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Confused about Warranted and Non-Warranted Items on Arizona BINSR?

Posted On: June 4th, 2016 7:36PM

What is the difference between Warranted and Non- Warranted items?

 

 

There's been a lot of debate recently over covered items with seller warranties. We found this great article by Attorney Michelle Lind about the breakdown on seller warranties, what is covered and FAQ's . 

Seller Warranties in the AAR Residential Resale Real Estate Purchase Contract

By AAR Attorney Michelle Lind

Questions have recently arisen regarding the Seller Warranties Section (5a) of the AAR Residential Resale Real Estate Purchase Contract (02/11) (contract). This article will attempt to answer some of the most frequently asked questions about the seller warranties provision in the contract.

Background

The Seller Warranties Section was added to the contract almost 20 years ago and has remained substantially unchanged since that time. In July 1994, the seller warranties provision of the  contract stated: “Seller warrants and shall maintain and repair the premises so that at the earlier of possession or close of escrow: (1) the premises shall be in substantially the same condition as on the effective date of this contract, (2) the roof has no known leaks, (3) all heating, cooling, mechanical, plumbing and electrical systems and built-in appliances will be in working condition, and (4) if the premises has a swimming pool and/or spa, the motors, filter systems, and heaters, if so equipped, will be in working condition . . .” The roof warranty was eliminated from the contract in 1996.

A requirement that the buyer provide the seller notice of non-working warranted items during the inspection period was added to the contract in 1996. The purpose of this requirement was to allow the seller to evaluate the cost of requested inspection period repairs along with the cost of any necessary warranted item repairs.

In 2005, a section was added to the AAR Buyer Inspection Notice and Seller Response (BINSR) form to address the problem of buyers combining the notice of non-working warranted items along with requested repairs of inspection period items disapproved.

Seller Warranties Section in the Current Contract

The Seller Warranties Section of the current contract states: “The seller warrants and is obligated to maintain and repair the premises so that, at the earlier of possession or close of escrow:

(i) all heating, cooling, mechanical, plumbing and electrical systems (including swimming pool and/or spa, motors, filter systems, cleaning systems and heaters, if any), free-standing range/oven, and built-in appliances will be in working condition; (ii) all other agreed upon repairs and corrections will be completed pursuant to Section 6j; (iii) the premises, including all additional existing personal property included in the sale, will be in substantially the same condition as on the date of contract acceptance; and (iv) all personal property not included in the sale and all debris will be removed from the premises.”

Pursuant to Section 6k of the contract, the buyer is obligated to provide the seller with notice of any non-working warranted item(s) of which the buyer becomes aware during the inspection period or the seller’s warranty for that item(s) will be waived. The contract makes it clear that the buyer’s notice does not affect the seller’s obligation to maintain or repair the warranted item(s). The contract states that: “Delivery of such notice shall not affect the seller’s obligation to maintain or repair the warranted item(s).”


Frequently Asked Questions

Question:  Why does the contract include seller warranties?

Answer: There are a variety of reasons why seller warranties have been included in the AAR contract for so many years. One reason is to give a buyer some assurance that the major property systems (heating, cooling, mechanical, plumbing and electrical) are functional. As a result, the agreed upon price includes working major property systems. Therefore, the seller warranties may reduce price negotiations or price adjustments for property systems that virtually every buyer will require. Lender requirements are another consideration. Some lenders require that the property systems function as a condition of approving the buyer’s loan.

Question:  Why aren’t all “heating, cooling, mechanical, plumbing and electrical” system components specifically listed in the contract? 

Answer: The contract revision workgroups have determined that it would be extremely difficult, if not impossible, to describe and create a “laundry list” of every type of system and related components that may be in a home. A system is defined by the Board of Technical Registration Standards of Professional Practice for Home Inspectors as a “combination of interacting or interdependent components assembled to carry out one or more functions.” In other words, all the parts required to operate. For example, a heating system may have a number of components, such as: operating controls, safety controls, chimneys, flues and vents, fans, pumps, ducts, dampers, fan coil units, and convectors. See: www.btr.state.az.us/regulations/home_inspectors.asp#System 

Question:  What constitutes “working condition”?

Answer: “Working condition” is generally defined as functioning as intended or operational. However, the terms does not equate to “new”, “unused” or “perfect” condition. The contract revision workgroups have considered alternatives to the term “working condition,” but have not agreed upon a term or phrase that that would eliminate all ambiguity. 

