Process Steps to Buying or Selling a House in Arizona-Time Line & Flow Chart

 

How to Find and Buy Your Future Arizona Home

Now you’re working closely with an Arizona Realtor so buying an Arizona home is starting to look very real.

I am here to help!   Buying a home looks like a lot of tasks.  It is, and that is one of the many reasons why it is critical for you to have a full time, experienced, licensed, Arizona real estate agent acting as your Buyer’s Agent to help and represent your interests through the process. We have that knowledge and experience.  There is no direct cost to you for our services.  While we legally represent your best interest as your agent and have a fiduciary duty to you, in Arizona we get paid at closing from the Sellers’ proceeds.

The following is a detailed write-up on the process as summarized on the flowchart found on the prior page.

Selecting Your Home Criteria

It is important that your Realtor completely understand what your goals are in purchasing your home in Arizona;

The better we understands your goals, the better the purchase will go and the faster we can help you begin enjoying your new Holiday home in Arizona.

Listings That Meet Your Criteria

Your Realtor will then email you MLS listings of homes for sale that meet your criteria. Your Realtor may also ask you if you would like to receive new listings that meet your criteria whenever they hit the MLS.

Fine Tuning Your Criteria

You may find after looking at the homes emailed to you, that you would like to change your criteria; a different location, a different price, a different size, or whatever you like. This is easy for your Realtor to change for you.

In no time you will narrow down your home search to the best locations and best homes that meet your goals.

How to Research Arizona Homes Online

Since you’ve arrived at this web site, you’ve already begun to research buying Arizona real estate.

The largest source, by far, of homes for sale in metro Buckeye is the Arizona Regional Multiple Listings Service which is our local “MLS.”

The Multiple Listings Service

The MLS is an association of licensed real estate agents who band together to help each other sell real estate. The MLS makes it easy for a member Realtor to promote a seller clients’ home (“listing”) to all other MLS members.

The MLS also makes it easy for members who represent buyers like you to find detailed information on tens of thousands of homes for sale.

To become a member of the local MLS, we must be licensed by the State of Arizona as a real estate agent and be a member of the Arizona Association of Realtors.

Today, MLS information on individual homes for sale is available online to the general public. The MLS’s, however, don’t share all their information with the public. 

The United State does not have a national MLS like Canada. There are many hundreds of local MLS’s in the US, each with their own rules and regulations.  Within Arizona, there is an MLS for metro Phoenix, another for metro Tucson and separate MLS’s for Flagstaff, Prescott, and several other smaller towns.

MLS homes are available online at hundreds of websites (though not usually up to date).  No matter where you find information on an Arizona Property, we can arrange for you to see the property and help you buy it.

Your Trip to Arizona-Buying the House 

Now, it’s time for the real fun to begin. You will want to take a trip to sunny Arizona to buy your new home.

If you have communicated well with your Arizona Realtor and your Realtor has worked hard, you will to able to find your Arizona home in just one or two days of home shopping. That will leave plenty of time for you and your spouse to relax by the hotel pool, play golf, go shopping or whatever.

An experienced and knowledgeable Realtor will be able to winnow down the many tens of thousands of homes for sale in metro Buckeye to the small number of homes that best fit your individual needs.

Short Sale Properties -What you need to know.

(A “short-sale” means that the owner needs to sell the home for less than they presently owe to the lender(s) who holds the financing for the home.)

 

There are a large number of homes (about 30%) where the homes are still owned by the owner, but they are being sold as a “short-sale” .  A real estate short sale is when a home owner sells their property for less than what they owe on the mortgage, and the lender gives their permission to do this by forgiving the difference and/or releasing the mortgage lien on the property.  Short sales are very common in much of Arizona today because of negative home ownership  equity due to the steep decline in house values that occurred over the last 3 years.

Are you considering buying a short sale home? 

Make sure the deal has the potential to close before you waste your time. It is estimated that approximately 70% of short sale listings are not closeable deals because the lender simply won’t approve it or the seller can’t accept the terms offered by the lender.  In most of these cases that are not closeable, the first or second mortgage lender is expecting home sellers to contribute cash to the deal from their other assets. In other case the seller’s hardship package and budget did not support the Short Sale.   One way to avoid getting caught up in the middle of this mess is to have your Realtor verify the status of the seller’s hardship package with the seller’s lender directly (sellers agents can resist this approach) . 

