client makes this request to their agent when requesting repairs after the inspection period and providing the BINSR to the seller.  The myth is that buyers cannot request that repairs be done by a licensed contractor under some theory that the purchase contract only says that the repairs must be done in a workman-like manner and that the BINSR cannot override the contract.  RULE #1 IN CONTRACT LAW:  THE PARTIES CAN .AGREE ON ANYTHING THEY WANT.  Repairs by a licensed contractor ARE performed in a workman-like manner by definition so such a request is not outlandish.  Some sellers may not want to spend the extra dollars that a licensed contractor might cost.  In this situation the buyer's agent has a discussion with the seller's agent, something along the lines of "do you want to risk losing this buyer by not using a licensed contractor for the repairs?"  or "ask your clients to put themselves in the shoes of the buyer, wouldn't they want a licensed contractor too?"  Buyers can propose any terms they want to sellers and the sellers have the right to agree or not.  THERE ARE NO RESTRICTIONS ON WHAT A BUYER CAN REQUEST.  The key line on the BINSR allowing a seller to agree to using a licensed contractor to perform repairs is "Seller agrees to correct the items disapproved by Buyer pursuant to terms set forth herein and Section 6j of the Contract."  The seller agrees to repair the "items" disapproved of "PURSUANT TO THE TERMS SET FORTH HEREIN..."  The BINSR isn't changing the contract but if you want to wear a belt and suspenders you can write up and addendum stating that the repairs will be performed by a licensed contractor.  Remember, some types of repairs and repairs over $1000 require a licensed contractor to perform them.

Of course all of this is backed up by case law and ARMLS...


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Posted by on in Uncategorized

Buying a brand new home, freshly built can be very worries about how a resale was maintained, getting to select all your own upgrades...but there are some pitfalls and here are some tips to help make it a smooth and fun experience.

1.  The first time you're out browsing new homes and you enter and sign in without a real estate agent, your agent will not be able to collect a commission for helping you.  YOU NEED HELP DEALING WITH HE ONE SIDED BUILDER'S CONTRACT.  If you don't use a real estate agent at least get an attorney to look over the contract.  You are stuck with most of the language.  But, there are some items you can get some concessions on.  For instance, time of construction.  If the home is already under construction they don't need two years to build it as the contract allows, you need to get a more realistic time frame.  What happens to your earnest money if you change you mind?  How long do you have to change your mind?  These are reasons you need someone on your side negotiating for you.

2.  READ THE PUBLIC REPORT!!!  All subdivisions in Arizona of 6 or more homes must provide a public report to prospective buyers.  This is the equivalent of the Seller's Property Disclosure Statement you would receive on a resale home multiplied by 1000 and is more about the land and surrounding area.  Here you will find out if your land has expansive soil, if there is a helicopter pad down the street and known plans for that empty lot on the main intersection corner.

3.  Find out what kind of warranty your new home comes with.  You usually have 8 years under the law to file a lawsuit but find out upfront what the builder will do to stand by their work.

4.  Try and get some additional roof tiles and floor tiles to keep just in case some need to be replaced.  This will also be a fine selling feature when you sell your home in case any of the tiles are out of stock or hard to find.


Good luck and have fun with your new home!

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Posted by on in Uncategorized

                                                                          MARCH IS THE TIME TO SELL

What month had the highest number of active listings in the Phoenix metro area in 2014?  March.  Which month had the second highest number of new listings in 2014?  March.  Why March you ask?  One school of thought is that spring is the best time of the year to sell a house because Buyers with tax refund checks in their pockets come out of the woodwork, allowing them to pay full price more often.  For families with children who don’t want to interrupt the school year, March is the time to start getting ready to put the house up for sale if children will soon be graduating, to switch to a new district, to down-size when children are leaving the nest, or to up-size when the family is growing.  If your home takes 30 days to sell and another 30-45 days to close it will be just in time for the end of school.  Summer provides a buffer zone for those time periods.

