Which buyer costs can a seller concession now pay?

Sixty Days Later: The New AAR Purchase Contract

Published May 2, 2017 in the Arizona Journal of Real Estate & Business



Fletcher R. Wilcox
The Wilcox Report

Grand Canyon Title Agency

As I write this article, it is sixty days since the introduction of the new AAR Residential Resale Real Estate Purchase Contract on February 1, 2017. I will review the change in seller concessions, which is a hot topic, and touch on something that recently happened when a seller agreed to pay the initial appraisal fee — and it was to be included in the seller concessions.

The Seller Concessions clause in the new AAR Contract reads:

2J. Seller Concessions (if any): In addition to the other costs Seller has agreed to pay herein, Seller agrees to pay up to ____% of the Purchase Price OR up to $____ to be used only for Buyer’s loan costs, impounds, Title/Escrow Company costs, recording fees, and, if applicable, VA loan costs not permitted to be paid by Buyer.

Much of the discussion on seller concessions centers on the word prepaids which was removed and the addition of the language to be used only for.

Why was prepaids removed from the clause?

In the previous contract the word prepaids was loosely applied. Often when not all of the seller concessions were used after paying for loan costs, impounds, and title/escrow costs any remaining concessions would be used to perhaps prepay additional months of HOA, or maybe prepay pool service, etc. I have heard of seller concessions being applied to pay a buyer’s credit cards and buyer broker commission. While not all sellers may object to these applications, some vehemently did.

Most seller challenges as to what their concessions were to pay happen after receipt of the settlement statement, which is usually just days before a transaction is to close. When a seller and buyer cannot agree on the concessions, an addendum is often needed clarifying what may be paid before the transaction can close.

Since the new contract added the words to be used only for, questions that keep arising is if the lender is required one year of homeowner’s insurance and is the mortgage interest from the close of escrow to the first mortgage payment considered a loan cost? On March 28, 2017 AAR stated, “Both interest and the homeowner’s insurance premiums are costs that the lender requires to be paid as a condition to funding a loan. Thus, those items are considered to be loan costs as that term is used in Section 2j. Accordingly, the interest and homeowner’s insurance premiums would be included in the Seller Concessions as agreed by the parties.”

If there are remaining seller concessions may they be used to prepay items such as additional months of HOA or an additional year of home warranty? Probably not, since neither of these items is a loan cost or a condition to fund the loan.

Additional Seller Concessions are Negotiable
Just as all repairs are negotiable since the seller warranties were removed from the new Contract, the buyer may negotiate additional items that seller concessions may pay. A buyer may want to add language in the Additional Terms and Conditions section of the Contract to read something like this, “Seller concessions to be applied to the following items…”

Initial Appraisal Fee and Seller Concessions
Section 2m lines 111-113 read:

Initial appraisal fee shall be paid by __Buyer __Seller __Other  at the time payment is required by lender and is non-refundable. If Seller is paying the initial appraisal fee, the fee __will __will not be applied against Seller’s Concessions at COE, if applicable.

Recently, a seller agreed to pay the initial appraisal fee of $500 to the lender at the beginning of the transaction. The $500 was to be applied against a seller concession of $4,000.

When the Closing Disclosure was sent to the seller it showed the seller’s concession at COE to be $4,000 instead of reducing it to $3,500, since the seller had already paid $500 for the appraisal.

Apparently, the lenders software was not able to show the seller paying the initial appraisal fee outside of escrow. The Closing Disclosure incorrectly showed that the buyer had paid it outside of escrow. Since the problem was found before closing it was resolved.

Most buyers think that when a seller agreed to give them a concession they will be able to use all of it. They do not understand all the nuances of its application. A buyer may consider adding language to the Contract, and they should discuss with their lender any limitations the lender may have with a seller concession.


Fletcher R. Wilcox is the author of The Wilcox Report and Vice President of Business Development for Grand Canyon Title. His market analysis has been referenced in the Wall Street Journal, Bloomberg News, HousingWire.com and National Mortgage News. He served on one of Arizona Association of Realtor’s 2017 Residential Resale Contract subcommittees. He may be reached at FWilcox@GCTA.com  or by phone at 602-648-1230.

