Seller Didn’t Disclose the Short-Term Rental Next Door

Question: In the purchase contract for the sale of our Chandler home, there is a provision giving the right for a 10-day inspection. The purchase contract also said that the sale was “as is,” and “no repairs.” After the 10-day inspection period, the buyer deposited $35,000 earnest money with the escrow company. The 10-day inspection period expired, and the buyer said nothing about cancellation. A week later the buyer wants to cancel the contract and get their $35,000 earnest money back because the buyer learned that there is a short-term rental (“STR”) home next door. The buyer says that we should have disclosed this STR home in the Seller’s Property Disclosure Statement (“SPDS”). We have never had a problem in two years with this short-term rental, so we never thought to tell the buyer. Is the buyer entitled to get the $35,000 earnest money back?

Answer: Although “one man’s meat is another man’s poison,” a short-term rental home next door is probably an adverse material fact that a reasonable buyer would want to know, and should have been disclosed on lines 267-269 of the SPDS. Therefore, the buyer is probably entitled to the return of the $35,000 earnest money deposit.