The decision to sell a home involves many factors.  Some important questions to ask when contemplating the sale of your home are:

1.      Why am I selling?  Wanting or needing a bigger home or a different neighborhood.  Needing to down-size.  Wanting less maintenance, a pool or no pool.

2.      Where do I want to move to?    Different neighborhood, closer to work, away from the crowds, to a family neighborhood, an adult community, out-of-state.

3.      What kind of home do I want?  House, condo, apartment.

4.      What kind of work does my house need in order to get it ready for market?  Painting, drywall, landscaping, mechanical, carpet cleaning, new flooring, updating of appliances etc.

It is essential to plan the sale and move of your home. A plan will make life much easier and help ensure that you are making sound and informed decisions.  Finding out what your home is worth is an integral part of your decision.  Most real estate agents will provide a market analysis of your home at no cost.  This information will give you an idea of your home’s value.  Consulting a mortgage broker to determine the going interest rates and new programs will tell you what you can afford, making your visits to prospective neighborhoods more productive.    


Make a list of improvements that need to be done to your home before putting it on the market. Contact contractors for estimates for the work that needs to be done to your home. Knowing both the extent of the work that needs to be done and the cost will factor into your asking price for the home.  Consider purchasing a home warranty, this will guard against any unforeseen catastrophes such as the air conditioning going out or the hot water heater exploding while your home is listed.  It will also give your buyer peace of mind knowing that the house has some warranty protection.  March is the time!

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Working with Errol was great.  We had started to do Real Estate deals with some larger developers, they were real savvy and liked to try to push us around whenever they didn't get their way.  When Errol began working on our contracts it brought us up to their level immediately. When they tried to push us around, we were able to push back with confidence. That gained us respect with these guys and we did more deals because of it.  I recommend Errol to everyone who needs to get the transaction right every time. His hard work and knowledge of Real Estate law gives you the power in the deal!  He got us a win in court on our first appearance and the case was over!
Baron K. Brandstrom
The Baron Group
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Posted by on in Legal News

Section 9 of the Real Estate Settlement Procedures Act prohibits sellers from conditioning the home sale on the use of a specific title insurance company, also termed “required use,” and in fact violators can be subject to penalties, up to three times the amount of the title insurance fee.

Section 1024.2 of RESPA says a “required use” exists when a person must use a particular provider of settlement services to have access to a distinct service or property, and the person will pay for (or pay a charge attributable in whole or in part to) the -settlement service.

However, it’s not considered a “required use” if the seller offers to pay the buyer’s title charges. So, if the seller agrees to pay for both the owner’s and lender’s title insurance policies, RESPA doesn’t consider the seller to be requiring the use of a particular title company. But if the seller insists, as a condition of sale, that the buyer pay for both the owner’s and the lender’s title insurance policies from a title company of the seller’s choice, then the seller would be in -violation of Section. A seller can require, as part of the sales contract, that an unaffiliated closing agent or lawyer be used to close the transaction.

Sellers can require that their owner’s policy come from a particular title company and allow the buyer to obtain its own title company for the lender’s policy.  Several federal courts have opined that despite the economic disadvantage to the buyer of going to a title company other than the seller’s preferred provider, the buyer is free to go elsewhere, and therefore the seller’s actions do not violate Section 9 of RESPA.

To sum up, if sellers pay for both the owner’s and the lender’s title insurance policies, they can require the use of a preferred title company. If sellers pay for the owner’s policy, they may insist on choosing a preferred title provider, but buyers must be free to select their own title company on the lender’s policy. As for the settlement agent, Section 9 doesn’t prohibit sellers from requiring the use of a particular agent as long as the agent isn’t owned, in part, by the sellers. Make sure the language in the purchase contract makes clear that buyers, if they’re paying for the title policy, are free to select their own title insurance company.