Most Misunderstood Parts of the AAR Residential Resale Real Estate Purchase Contract


What You Should Know About Loan Contingency & Cure Period Notice

by Fletcher R. Wilcox on July 1, 2016

VP Business Development, Grand Canyon Title Agency

(This article first appeared in Arizona REALTOR® Voice) 


Since January 2004, more than 1,000,000 transactions listed in ARMLS have closed. Almost every one of them closed using the AAR Residential Resale Real Estate Purchase Contract (the “Contract”). To many agents, the Loan Contingency and Cure Period Notice are some of the most misunderstood parts of the Contract. I often see this when a Contract has cancelled and there is an earnest money dispute.

Loan Contingency
A contingency clause defines a specific event or action that must take place for a contract to become binding. The Loan Contingency in the Contract says that if a buyer is not able to get a loan without Prior to Document (“PTD”) conditions the buyer is not obligated to complete the transaction. PTD conditions mean that loan documents will not be sent out because a lender requirement(s) has not been met by the buyer. Let’s read what the Contract says about the loan contingency.

Loan Contingency
2b. Lines 55-60. Buyer’s obligation to complete this sale is contingent upon Buyer obtaining loan approval for the loan described in the AAR Loan Status Update (“LSU”) form without Prior to Document (“PTD”) conditions no later than three (3) days prior to the COE date…No later than three (3) days prior to the COE Date, Buyer shall…deliver to Seller or Escrow Company notice of inability to obtain loan approval without PTD conditions.

According to the loan contingency language, while the buyer is not obligated to complete the transaction if they cannot get a loan, the buyer did promise to deliver notice that they could not get a loan three days before the close of escrow.

What happens if the buyer cannot get a loan, but breaks their promise and doesn’t deliver notice of inability to get a loan?

The Cure Period Notice
When a party to the Contract breaks a promise and, if there is not language in the Contract specifying what happens next, the remedy then is to deliver a cure period notice to the non-complying party.

“[while] the buyer did promise …the seller also made a promise. They made a promise to deliver a Cure Period Notice to the buyer if the buyer did not deliver notice of their inability to get a loan.

Both parties in the Contract agreed, in Section 7a Lines 278-281 Cure Period, to deliver a Cure Period Notice to the non-complying party. In our example above, not only did the buyer make a promise according to the Contract, but the seller also made a promise. They made a promise to deliver a Cure Period Notice to the buyer if the buyer did not deliver notice of their inability to get a loan.

Once the Cure Period Notice is delivered, the non-complying party has three days to remedy their potential breach. In this case, it means that the buyer shall be entitled to a return of the earnest money if, prior to expiration of the cure period, the buyer delivers notice of inability to obtain loan approval.

Most of the time when you read the word “shall” in the Contract, a promise was made. As a rule, I recommend use of a Cure Period Notice when a promise is broken and the Contract does not have a specific timeline as to what happens next.

While the Loan Contingency in the Contract may result in the buyer getting the earnest money, there are other things to consider in this type of earnest money dispute. Was the buyer unable to get a loan described in the PQF or LSU? What did the loan denial from the lender state as the reason for the denial? Did the buyer have the down payment or other funds necessary to obtain loan approval? Was there a diligent and good faith effort?

Fletcher Wilcox

       Fletcher R. Wilcox is V.P. of Business Development and a Real Estate Analyst

       Grand Canyon Title Agency.

He is author of www.TheWilcoxReport.com. His market analysis on residential real estate in Greater Phoenix has been mentioned in the Wall Street Journal, Bloomberg News, MarketWatch, HousingWire.com, National Mortgage News, Arizona Republic and the Phoenix Business Journal. He has been a guest speaker on local radio and both local and national TV.

He teaches real estate agents strategies on marketing.  He instructs real estate classes in residential contract writing and Arizona title procedures.  Fletcher started snowboarding in 2006. He is not very good.

Fletcher may be reached at FWilcox@GCTA.com  602.648.1230

Arizona Real Estate: Why more Canadians may sell their U.S. Properties in 2016

This article was first published in the Arizona REALTOR® Voice on March 8, 2016.

by Fletcher R. Wilcox on March 9, 2016

Many Canadians own residential real estate in Arizona. They are especially attracted to the desert areas of Arizona during the winter when they can soak in the sun rather than shake off the snow.

Many got spectacular deals purchasing residential properties when prices were low and the Canadian dollar was close to being on par with the U.S. dollar.

Changes in the Canadian economy and dollar make it likely that there are now fewer Canadian buyers, but more sellers of their U.S. properties.  According to the Wall Street Journal on February 25, Canada’s economy is under pressure because of a drop in oil prices. In 2015, the Canadian-to-U.S. dollar average was at .75 cents compared to .97 cents in 2011.

Let’s look at a scenario as to why more Canadians may sell their U.S. properties this year than in recent years.

If a Canadian bought a house in the U.S. in 2011 and paid $150,000 USD, they would have paid close to $155,000 CAD.  In 2015, if that same property, because of appreciation, sold for $225,000 USD, a Canadian seller would receive $300,000 CAD, almost double what they paid in Canadian dollars in 2011. Quite a gain. So far in 2016, the Canadian dollar is even weaker against the U.S. dollar than last year.

USD v CAD exchange rate 2010-15

If a Canadian or if any foreigner, decides to sell their U.S. residential property, they should be aware of the Foreign Investment in Real Property Tax Act known as FIRPTA.

FIRPTA is the mandatory withholding of income tax on the disposition of U.S. real property interests by a foreign person(s) defined as a nonresident alien individual, a foreign corporation, a foreign partnership, trust or estate. According to the IRS, not only are sales under FIRPTA, but so are exchanges, gifts and transfers.

On February 17, the FIRPTA withholding tax rate increased up to 15% as demonstrated in the chart below:
FIRPTA demo chart

According to FIRPTA, what is the buyer’s responsibility? A buyer is solely responsible for the FIRPTA withholding tax from a seller.

When the seller is a foreign person? The IRS states:

“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.”

To help make buyers and sellers aware of FIRPTA, Arizona REALTORS® has addressed it in the Seller’s Property Disclosure Statement (SPDS) and Residential Resale Real Estate Purchase Contract (Resale Contract).

Lines 13 and 14 in the SPDS read:
Is the legal owner(s) of the Property a foreign person or a non-resident alien pursuant to the Foreign Investment in Real Property Tax Act (FIRPTA)? Yes No. If yes, consult a tax advisor; mandatory withholding may apply.

Lines 135-138 in the Resale Contract read:
IRS and FIRPTA reporting: Seller agrees to comply with IRS reporting requirements. If applicable, Seller agrees to complete, sign, and deliver to Escrow Company a certificate indicating whether Seller is a foreign person or non-resident alien pursuant to the Foreign Investment in Real Property Tax Act (“FIRPTA”). Buyer and Seller acknowledge that if the Seller is a foreign person, the Buyer must withhold a tax of up to 15% of the purchase price, unless an exemption applies.

The seller in the Resale Contract agrees to comply with FIRPTA if they are a foreign person; if applicable, the buyer must withhold the tax. In the SPDS, the seller must indicate if they are a foreign person or non-resident alien; if they are, they should consult a tax advisor.

While different settlement agents may have different procedures, escrow officers are not equipped to give tax or legal advice concerning FIRPTA.

The IRS does not require the settlement agent to:

  • Determine a seller’s status as a foreign person
  • Decide how much FIRPTA tax should be withheld
  • Decide if the seller qualifies for an exemption, or
  • Complete FIRPTA forms

What then may a settlement agent do?

IF a buyer has determined that a seller owes FIRPTA tax, the escrow officer may assist them in collecting completed forms and withholding tax from the seller and buyer, and send the forms and taxes to the IRS on behalf of the seller and buyer.  (Remember, there is no duty by the escrow officer to complete FIRPTA documents.)

IF a seller applies for an IRS certificate exempting or reducing FIRPTA withholding tax prior to the transaction closing, it is likely that the certificate from the IRS will not be received until post-closing.  A settlement agent may agree to hold FIRPTA funds post-closing and send the funds to the IRS if certain conditions are met prior to the closing.  If the required conditions are met, then both the buyer and seller will have to sign post-closing holdback instructions.

IF the requirements of a post-closing holdback are not met, the seller and buyer will have one of two options.  The settlement agent may collect the proper forms and send in the withholding tax at the time of the closing.  Or the seller and buyer mutually agree in writing that the FIRPTA funds may be transferred to an attorney or CPA’s trust account.  The attorney or CPA will be responsible for the FIRPTA withholding amount.

If there is a FIRPTA withholding, both the seller and buyer will need either a social security number or a valid U.S. Individual Taxpayer Identification Number (ITIN) in order to process FIRPTA documents. If someone is not eligible for a social security number, they must apply for an ITIN.

Because of the length of time it may take to receive either a social security number or ITIN, it is a good idea to obtain one before a property is put on the market.

Also, talk with the escrow officer where the escrow will be processed prior to contract acceptance to find out what the officer will do on a FIRPTA transaction and what requirements must be met for a post-closing holdback.

A seller and buyer should always consult with a qualified CPA or tax attorney regarding FIRPTA.

In 2016, the Arizona real estate market will likely see more FIRPTA transactions with foreigners, specifically Canadians, selling their U.S. properties.  A knowledge of FIRPTA by both the foreign seller and buyer will help ensure a smother closing.      

Fletcher R. Wilcox is vice president of business development at Grand Canyon Title Agency




Phoenix Real Estate: Attend the first major real estate event of 2016! Why 2016 likely will be a better year for sales, guest speakers on closing trends and a special speaker from the CFPB!


Jim Sexton 2015 President Arizona Association of REALTORS and Fletcher R. Wilcox Grand Canyon Title invite you to attend the first major event in 2016 on residential closing trends you should know and obtain three C/E hours of contract law. We have put together an event which will bring you up to date on residential closings.  Bring your questions, listen and learn. This is an Industry Partners Conference follow-up event. There will be a special guest speaker from the Consumer Financial Protection Bureau. See bio below!

Find out why it is likely there will be more residential sales in 2016 than 2015. (You have to see this!)



Attend the class! TRID LIVE: Real Stories, Real Solutions. Three hours of C/E in contract law. February 4, 2016 | 8:00 a.m. to 1200 p.m. OrangeTree Golf Resort 10601 N. 56th Street, Scottsdale AZ 85254

Panel of designated brokers: Martha Appel, Coldwell Banker; Gerry Russell, Realty Executives, Laurie McDonnell, United Brokers Group

Panel of lenders: Sherry Olsen, Desert Schools Federal Credit Union, Matthew Kelchner, Suburban Mortgage

Panel of escrow officers: Leslie Banes, First American Title; Patti Shaw, Old Republic Title,

Moderators: Jim Sexton, 2015 AAR President and Fletcher R. Wilcox, Grand Canyon Title

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  • What can lenders provide buyers to strengthen their offers, in addition to the PQF?
  • Is it taking longer to close under TRID? Yes, no, or sometimes?
  • Triggers that might delay a closing.
  • Are loan documents being signed three days before the close of escrow?
  • Closings and FIRPTA. Do you know what the IRS says when there is a foreign seller?
  • Are you seeing the buyer’s Closing Disclosure? The seller’s Closing Disclosure?
  • When can agents review the settlement statement?
  • Why are agents getting different settlement statements in their closing package?
  • Do you have questions on the changes to the AAR Resale Contract, PQF, LSU and TRID?
  • Special presentation on top ten ARMLS violations.

Noerena Limon from the Consumer Financial Protection Bureau (CFPB) will be our guest speaker. She is a policy analyst in the CFPB Office of Research Markets and Regulations and is the project lead for the Know Before You Owe, Closing Time Initiative. Throughout her 2-and-a-half years at the CFPB, Noerena has worked in the Office of Director Richard Cordray, the Office of Mortgage Markets and the Office of Liquidity Lending, focusing on mortgage and small dollar lending policy.





Phoenix Real Estate: What’s new? Webinar December 15 from 12:00 p.m to 1:00 p.m sponsored by the Arizona Association of REALTORS!

What’s new with real estate closings and TRID? Check out this webinar from the Arizona Association of REALTORS!


Fletcher Wilcox, Grand Canyon Title Agency will be joining 2015 AAR President Jim Sexton to talk about the recent changes to residential closings. We will discuss financing, getting your buyers pre-approved, contract timelines, the settlement statement, changes to the AAR Resale Contract, TRID, and we will be taking your questions.  Join us?



Jim Sexton                                                                                                                                              Fletcher R. Wilcox

2015 President                                                                                                                       V.P. Business Development

Arizona Association of REALTORS                                                                                  Grand Canyon Title Agency

Designated Broker Realty One

Pinal County existing single family sales: are they up or down?


July 2015 Existing Single Family Sales in Pinal County (see charts below)

This report covers existing single family home sales in Pinal County. Pinal County is located in the central part of Arizona. It is the third most populated county in Arizona. Pinal County is made up of the cities Apache Junction, (partially in Maricopa County), Casa Grande, Coolidge, Eloy, and Maricopa. And the towns Florence, Kearny, Mammoth, Marana (partially in Pima County), Queen Creek (partially in Maricopa County), Superior, and Winkelman (partially in Gila County).

The data in this report is compiled from the Arizona Regional Multiple Listing Services, Inc., also known as ARMLS.

In this report we compare performance for sales, sales volume, median sale price, cash purchases, mortgage purchases, and new monthly listings. Many of the comparisons are year-over-year, comparing a time period in 2014 to the same time period in 2015.  Year-over-year comparisons are an effective way to measure performance, highlight differences, and negates the effect of seasonality. Note: There may be a small number of new homes included in the data.

Existing single family sales were up for the six consecutive month year-over-year. More importantly and a better indicator of the health of the single family market is sales volume. Sales volume adds up the purchase price for the number of sales. Sales volume in July 2015 was $18,112,043 higher than July 2014 and $126,946,229 higher the first seven months of this year compared to last year.

When segmenting July 2015 mortgage purchases into the categories conventional mortgages, FHA mortgages and VA mortgages, FHA led the way. There were 88 more FHA purchases than conventional purchases. Comparing the first seven months of this year to last year, FHA purchases are up 50.4% or 441 more purchases. VA purchases the first seven months of this year are up 125 or 38% compared to last year.

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On September 16 attend the biggest real event of the year on the new closing rules and changes to the AAR Resale Contract.

I invite you to attend the 2015 Industry Partners Conference on the new closing rules starting October 3, 2015.  Find out from experts how the changes to the AAR Resale Contract, the PQF, the LSU interact with the new Closing Disclosure and Loan Estimate!  Do you understand the new chain of events and their timelines necessary to close a residential real estate transaction when a buyer is purchasing with a loan?  Register now at   https://www.aaronline.com/calendar/view-event/?id=724

Some of the speakers will be the following:

  • Jim Sexton President of Arizona Association of REALTORS, DB Realty One
  • Scott Drucker General Counsel to the Arizona Association of REALTORS
  • Rick Mack Legal Hotline Counsel for Arizona Association of REALTORS
  • Mary Frances Coleman attorney and real estate instructor, Realty Executives
  • Fletcher Wilcox, 2015 Industry Partners Conference Chair, V.P. Grand Canyon Title
  • Sherry Olsen, Desert Schools Federal Credit Union Mortgage Origination Manager
  • Chris Mozilo, Divisional Vice President at Caliber Home Loans
  • Leslie Banes, First American Title Arizona Resale Escrow Manager

Real estate agents will receive three hours of contract law and three hours of legal issues.

This event is a partnership of the Arizona Association of REALTORS, the Arizona Mortgage Lenders Association, and the Arizona State Escrow Association.  Members from all three of these industries have been meeting to discuss and present to you what you must know by October 3, 2015.   

2015 Industry Partners Conference Preview

by Arizona REALTORS on August 7, 2015

Submitted by Fletcher Wilcox, 2015 Industry Partner Conference Chair

On September 16 at the Chaparral Suites in Scottsdale, REALTORS®, mortgage lenders and escrow agents will join forces during the 2015 Industry Partners Conference (IPC).

The IPC is a partnership between the Arizona REALTORS®, Arizona Mortgage Lenders and Arizona State Escrow associations that meet and share different perspectives to gain clarity over new closing process procedures.

Fletcher Wilcox_75x75  By attending this year’s Industry Partners Conference I can say you will end the day with broader knowledge of how to get a transaction closed by understanding the specifics.

Fletcher Wilcox, VP Business Development, CFPB External Operations Expert, Real Estate Analyst, Grand Canyon Title Agency.

Grand Canyon Title Agency is a wholly owned subsidiary of FNF.  FNF is ranked #314 on the list of Fortune 500 companies. 

This year’s conference topics will include:

  • How the new TRID rules change the closing of a residential real estate transaction
    October 3 is the mandated start date for new TRID rules and docs from the CFPB; unless you only work with cash buyers, these changes will affect buyers, sellers, real estate agents, loan officers and escrow officers
  • What your buyers and sellers should know about the new closing process
  • How new CFPB Loan Estimate & Closing Disclosure forms interact with the Residential Resale Real Estate Purchase Contract
  • Different chain of events that must happen before a transaction can close
  • Review revised Residential Purchase Contract, Pre-Qual Form & Loan Status Update
  • Learn the new timelines

Click here to register for the 2015 Industry Partners Conference. If you have questions, contact Fletcher Wilcox via email at FWilcox@gcta.com or by calling 602.648.1230.

New AAR Documents Soon To Be Released

In addition to the new TRID rules and documents, REALTORS will soon have a new Residential Resale Real Estate Purchases Contract, a new Pre-qualification Form and a new Loan Status Update. The Arizona Association of REALTORS will be releasing these documents in September. The changes to these documents are in response to the TRID Rules. These new REALTOR documents incorporate lender events real estate agents will now need to know, such as the six pieces of information needed for a loan application, the Loan Estimate and the buyer’s intent to proceed. All of these have contract timelines. If your buyer does not correctly follow these event timelines, they may find themselves served a cure period notice.

How Should I Approach this Change?

There will be difficulties in closing some transactions. But many of these difficulties will come from a negative attitude toward the rules, and not taking the time to learn them and the new contract documents.

The best way to approach the new rules is knowing that the Loan Estimate and the Closing Disclosure will make it easier for a buyer to understand the loan and closing costs associated with the transaction. This is a good thing. And you must learn the specifics of how the new rules work with the new AAR documents. When you know and understand them, you will have confidence when representing a buyer, a seller, and when working with other real estate agents, loan officers and escrow officers.

Your Opportunity to Learn: The Industry Partners Conference

While most of you have attended a TRID seminar, most of you will not have attended a seminar as the one being offered on September 16, 2015.

At the seminar you will learn about chain of events that must happen before a transaction can close. An example of a chain of event is the following: before the appraisal can be ordered the buyer must have acknowledged an intent to proceed with the lender. Before the buyer can acknowledge an intent to proceed with the lender they must have received the Loan Estimate. Before a loan officer can send a Loan Estimate the buyer must have provided the six pieces of information necessary for a loan application. Before the buyer can supply all of the necessary six pieces for a loan application there must be contract acceptance. Each of these events has a timeline associated with it.

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