Why are Short Sales Problematic?

To be successful at persuading the seller’s lender that the seller qualifies for a short sale, their hardship package and the supporting expense budget and income statement must be prepared and documented in such a way as to prove their case. In some cases the selelr is unable to get the debt release they require to close.  Unfortunately, not all agents are adequately trained in loan workouts, cash flow, asset analysis, financial presentations and working with the sellers lawyer.  That is why only 90% of all short sale succeed in being approved before going in to foreclosure. 

Further, educated short sale sellers will be negotiating for a release and full satisfaction of the mortgage/deed of trust/ home equity loans etc. from their lender(s).  This can present problems since the lender is often not to motivate to forgive debt if they can see a possibility of collecting in the future.   This can mean the seller may be better of allowing he home to be foreclosed upon.   Once foreclosure happens, your offer is void and the home will be unavailable for 4-8 months until processed and relisted. 

Short Sale from the Buyer’s Prospective

The price for a home that is listed in the MLS as a “short-sale” may not be the price the home can be purchased for. The listing agent has done the best possible to determine the comparable market price for listing price and perhaps even under priced the property to get your attention, but the banks who the owner owes money to are not yet involved in the pricing decision. The banks will not get involved until there is an offer that has been accepted by the seller contingent upon bank approval.  At that point the banks begin their long process (60-180 days or more) of ordering Broker Price Opinions (BPO) or appraisals to determine what they will allow the home to be sold for.  It is common for “short-sale” properties to finally sell for more than the price it is listed for in the MLS.  These days about 10% do not close due to the lender not agreeing with the offer price, or not providing the seller the necessary “full release and satisfaction” of the outstanding debt.  Instead the bank will ultimately foreclose, regardless of what offers are made on the home. It can take 3-6 months or more for a foreclosed property to come back on the market.  A good rule to follow is do not fall in love with a short-sale until it closes and be very patient.

Having said that, some short-sales have been preapproved by the bank, but the original buyer backs out.  This can offer you an opportunity to step in without the long wait and get a real bargain.  For a short sale, before you spend time making an offer, your agent needs to conduct due diligence and determine the likelihood of success by determining:

  1. What is the status of the short? –sale bank negotiation
  2. Is the selling agent skilled at the short-sale process?
  3. Has the seller been turned down for a loan modification? Is the seller a “qualified” candidate for a short-sale? 
  4. Has the selling agent fully prepared, documented and validated the seller’s hardship package? 
  5. How many banks are involved? (having only one is good)
  6. Who are the banks and what is the short-sale closing experience and time frame?
  7. Will the seller agree that yours is the only offer they will present to the bank?
  8. What is the true fair market value (Comparative Market Analysis. Broker Price Opinion) of the property compared to the asking price?

(Example- the current market price might be, for example $250,000, however  the current owner owes their lender(s) $350,000. Selling “short” means that the bank(s) will end up with less than what is owed to them. If there are multiple bank(s) involved because the owner has taken a 2nd loan on the home, the “short-sale” process can become more complicated as multiple banks have to come to an agreement to take less than is owed to them.)

Lender, REO, Foreclosure Properties

Many of the home bargains to be found are homes that are foreclosed (repossessed by the lender), are sometimes referred to as REO or lender owned properties. These are sold much the same way as property owned privately. 

Note: If you looking for a “bargain”  and hope to have a good probability of getting it with an accepted offer, the foreclosed (REO) properties are generally better opportunities than a “short-sale. 

How to Make an Offer

Okay, you started out back home in Canada by researching Arizona real estate and how you would finance your Arizona home. Then you found an experienced Arizona Realtor you trust and took a trip to Arizona where you found a gorgeous, sunny home you want to buy.

Now, you want to make an offer to buy that home.

The vast majority of resale (not new) homes in Arizona use the Residential Resale Purchase Contract created by the Arizona Association of Realtors (AAR). Whenever I say “contract” I am referring to this contract.

After talking to your Realtor, you will instruct your Realtor on how to prepare your offer for the home.

Unlike many States, especially Back East, in Arizona lawyers are not required be involved in residential real estate transactions. Normally in Arizona, your Realtor will draft and negotiate the contract under your direction without the involvement or expense of a lawyer.

