Contact real estate lawyer at 480-664-7478 | |rk@keytlaw.com

FSBO Test of Legal Knowledge Needed to Prepare a Sales Contract

FSBO Test of Legal Knowledge Needed to Prepare a Sales Contract2014-08-28T14:56:49+00:00

by Richard Keyt, Arizona real estate attorney

Legal Information All Arizona For Sale By Owners (Arizona FSBO) Should Know

Who Should Take the Contract Knowledge Test?

  • Anybody considering selling (or buying) an Arizona home without a lawyer.
  • Anybody who is not an Arizona real estate lawyer or licensed realtor and who is considering a do-it-yourself contract to buy or sell an Arizona home.

Take the following test to see if you have the knowledge necessary to prepare a real estate contract and related documents for the purchase or sale of an Arizona home that will comply with Arizona and federal law. If you do not have the required knowledge and you prepare your own contract and related documents, there is a high probability that you will violate one or more applicable Arizona and federal laws.

It is easy to find a real estate purchase agreement on the internet, in a software program purchased off the shelf at a store, an office supply store or even in the materials obtained from a national real estate guru. Although you may save some money you would spend for legal fees by preparing the documents yourself, the initial savings may be offset by the liability caused by defective documents and a lawsuit for damages brought by the other party.

For more on FSBO’s potential liability, see So, You Want to Sell Your Home Yourself (or Singin the FSBO Blues), an article in which a very experienced Arizona real estate attorney states:

“Unfortunately, residential transactions have seen an alarming increase in the number of claims and lawsuits. Of these claims, the majority are filed against the sellers, by their buyers. Home sellers who think they can ‘go it alone’ might want to seriously ponder the observations of a lawyer who has defended many sellers and real estate agents against claims made by ‘the Buyer from Hell.'”

“Take this from someone who knows: selling your home without professional help is very risky business indeed.”

A relatively small investment in legal fees before the sale might save you tens of thousands of dollars in damages and attorneys’ fees after the sale. Buying or selling any Arizona FSBO home involves hundreds of thousands of dollars. The cost to hire an Arizona real estate attorney is insignificant when compared to your investment in the home. You will sleep much better knowing an experienced real estate attorney representing your interests prepared your contract and related documents?

If you already have a real estate contract that you are considering using for the purchase or sale of an Arizona residence, take the following quiz and then examine your proposed contract to see if it covers all issues mentioned in the test.

When taking the test, keep in mind that an Arizona real estate attorney with experience preparing contracts for the purchase and sale of Arizona FSBO homes should know the answers to ALL of the following questions.

