Why do Arizona Home Purchase Contracts have a Three-Day Cancellation Clause?

The history of the three-day cancellation clause found in the current Arizona home purchase contract dates back to the development by the Arizona Association of Realtors (“AAR”) of a standard contract for home purchases more than 50 years ago.  At the time, home purchase contracts did not have cancellation notice requirements, allowing buyers and sellers to cancel the contract for any lack of performance, and to do so without notice.

The concern in Arizona was that, because of summer heat and vacation schedules (and before fax machines and email), buyers and sellers might need more time to close escrow than the originally scheduled date of closing. At a meeting of the real estate industry, there was a suggestion made to give buyers and sellers another two weeks for closing. Orme Lewis, a lawyer at this meeting representing the AAR (and the founder of the law firm Lewis and Roca) reportedly said, “two weeks is too long. Let’s make it thirteen days.”

The standard Arizona purchase contract then had a thirteen-day cancellation clause. This thirteen-day cancellation clause eventually was found to be overly cumbersome to the modern Arizona real estate market, and the AAR removed the cancellation period altogether, allowing buyers and sellers to again cancel the contract without notice.  Ultimately, in its May 2005 revision, the AAR implemented its current three-day cancellation clause, and first issued the Cure Period Notice form.

Generally, real estate brokers only make commissions when transactions close, and the three-day cancellation clause is a benefit to Arizona real estate brokers because it gives them a three-day opportunity to “save the deal.”

Note: While some other states’ purchase contracts do not require notice to cancel, the California Association of Realtors has implemented a similar three-day “Demand to Close Escrow” before the purchase contract can be cancelled.