An offer is just a Purchase Contract with only your signature on it. It’s not a contract until the Seller signs it.

Some of the most important points in the offer are;

  • Offer price
  • Earnest money
  • Down payment
  • Loan Status Report
  • Closing date
  • Personal property included
  • Seller contribution to Buyer expenses
  • Escrow Company
  • Home Warranty
  • Additional Terms
  • Offer Expiration
  • Counter Offers

Offer Price

Your Realtor can research recent comparable sales and help you decide on the price you would like to offer.

Earnest Money

The earnest money is usually a personal check written by you and made out to the escrow company you have chosen. The earnest money check is then temporarily held by your Realtor.

If you and the seller eventually reach an agreement, your Realtor will give your earnest money check along with the contract to the escrow company. This is called “opening escrow.” The escrow company will deposit your earnest money check immediately so be sure you have enough money in that account to cover the check. 

The larger the earnest money amount, the stronger the offer.

In Arizona, earnest money of around 1% percent of the purchase price is common, up to perhaps $10,000 for luxury homes.

A buyer who offers earnest money significantly less than 1% is often interpreted by sellers as not being very serious about the purchase. Conversely, earnest money significantly more than 1% is often interpreted as a sign of a serious buyer. (FYI: In California, earnest money is customarily much higher than 1%.)

The earnest money provides the seller a small… very small, assurance that if you, the buyer, breach the contract that the seller may be able to keep your earnest money. In fact, the seller often does not get to keep keep the buyer’s earnest money when a purchase contract does not close because there are several “escape” contingencies in the contract. 

Down Payment Amount

In the end, the seller will be paid in cash whether the money comes from the your bank account (the down payment) or from your lender and the new loan you just took out.

However, if a buyer plans to borrow 100% of the purchase price it will raise a red flag to the seller. The seller should be worried about what will happen if the buyer cannot ultimately borrow the money. If the buyer can’t get a loan as described in the contract, the buyer can terminate the contract and receive back all his earnest money. The seller’s fear is that while the home is off the market, the seller could miss out on another offer from another buyer.

An all cash offer combined with a quick close (let’s say, three weeks) can make a very strong offer, IF the seller wants to close quickly. If the seller doesn’t want to close quickly, a quick-close, all cash offer is of little or no benefit in negotiations with that seller.

Be careful: If you as a buyer promise in the contract to put cash down at closing (down payment) but then it turns out that you cannot close because you don’t have the promised cash, you could very well lose you earnest money to the seller.

Arizona’s Borrower  Pre-Qualification Form

Arizona has an unusual feature in our contract. We don’t normally use pre-approval or pre-qualification letters from lenders to judge a buyer’s ability to borrow the money as stated on the offer.

In Arizona, we have a special form called a Loan Status Report. This form will be replaced in August 2010 with the new “Borrower Pre-Qualification Form”. The signed form gives the seller more detailed information about where the buyer stands in getting approval for a loan.

The Pre-Qualification is prepared by your lender and a copy should be sent to your Realtor. Your Realtor will include a copy of the Loan Status Report when submitting your purchase offer. Including the Loan Status Report greatly strengthens your offer.

The Pre-Qualification Report is another reason why you should contact a lender early on before shopping for homes.

Closing Date

In Arizona, it’s common for the closing date to be about a month to 45 days after an offer is made. That is, if you make an offer on January 1, you might put in the offer that the closing date will be February 1 or February 15. However, closings longer than 45 days are not uncommon.

The processing of your loan by your lender is usually the item that takes the longest to complete.

Be careful: Buyers should be aware that you are responsible for having the loan ready by the closing date agreed to in the contract. If your loan is not ready at closing because your lender is incompetent or because your didn’t give your lender the paperwork he needed on time, then you, the buyer, could end up in breach of contract and at risk of losing your earnest money.

The morals are, 1) Choose a reliable Arizona lender, not your aunt’s college friend in Minnesota, 2) When your lender asks you for any documents, get those documents back to the lender as soon as possible, and 3) Ask your lender how long he will need to process your loan before you and your Realtor write an offer.

Tip: In contract negotiations, being flexible on the closing date is often a cost-free concession a buyer can give a seller. If a seller needs an unusually long, unusually short, or unusually specific closing date, the seller may look favorably on offers that accommodate their situation.