Question:  What should the seller do if the seller does not want to warrant the listed items to be in working condition?

Answer:  If the seller does not want to warrant any of the listed items, one option is to utilize the AAR “AS IS” Addendum. Pursuant to the AAR “AS IS” Addendum, the buyer waives the seller warranties. Therefore, the seller has no obligation to make any repairs to ensure that heating, cooling, mechanical, plumbing, and electrical systems and other listed items are in working condition. However, the seller is obligated to maintain and repair the premises so that the premises is in substantially the same condition as on the date of contract acceptance, and all personal property not included in the sale and all debris will be removed. See, www.aaronline.com/2012/12/the-great-as-is-debate.

If the seller does not want to warrant a specific item, the seller has the option  to specifically exclude the item in the Additional Terms and Conditions Section of the contract. For example, if the property has a non-functioning evaporative cooler, in addition to the HVAC, that the seller does not intend to warrant or repair, the seller should specifically exclude the evaporative cooler from the warranted items in the contract.

Question:  Must a licensed contractor be utilized to make all repairs?

Answer: No, unless required by law or the buyer has written this requirement into the contract under Additional Terms and Conditions. Generally, a contractor’s license is required by statute for work that exceeds $1,000 in value. Thus, to the extent that any repairs exceed $1,000, the seller should hire a licensed contractor to make those repairs. See A.R.S. §32-1112(4) for details on the statutory exemptions from contractor licensure for work that does not exceed $1,000.  

Question: Why doesn’t the contract require a licensed contractor for all repairs?

Answer: The contract revision workgroups have considered, but ultimately decided against, requiring a licensed contractor for all repairs. Many common minor repairs (leaking faucets, small drywall repairs, paint touch-up, cabinet/door adjustments, etc.) can be adequately performed by the homeowner or a handyman in a more cost-effective manner.  However, agreed-upon repairs must be made in a workmanlike manner.  

Question: If the buyer gives notice of a non-working warranted item, is the seller entitled to refuse to repair the item?

Answer: No. When the buyer and seller enter into the contract, the seller agrees that the warranted items will be in working condition at close of escrow. The buyer’s notice that one of these items is not working does not open the issue to negotiation or change the seller’s obligation to repair the item and deliver it in working condition at close of escrow.

Question: What happens if the buyer discovers a non-working warranted item during the inspection period but does not notify the seller?

Answer: The seller warranty for that item is waived. In other words, the seller is not obligated to repair the item.

Question: What if there is a non-working warranted item that the buyer discovers after the inspection period, but prior to close of escrow?

Answer: The seller is obligated to repair the item and deliver it in working condition at close of escrow.

Question: If the buyer gives notice to the seller of a non-working warranted item under “items disapproved,” rather than under the “Notice of Non-working Warranted Items” of the BINSR, is the seller entitled to refuse to repair the item?

Answer: No. When the buyer and seller enter into the contract, the seller agrees that the warranted items will be in working condition at close of escrow. The buyer’s notice in the wrong section of the BINSR does not relieve the seller of their obligation to repair the item and deliver it in working condition at close of escrow. However, the proper procedure for providing this notice is to check the “Notice of Non-working Warranted Items” box on page one of the BINSR and specify the non-working warranted item(s) on page two.

Question: If the buyer gives notice to the seller of a non-warranted item under the “Notice of Non-working Warranted Items” of the BINSR, how should the seller respond?

Answer: As discussed abovethe buyer’s notice in the wrong section of the BINSR form does not change the parties’ contractual obligations. The seller can address the error in the seller’s response section of the BINSR and indicate whether the seller is willing to correct the item disapproved by the buyer.

Question: What should a buyer do if a warranted item is not in working condition at close of escrow?  

Answer: The buyer should immediately deliver a cure notice to the seller, for example by way of box two on the Buyer Pre-Closing Walkthrough form. The buyer may then delay closing for up to three days to allow the seller the opportunity to cure the non-compliance and repair the warranted item. Alternatively, the buyer may close escrow subject to the potential breach and if the seller fails to make the repair within three days, pursue the seller for the breach. If the buyer wants to cancel the contract or pursue the seller for a breach, the buyer should consult independent legal counsel for guidance.

 

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