Buying your home in the Valley
Purchasing a home is stressful for many people. However, with a bit of planning ahead of time, it isn’t very complicated. So you’ll understand exactly what to expect, I like to furnish my buyers with an outline of the entire deal. Here are the seven steps to buying a home.
1. How to Research Arizona Homes Online
The best source for finding homes in Arizona is the MLS (multiple listing service). You, as a buyer, can access it directly through my website here. There are several sites out there that will give you access to information about local listings (Zillow, Truila, Realtor.com) but the downside is that these websites tend to have outdated information.
2. How to pay for your home
At this point, I’m sure you have put some thought into paying for your home. You probably thought about your down payment and maybe checked to see what the current interest rate is or maybe you are paying cash. If you don’t currently have a lender you are working with, I will gladly refer you to one that I know and trust. Here are some important things to consider when it comes to financing your next home purchase.
3. How Much Do I Pay My Arizona Realtor?
Normally in Arizona, buyers pay their Realtors nothing.
Realtors can get paid many different ways. Below is the most common scenario in Arizona. Let’s take a step back. First, a homeowner and a Realtor agree that the Realtor will help the owner sell the home. The seller will agree to pay the Realtor when and if the Realtor sells the home. This written agreement is called a “Listing Agreement.”
The seller’s Realtor can now promote the home in the MLS and reach many thousands of other MLS Realtors who in turn reach many thousands of home buyers.
The seller’s Realtor will typically state in the MLS that he will pay X% of the final sales price to any other member of the local MLS who represents the buyer of the home.
Therefore, in most home sales in Arizona, the seller has a Realtor and the buyer has a separate Realtor. Since you’re a buyer, your Realtor is usually free to you because your Realtor will be paid by the seller’s Realtor. Don’t worry about your Realtor having a conflict of interest, by Arizona law, your Realtor is your “fiduciary” and is obligated to represent your best interests and not the best interests of the seller or the seller’s Realtor.
4. How to Find Your Future Arizona Home
Now you’re working closely with an Arizona Realtor so buying an Arizona home is starting to look very real, indeed.
Selecting Your Home Criteria
It’s important that, as your agent, I completely understand what your goals are in purchasing your home in Arizona;
- Type of home – Single family residence, condo, townhouse or patio home)
- Price range
- Minimum bedrooms
- Minimum bathrooms
- Home size
- Type and amount of parking
- Whether the home has a pool or spa
- Anything else important to you
The better I understand your goals, the smoother the purchase will go for you.
Listings That Meet Your Criteria
As your Realtor, I will email you MLS listings of homes for sale that meet your criteria. If you find one that meets your criteria and you would like to see it, I will gladly meet you at the home for a private tour anytime.
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.
5. How to Make an Offer
When writing an offer, there are several financial considerations to keep in mind. The vast majority of resale (not new) homes in Arizona use the Residential Resale Real Estate Purchase Contract created by the Arizona Association of Realtors (AAR). Whenever I say “contract” I’m referring to this contract form.
After we discuss your options and with some guidance, you will choose what you want to offer for the home. From there, I will prepare your offer for your signature.
Unlike many states, especially states back East, in Arizona lawyers are usually NOT involved when homes are bought and sold. Normally in Arizona the buyer’s Realtor will draft and negotiate the contract under the direction of the buyer and without the inconvenience and expense of an attorney.
An offer is just a contract with only your signature on it. It’s not a contract until the seller agrees to it and signs it.
Some of the most important points in your offer are;
- Offer price
- Amount of earnest money
- Amount of down payment
- Closing date
- Personal property included
- Seller contribution to Buyer closing costs, if any
- Escrow Company
- Home Warranty
- Additional Terms
- Offer Expiration
- Counter Offers
As your Realtor, I will be your advocate and will research recent comparable sales to help you decide on the price you want to offer.
The earnest money is usually a personal check written by you and made out to the escrow company you’ve chosen. Your earnest money check (made out to the escrow company) will be deposited with the escrow company once a we have a contract signed
buy the buyer and seller. This is called “opening escrow.” The escrow company will deposit your earnest money check immediately so be sure you have enough money in that bank account to cover the check.
The Importance of Being Earnest… Money
The larger the earnest money amount, the stronger the offer.
In Arizona, earnest money of around 1% percent of the purchase price is common.
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. 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. That is rare in my experience. I’ve never personally had a seller keep a buyer’s earnest money and I’ve never personally had a buyer lose their earnest money but, nevertheless, it can happen and your earnest money check is a way of showing the seller that you are a serious buyer.
Down Payment Amount
In the end, the seller will be paid in cash whether the money comes from your bank account or from the money you just borrowed from your lender.
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 does not want to close quickly, a quick-close is of no benefit in negotiations with that particular seller.
Arizona’s Pre-Qualification Form
We have an unusual feature in our Arizona contract. Sellers don’t normally use pre- approval or pre-qualification letters from lenders to judge whether a buyer will actually be able to borrow the money needed to buy the home.
In Arizona, we have a special form called a Pre-Qualification Form. Compared to a “Pre- Qual” letter, this form gives the seller much more detailed information about where the buyer stands in getting approval for a loan.
The Pre-Qualification Form is prepared by your lender and a copy should be sent to your Realtor. This pre-Qualification form will be included when submitting your purchase offer. Including the Pre-Qualification Form with your offer greatly strengthens your offer without costing you a dime.
Having your Pre-Qualification Form ready when you’re ready submit an offer is a very important reason why you should contact a lender before shopping for homes.
In Arizona, it’s common for the closing date to be about a month 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. The time for short sales and bank-owned homes is longer. 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 you 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.
Personal Property Included
Is the refrigerator part of the house or is the refrigerator the seller’s personal property like a chair? How about the stove? The drapes?
The Arizona Association of Realtors “Residential Resale Real Estate Purchase Contract” (the “contract”) in Section 1g 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 to be 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 make a counter offer that says those items are not included in the sale. What personal property, if any, will be included with the home is all part of the contract negotiations.
In Arizona, the stove/oven, dishwasher and draperies are usually considered to be included in the sale unless otherwise stated in the agreed upon contract.
You as the buyer will select the escrow company. I recommend buyers choose a company that has an established relationship with their Realtor. I can recommend several escrow companies that I have worked with.
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 at least partially. Home warranty companies typically charge the buyer a flat trip charge of about $50 to $75 per warranty service performed.
After the buyer submits an offer to the seller (more specifically, 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,
- The seller may reject the offer outright and the negotiations are pretty much 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 in sale.”
The buyer could accept that counter offer in which case the buyer and seller have a fully executed, valid contract. Or, the buyer could write a Counter Offer #2, (for example, “Full purchase price shall be $X”) and so on until agreement is reached or the negotiations fail.
If the negotiations succeed, the original offer and all counter offers together become the purchase contract.
Once an agreement is reached, I will take the purchase contract, all counter offers and your 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.
6. 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 or contingencies for buyers in the “Residential Resale Real Estate 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
Typically, you have 10 days 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.
It’s very 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 you don’t like about the house – its condition, the neighborhood, the roads, the schools or just about anything related to the house and the surrounding area – you can cancel during the inspection period and get your earnest money back.
The inspection period is by far the most likely time a contract will be canceled or as they say, “fall out of escrow.”
I recommend as strongly as I can that you hire a licensed home inspector (typically $350 to $400) to inspect the physical condition of the home. The inspector will give you a report that will detail every little thing they find wrong with the home.
I recommend that you try to meet the inspector in the house at the end of the inspection so he can go over his findings with you in person. It’s much easier to understand a problem when the home inspector shows it to you in person instead of just reading about it in the inspection report.
Scheduling Home Inspection
I also recommend that you call home inspection companies within 24 hours of reaching agreement with the seller. The home inspection company you choose may not be able to schedule your home inspection right away.
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 or air conditioning inspection, you want to have time to complete the roof or HVAC inspection before the 10-day inspection period ends. Don’t worry, I have quite a few vendors I can recommend and will guide you through this process.
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 the cost of the home inspection, of course.
Buyer’s Inspection Notice
It’s more likely that you won’t cancel the contract but you’ll 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. You will certainly ask the seller to repair any items that are “deal killers” for you. You may also want to request the seller to repair some things that aren’t deal killers but which you would like to have repaired, if possible.
Your Realtor will prepare the written “Buyer’s Inspection Notice” which people 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 automatically agreed to buy the home as is.
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’re 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 then have 5 days to decide whether you want to, essentially, take it or leave it.
If you decide to “leave it” within your 5 day period, 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.
Seller Property Disclosure Statement
The Arizona Association of Realtors Purchase Contract includes a provision that says the seller will give the buyer, within 3 days of contract acceptance, a “Seller Property Disclosure Statement.”
The SPDS (pronounced “spuds” by Realtors) can give you a lot of extra information to consider during the inspection period. Sellers often only fill out part of the form.
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 typically give the Buyer within 3 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 2010. 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.
Congratulations! If you made it through the inspection period without canceling the contract, the odds of your purchase closing successfully are very high.
If you’re borrowing money to purchase the home and using the Arizona Association of Realtors Purchase Contract form, your offer is very likely contingent upon the home appraising for at least the price agreed to in the contract. After the inspection period is ended, your lender will order an appraisal and charge you for it in advance (typically $350 to $500). This fee is in addition to any other fees you pay your lender.
As your Realtor, I will arrange for you to “walk though” the home a day or two before closing so we can verify that the agreed upon repairs, if any, have been completed and that no damage has occurred to the home since the date the contract was accepted.
7. How to Complete the Purchase
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’re 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 and keep the rest.
Escrow Account Deposits
Earnest Money – Your earnest money is already in the escrow account and has been there ever since escrow was opened.
Down Payment – You’ll order your bank to wire your down payment into the escrow account on the day before, or the morning of, closing. If you’re paying all cash, you’ll order your bank to wire all the money you need to close into the escrow account.
Loan – Your lender will wire the money you’re borrowing into the escrow account the day before, or the morning of, closing.
On the closing date given in the purchase contract, after all the money needed is in the escrow account and all other conditions in the contract have been met by you and the seller, the escrow officer will send electronically to the Maricopa County Recorder’s office the previously prepared deed signed by you and the seller.
When the new deed with your name on it is recorded at the County Recorder’s office, you become at that instant the legal owner of the property.
Congratulations! It’s Closed! You’re the Owner!