Personal Property to be Included

Is the refrigerator part of the house or is the refrigerator the seller’s personal property like furniture? How about the stove? The drapes?

The AAR Residential Resale Purchase Contract (the “contract”) on lines 28 to 39 gives many examples of items that are part of the house, also called “fixtures.” These items are included in the sale unless specifically excluded elsewhere in the contract.

In Arizona, the refrigerator, clothes washer and dryer are not usually considered part of the house. It is very common, however, for a buyer to state in an offer that the refrigerator, washer and dryer will indeed be included in the sale. If the seller does not want to include those items in the sale, he may want to make a counter offer that says those items are not included in the sale and have the buyer approve it.

A big problem today is confusion over large expensive, flat panel televisions. If a television is just plugged into an outlet and placed in an entertainment center, it is clearly personal property and not part of the house. However, if that same television is attached (support bolted to the wall) to the wall, it is considered to be part of the house and therefore included in the sale.

In Arizona, the stove/oven, dishwasher and draperies are considered to be included in the sale unless otherwise stated in the contract. However, the refrigerator, clothes washer and dryer are considered personal property and are not included in the sale unless otherwise specified in the contract.

Seller Contribution to Buyer Expenses

It is not uncommon for buyer’s to ask sellers to pay for some of the buyer’s closing costs. This has the effect of reducing the offer price.

Escrow Company Selection

The buyer selects the escrow company. I recommend buyers choose a company that has an established relationship with their Realtor.

Title Insurance

Title insurance insures against the loss resulting from defects of title to a specifically described parcel of real property. Defect may run to the chain of title or to encumbrances on the property.

Title insurance services are designed to provide real property owners, lenders, and others with interests in real estate the maximum protection from adverse title claims or risks. A Fidelity National Title Insurance Policy affords protection both in satisfying valid claims against the title as insured and in defraying the expenses incurred in defending such claims.

                Owners Title Insurance

                A.L.T.A. Plain Language Residential Owner’s Policy

With this policy Fidelity National Title insures the purchaser of residential real property, in which he will reside, to the same extent as the Standard Coverage Owner’s Policy. In addition, this policy affords protection against defects which are insured against in the extended coverage policy if that defect interferes with the use of the property for the residence of the insured. Your Fidelity NAtional Title policy provides Coverage for Labor or Mechanics liens and forced removal of the main structure on the property because it encroaches onto adjoining land or an easement. (Removal of boundary walls or fences is not included in the coverage).

Note: This policy is usually paid by the Seller.

 

               Lenders Title Insurance

A.L.T.A. Standard Coverage Loan Policy

With this policy the Title Company (Escrow Company Affilate) insures the lender, based upon a search of the public records only, that:

1.       The borrower owns the estate or interest in the property which is used as collateral for the loan.

2.       There are no defects, liens or encumbrances on the title which the lender was unaware of, or are not shown as an exception from coverage.

3.       There is a right of access to and from the property.

4.       There is marketable title to the property.

5.       The insured deed of trust is valid and enforceable (usury or truth in lending laws excluded).

Note: this policy is usually paid by the Buyer

Home Warranty Insurance

Seller’s in Arizona will often agree to pay for a 12-month home warranty for the buyer, so you should ask for it. A home warranty will cover different items depending on the warranty company used and the specific warranty purchased. Major items like the air conditioner are almost always covered. Home warranty companies typically charge the buyer a flat trip charge of about $50 to $70 per warranty service performed.

Additional Terms

This is where you might add custom clauses such as, “Seller to remove shed in backyard before close of escrow”, “Seller to fix broken window in kitchen”, etc.

Offer Expiration Date

It is not uncommon for offers to be valid for only about 24 hours to speed up the offer/counter offer process.  In the case of lender owned property a 48 hour period is more common, but may already be specified by the seller in the listing. 

Counter Offers

After the buyer summits an offer to the seller (in fact, it will be the buyer’s Realtor submitting the buyer’s offer to the seller’s Realtor), the seller may accept the offer in which case the buyer and seller have a fully executed, valid contract. On the other hand, the seller may reject the offer outright and the negotiations may be over.