The Arizona For Sale By Owner Legal Knowledge Test

  • Do you have a contract that was drafted specifically for use in an Arizona residential purchase and sale?
  • Can you determine if your contract was drafted specifically for use in an Arizona residential purchase and sale?
  • Do you need an escrow?
  • What is the purpose of an escrow?
  • Do you know how to find an experienced escrow company and escrow officer?
  • Does your transaction need or require title insurance?
  • What is title insurance?
  • Who does title insurance protect?
  • What is the difference between lender’s title insurance and owner’s title insurance?
  • What is a commitment for title insurance?
  • Is a commitment for title insurance necessary?
  • How do you get a commitment for title insurance?
  • Can you understand a commitment for title insurance?
  • Do you know what exceptions contained in Schedule B, Part II will be a problem for your transaction?
  • What is Schedule B, Part II of a commitment for title insurance?
  • Should you get standard coverage or extended coverage title insurance?
  • What’s the difference between standard coverage or extended coverage title insurance?
  • Who should pay the additional cost of extended coverage title insurance?
  • Is earnest money required to have a valid Arizona contract to buy land?
  • If so, what is the minimum amount of earnest money?
  • Who should hold the earnest money?
  • What information about the property does Arizona law require the seller to disclose to the buyer?
  • When must the seller disclose information about the property to the buyer?
  • How does the seller disclose information about the property to the buyer?
  • What is an Affidavit of Disclosure?
  • When must a seller give the buyer an Affidavit of Disclosure?
  • What information must be included in an Affidavit of Disclosure?
  • What are the consequences of not giving the buyer an Affidavit of Disclosure when it is required?
  • What are the buyer’s rights when the buyer receives an Affidavit of Disclosure?
  • Is the Affidavit of Disclosure recorded?
  • Does the Residential Lead-Based Paint Hazard Reduction Act of 1992 apply to the transaction?
  • If so, how do you comply with its requirements?
  • What are the consequences for failing to comply with the Residential Lead-Based Paint Hazard Reduction Act of 1992?
  • What information must be included in a Residential Pool Safety Notice.
  • How do you comply with the Residential Pool Safety Notice requirement?
  • Does your sale require the seller to give the buyer a U.S. Department of Housing & Urban Development form HUD-92564.CN?
  • If so, how do you comply with the requirement?
  • If the home is subject to a homeowners’ association (HOA), does your contract contain the HOA disclosures required by Arizona law?
  • What information about an HOA must a seller of an Arizona home disclose to the buyer?
  • Does the HOA disclosure requirement change depending on the size of the HOA?
  • If the home has a septic tank, does A.A.C. R18-9-A316 apply?
  • What are the seller’s obligations if the home has a septic tank and A.A.C. R18-9-A316 applies?
  • What are the buyer’s obligations if the home has a septic tank and A.A.C. R18-9-A316 applies?
  • Are you familiar with the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) and Sections 897 and 1445 of the Internal Revenue Code?
  • Do you know when Section 897 requires the buyer of U.S. real property to withhold a portion of the sales proceeds and pay it to the IRS instead of the seller? If the buyer is required to withhold sales proceeds and pay it to the IRS, but does not, the buyer will be liable to the IRS for the amount that was not withheld and paid to the IRS.
  • How much of the sales proceeds does FIRPTA require the buyer withhold and pay to the IRS?
  • Does your purchase and sale contract allow a buyer to withhold a portion of the sales proceeds and pay it to the IRS instead of the seller pursuant to FIRPTA? It should.
  • What is a FIRPTA Affidavit?
  • Will the seller sign a FIRPTA Affidavit?
  • What information must be in a FIRPTA Affidavit?
  • What is an ALTA Survey?
  • Does your contract require an ALTA Survey?
  • Should your contract require an ALTA Survey?
  • If so, who should pay for it?
  • Does your contract provide that the home will be conveyed by a Warranty Deed, Special Warranty Deed or a Quit Claim Deed?
  • What is the difference between a Warranty Deed, Special Warranty Deed or a Quit Claim Deed?
  • Which type of deed is best for the seller?
  • Which type of deed is best for the buyer?
  • Should the buyer take title as community property, community property with right of survivorship, joint tenancy, tenants in common or in trust?
  • What are the income tax consequences of taking title one way versus another?
  • What is an Affidavit of Legal Value?
  • Not all transfers of real property in Arizona require an Affidavit of Legal Value. Does your transaction require an Affidavit of Legal Value?
  • What information is in an Affidavit of Legal Value?
  • What do you do with an Affidavit of Legal Value?
  • If the buyer will owe the seller money after the sale (a carryback loan”), can you prepare a legally sufficient Promissory Note that evidences the terms and conditions of the debt?
  • If there will be a carryback loan secured by a lien on the home being sold, can you prepare the lien?
  • Should the lien that secures the carryback loan be a Mortgage, a Deed of Trust, a Security Agreement or another type of document?
  • Should the lien be recorded?
  • If so, where is the lien recorded?
  • If there will be a carryback loan, does your purchase contract provide for it?
  • Are the Promissory Note and the lien attached as exhibits to the purchase contract?

You can see from the list of documents above that buying and selling an Arizona FSBO home is a very complicated undertaking. It is not something an inexperienced person should do unless he or she is willing to assume the risk of future liability and economic loss. For example:

  • If you are a buyer, how will you comply with the FIRPTA requirements or the septic tank inspection requirements?
  • If you are a seller, how will you give the swimming pool notice, the HUD home inspection notice, the lead based paint notice, the HOA notice and the other notices you must give to satisfy Arizona law?

If you are involved in an Arizona for sale by owner transaction, it is especially important that you be represented by an experienced Arizona real estate attorney. Sales of residential property in Arizona are extremely complex transactions. It does not make any sense to get involved in a home purchase or sale that involves hundreds of thousands of dollars and not hire a real estate attorney to protect your investment.

How to Hire Arizona Real Estate Attorney Richard Keyt to Prepare Your Home Purchase or Sale Contract

For a list of the documents prepared and services performed by Arizona real estate attorney Richard Keyt when he is hired for a fixed fee (not by the hour) to prepare a FSBO contract and related documents for the purchase or sale of an Arizona residential property, see the article entitled “Arizona For Sale by Owner Contract Preparation Service.”

To hire Richard Keyt, a Phoenix, Scottsdale and Tuscon area real estate lawyer, to prepare a FSBO contract and related documents for the purchase or sale, you must complete and sign the: