If the Buyer Learns that a Neighboring Home is a Short-Term Rental Home, the Buyer Can Get Earnest Money Back

Question: In a recent column you said that if a seller and a buyer have a dispute about the validity of the sale of a home, the standard Arizona Association of Realtors purchase contract (“AAR Contract”) requires mediation before a seller or buyer files a lawsuit. We bought a home in Phoenix that we loved, but during the 10-day inspection period we learned that the home next door to us is a short-term rental home. We immediately demanded the cancellation of the AAR Contract and the return of our $20,000 earnest money. The seller says that, because the short-term rental home has never been a problem, we have no right to the $20,000 earnest money. Is the seller right? If not, how do we go to mediation to get our $20,000 earnest money back? Do we need a lawyer?

Answer: First, you are probably entitled, if acting in good faith, to get your $20,000 earnest money back because of the short-term rental home next door. Second, you can Google “Phoenix mediators” and similar Google phrases to get the names, resumes, and costs of numerous Phoenix mediators, including retired judges. Third, for a $20,000 earnest money deposit, the cost of a lawyer to represent you at the mediation would not be justified, unless the seller hires a lawyer. If the seller refuses to go to mediation within a reasonable time, e.g., two weeks, you can file a lawsuit to get your $20,000 earnest money. If the judge awards you the $20,000 earnest money, the judge will probably award you all of your attorneys’ fees because the seller had refused to go to mediation.

Note: If mediation fails, the AAR Contract gives you and the seller the right to file a lawsuit or file for arbitration. We never recommend arbitration. Although arbitration can be cheaper than litigation, there is basically no right to appeal from an arbitrator’s ruling, even if the arbitrator rules that “grass is blue, not green.” Further, arbitrators in their rulings tend to “split the baby” more than judges.

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