Or, the seller may make a counter offer. Counter offers typically propose changing the sales price but they can attempt to change anything in the offer, such as the closing date or personal property included in the sale.

For example, if the buyer’s original offer included the refrigerator, washer and dryer, the seller’s counter offer might simply say, “Refrigerator, washer and dryer not included.”

The buyer could accept that counter offer in which case the buyer and seller have a fully execute, valid contract. On the other hand, the buyer may reject Counter Offer #1 outright in which case the negotiations may be over.

Or, the buyer could write Counter Offer #2, (“Washer and dryer to be included”) and so on until agreement is reached or the negotiations fail.

If the negotiations succeed, the original offer and all counter offers become part of the purchase contract.

Once an agreement is reached, your Realtor will take the purchase contract, all counter offers and the earnest money check to the escrow company to “open escrow.”

Escrow companies are private companies that act as neutral third party intermediaries. They represent the buyer and seller equally but their real “boss” is the contract. They look to the contract for their instructions.

Escrow companies also sell title insurance.

Buyer Inspections During Escrow

Congratulations! You’ve come to an agreement with the seller on price and terms and now the home is, as we say, “in escrow,” “under contract,” or “pending” they’re all the same thing.

There are many protections for buyers in the “Residential Resale Purchase Contract” of the Arizona Association of Realtors, referred to here as the contract. The goal is to give buyers the opportunity to thoroughly inspect and investigate the property before being “locked in” to the purchase.

10-Day Inspection Period

You have 10 days (unless otherwise specified) to do all of your inspections and investigations of the home. You can inspect anything to do with the home – its condition, the neighborhood, the schools, the zoning, the development plans for the area, just about anything related to the home.

The Arizona Association of Realtors has a comprehensive list of items you may want to inspect or investigate during the inspection period.

Seller Property Disclosure Statement (SPDS)

The AAR Purchase Contract includes a provision that says the seller will give the buyer, within 5 days of contract acceptance, a “Seller Property Disclosure Statement.”

The SPDS (“spuds”) can give you a lot of extra information to consider during the inspection period. Sellers sometimes only fill out part of the form if that don’t have all the information requested.

If you don’t like something in the SPDS, you can cancel the contract (within 5 days of your receipt of the SPDS) and receive a full refund of your earnest money.

Insurance Claims History

The Seller will also give the Buyer within 5 days of contract acceptance, a 5-year insurance claims history on the home.

Here’s how seeing the insurance claims history helps you.

Let’s say a Seller “accidentally” forgets to mention in the Seller Property Disclosure Statement that he had a roof leak in 2005. You will still find out about the roof leak from the insurance claims history report, if the Seller made an insurance claim for the damages from the roof leak.

If you don’t like something in the Insurance Claims History, you can cancel the contract (within 5 days of your receipt of the Insurance Claims History) and receive a full refund of your earnest money.

By the way, as always your Realtor is your representative and the 5 day clock starts ticking when your Realtor receives the Insurance Claims History. When a document is delivered to your Realtor, it is considered to by delivered to you.

Few other States include the insurance claims history requirement on their purchase contracts.

Home Owner Association (HOA) Document Review

Under Arizona law the HOA you must be provided information by your new HOA that included the HOA By-Laws, Convents Conditions and Restrictions, HOA financials and more within 5 days.  You then have 5 days in which to advise the Seller of any disapproved items.

CONTRACT CANCELLATION

It is easy for you, the Buyer, to cancel a contract during the inspection period and receive a full refund of your earnest money, if you find anything at all that you don’t like about the house – its condition, the neighborhood, the roads, the schools or just about anything related to the home and the surrounding area.

The inspection period is by far the most likely time a contract will be canceled or “fall out of escrow.”

Disapproval of HOA  in the 5 day window will also result in the contract being cancelled.

Failure of the property to appraise at the offer price can result in cancellation or a counter offer.  Be sure to include this condition in the contract for a cash offer as it is not standard contract language.

Home Inspection

I recommend as strongly that you hire a licensed home inspector (typically $300 to $400) to inspect the physical condition of the home. The inspector will give you a report that will detail just virtually every little thing wrong with the home.

I also recommend that you call the home inspection company within 24 hours of having reached agreement with the seller to schedule the inspection. The home inspection company may not be able to schedule your home inspection right away.  Other inspectors may be indicated.  All must be done within the 10-day window.