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Posted by on in Legal News

The excitement of Super Bowl XLIX being held in Glendale on February 1, 2015 is upon us and along with it the dollar signs of renting out your place to voracious fans in search of a place to stay with money to spend.  Rents are advertised upwards of $3000-4000 per week for a condominium.  In order to make it a worthwhile experience both monetarily and for piece-of-mind here are some factors to consider to determine whether to rent or not.  If you go for the cash do it safely…and legally:

1.            Does the county and/or city where the property is located allow vacation rentals? Is there a homeowners association (“HOA”)? If so, does the HOA allow short-term property rentals?

In Scottsdale short term stay rentals (less than 30 days), such as vacation rentals and Bed & Breakfast boutique hotels, are not allowed in Single Family Residential districts. (See  But, multi-family zoning areas like condos are fair game.  Check the zoning where your home is located.

In Phoenix there is no explicit prohibition for short term rentals.  The definition of “residential purposes” in the zoning ordinance is one month or more.

Some HOA CC&Rs talk about short term rentals but check to see if it explicitly prohibits vacation or short term rentals.

2.            Will you have to have a business license and/or pay a business tax?

Both the codes of Phoenix and Scottsdale say that a person who has less than three residential units rented or available for rent in their cities does not have to pay a privilege “sales” tax.  There is however a 5.0% transient lodging tax on any hotel, motel, apartment, or individual charging for lodging space to any person for 29 days or less that may apply.  Please contact your tax advisor to see if any of these taxes apply to you because the combined city, county and state privilege and transient taxes can add up to about 13%.  (See Phoenix Code 14-445 and Scottsdale

3.            What about Insurance? 

Your Homeowners Insurance will not cover damage by your tenants.  It may cover some medical if one of the renters gets hurt but that’s a discussion to have with your insurance agent.  You will need a damage deposit and under Arizona’s Landlord Tenant Law you may only charge a security deposit of 1.5 times the amount of the rent.  Some companies offer Landlord Insurance for vacation rental situations.

4.           Should I do as background check?

You need to know who will be in your home or rental unit.  The safest way to check that out is with a credit and criminal background check.  In your application for the rental it must state that the person is giving you permission to run such a check.  The Arizona Association of Realtors has an “Application for Occupancy” available and there are numerous websites to obtain a background check from or contact a private investigator.

 5.            Drafting a lease. 



You can obtain one from any office supply store or a real estate agent can assist you with one from the Arizona Association of Realtors.  Determine how much will be charged for rent, security and cleaning deposits?  Consider cashiered funds. Is there a cancellation fee? Determine any use restrictions e.g. no smoking, no subletting or assignments, no pets, limit the number of occupants, no breaches of the peace etc. Remove all valuable items from the property. Following termination of the rental agreement consider changing the locks.  Offer to provide a maid or cleaning service daily.  This will allow someone to enter the property daily to check for damage etc.  Upon move in a landlord shall furnish the tenant with:   A signed copy of the lease, a move-in form for specifying any existing damages to the dwelling unit and written notification to the tenant that the tenant may be present at the move-out inspection. Security deposits must be returned within 14 days.

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"Errol was our attorney and helped us out of a real estate purchase contract where the seller had failed to disclose some damage to the property.  We thought we were stuck with the house or at least would forfeit our earnest money deposit.  Errol won the case and we were able to get out of the contract even after closing.  You can't have a better lawyer; he is knowledgeable, prompt and efficient."  

Orest & Kathy Gulka

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Posted by on in Legal News

Withholding of Tax on Dispositions of United States Real Property Interests By Foreign Nationals


The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests. A disposition means “disposition” for any purpose of the Internal Revenue Code. This includes but is not limited to a sale or exchange, liquidation, redemption, gift, transfers, etc. Persons purchasing U.S. real property interests (transferees) from foreign persons, certain purchasers' agents, and settlement officers are required to withhold 10 percent of the amount realized on the disposition (special rules for foreign corporations). In most cases, the transferee/buyer is the withholding agent. If you are the transferee/buyer you must find out if the transferor is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax. For cases in which a U.S. business entity such as a corporation or partnership disposes of a U.S. real property interest, the business entity itself is the withholding agent.

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Posted by on in Legal News



All real estate employment agreements shall:        

 1. Be written in clear and unambiguous language.        

2. Fully set forth all material terms, including the terms of broker compensation.        

 3. Have a definite duration or expiration date, showing dates of inception and expiration.        

 4. Be signed by all parties to the agreement.


 YOUNG v, ROSE, (Ariz. App. 2012)

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Posted by on in Legal News


The Beforts claim that DSR was negligent because it failed to review and correct the MLS listing which identified Vineyard Homes as the seller and builder. The listing, however, specifically advised them to verify the information. And, the Beforts were free to inquire about the owner of the property as well as the name of the builder. In fact, they knew how to make an inquiry because they had canceled an earlier contract in the same subdivision when they discovered that the builder was experiencing financial difficulties. Moreover, when the Beforts signed the purchase agreement in September 2006, it listed Alfonso as the seller. If the true identity of the seller of the home or the homebuilder was important to them, as it had been in their earlier contract, they had a duty to investigate the information once the factual discrepancy between the Vineyard Homes sign, the MLS listing, and the purchase agreement presented itself in September 2006. Consequently, the Beforts were aware or should have been aware of any inconsistencies in the MLS listing not later than when they signed the purchase agreement in September 2006, and could have confirmed the true identity of the home's seller or builder - or any other information they believed to be material - at that time.

Here, as the seller's agent, McKee had a duty to "deal fairly" with the Beforts. His duty did "not include investigations to discover defects in the seller['s] property." If, however, McKee "knew or should have known of the defects giving rise to the litigation," he would be liable for failing to disclose the information. 



When the contract contains no express warranty of square footage and to the contrary, expressly warns the buyer to verify any representation about square footage, the buyer may not state a claim for breach of warranty based on an alleged extrinsic statement by the seller about the size of the property.


ELM RET. CTR. v. CALLAWAY, (Ariz. App., 2010)

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Posted by on in Legal News


When one is asked a question that fairly calls for disclosure of a material fact, he or she commits fraud by concealing the truth or otherwise answering in a manner deliberately calculated to mislead. "Unlike simple nondisclosure, a party may be liable for acts taken to conceal, mislead or otherwise deceive, even in the absence of a fiduciary, statutory, or other legal duty to disclose...A representation stating the truth so far as it goes but which the maker knows or believes to be materially misleading because of his failure to state additional or qualifying matter is a fraudulent misrepresentation...As an example of these principles, the Restatement relates that a seller may be obligated to disclose to a prospective buyer that water periodically pools beneath the house if the buyer could not discover that fact upon an ordinary inspection and would not buy if he knew it. The same is true when a buyer could not reasonably discover that the seller of a gravel operation has received a cease-and-desist letter from the government, or when criminal prosecutions of the owner of an amusement center have so impaired the "reputation and patronage of the center" that its income has been greatly reduced, and the owner knows the prospective buyer "could not be expected to discover" the prosecutions "by ordinary investigations." [A]n "as-is" clause may bar a claim relating to a latent defect only to the extent that the buyer reasonably may discover the defect. We also held that whether an undisclosed fact is so "basic" to a transaction that it may trigger a duty to disclose is normally a question of fact, as are questions about whether the buyer had a reasonable opportunity to discover the defect.

A real estate broker "occupie[s] a confidential and fiduciary relationship with the [client] and thereby [is] held to the highest ethical standards of fairness and honesty."  A broker owes a fiduciary duty to disclose material facts to its client. If it can do so without violating a superior duty to another, a broker also must disclose facts it "knows or has reason to know that the principal would wish to have . . . or [if] the facts are material to the agent's duties to the principal." 

LERNER V. DMB REALTY, LLC (Ariz. App. 2014)


A representation stating the truth so far as it goes but which the maker knows or believes to be materially misleading because of his failure to state additional or qualifying matter is a fraudulent misrepresentation.



A failure to disclose a known latent defect or failure to give opportunity to discover latent defects reverses caveat emptor to caveat venditor and the seller is subject to tort liability for nondisclosure.  




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