You want the inspection done as early as possible in case the home inspector recommends further inspections. For example, if the home inspector recommends a full roof inspection or you need to call a plumber, you want to be able to schedule those before the end of the 10-day inspection period.

Attending the Home Inspection

In addition, if you reach an agreement with a home Seller early in your trip, you should attend the home inspection while you are still in Arizona. I recommend that you try to meet with the inspector at the end of the inspection so the you can go over his findings with him in person. It is much easier to understand a problem after the home inspector has personally shown it to you.  I can recommend an experieced Home Inspector.

Inspection Report

Okay, you just received the detailed report from the home inspector, now what?

If you don’t like what the inspector found or what you found in your own investigations of the house and the surrounding area, you can simply cancel the contract and receive a full refund of your earnest money. You will be out, of course, the cost of the home inspection.

Buyer’s Inspection Notice

It’s more likely that you will ask the seller to make some repairs.

First, you will have to decide what, if anything, from the inspection report you will ask the seller to repair. Your Realtor will prepare the “Buyer’s Inspection Notice” which buyers often call the “request for repairs.” This request for repairs has to occur within the 10-day inspection period and can only occur once.

If you don’t ask for any repairs within the 10-day inspection period, you have agreed to buy the home as is.

Seller’s Response

After your Realtor sends your request for repairs to the seller, the seller has 5 days to respond to you.

If the Seller agrees to make all the repairs you requested, the inspection period is over and you are locked into the contract, subject to any outstanding contingencies.

If the Seller agrees to make some of the repairs but not all of the repairs you requested, you will have 5 days to decide whether you want to take it or leave it.

If you decide to “leave it,” you can cancel the contract and receive back your full earnest money deposit.

If you decide to “take it,” the seller is obligated to make the agreed upon repairs by at least 3 days before close of escrow.

End of Inspection Period

After you and the Seller come to an agreement on repairs, the inspection process is over and you are now locked into the contract, subject to any remaining contingencies in the contract.

Appraisal

After the inspection period, the odds of a transaction closing successfully are very high. If you are borrowing money to purchase the home and using the AAR contract, your offer is contingent upon the home appraising for at least the sales price. After the inspection period if ended, your lender will order an appraisal and charge you it in advance (typically $300 to $400). This fee is in addition to any other fees you pay your lender.

Walk-Through

Your Realtor will arrange for you to “walk though” the home a day or two before closing so you can verify that the agreed upon repairs have been completed and that no damage has occurred to the home since the date the contract was accepted.

How Escrow is Closed

Once your lender is finished approving you for a loan, the lender will send all the loan documents to the escrow company and the escrow officer will add your loan documents to all the other documents you’ll need to sign. You’ll be able to sign all the documents at one time.

If you are in Canada or the UK, the escrow officer will overnight the documents to you for your signatures with a prepaid envelope back to the escrow company included. Some of your signatures will need to be notarized.

If you are in Arizona, you can do the signing at the office of the escrow company.

The escrow company will send the signed loan documents back to your lender.

Escrow Account Deposits

Earnest Money – The escrow company already has your earnest money obtained when escrow was opened.

Down Payment – You will order your bank to wire your down payment to the Arizona escrow company on or before the day of closing.  Arizona law requires all funds be cleared by the escrow company prior to the actual closing. Out of state, out of country, cashier’s checks most often take five or more to clear and be available.  It is highly recommended that a buyer wire the needed funds to the escrow company early. But funds sent by wire are not instantaneous; therefore the escrow company will recommend the  buyer’s funds be wired several days before a property is expected to close.  Even wire funds can take 30-days to clear due to security questions which can arise from foreign accounts.  For foreign investors to avoid this issue, you may chose to open a US Bank account prior to doing a transaction.  Consider using a US correspondent bank to your current bank (ask them for a recommendation).

Loan – Your lender will wire the money you are borrowing to the escrow company the day before or the morning of closing.

Recordation

On the closing date given in the purchase contract, and when all of your purchase money is in the escrow account, the escrow officer will create a new deed with you as the owner, and send the deed electronically to the Maricopa County Recorder’s office.

When the new deed is recorded at the county, escrow is closed and you are the new owner.

Congratulations!  Enjoy your new Home.