ALL PHOENIX REAL ESTATE

Do enough real estate transactions and it’s easy to forget the lingo we use here in Phoenix doesn’t necessarily translate for everyone. So here’s a quick guide to some of the most common terms you’re going to hear when buying Phoenix real estate:

Earnest deposit: Essentially a good faith payment, the earnest deposit is delivered to the escrow company at the start of the transaction and is applied to the final down payment (or full sales price on a cash sale) and/or closing costs. If there’s a dispute, the earnest deposit goes to the injured party in most cases, depending on the contract details.

Inspection period: How long is the legally mandated inspection period in Arizona? Trick question - there isn’t one. The Arizona Association of REALTORS’ Residential Resale Contract has a boilerplate 10-day inspection period though this is negotiable. On many bank owned homes this period is shortened to seven days or less by the lender. A buyer doesn’t have to agree, but disagreement means the lender will move on to the next buyer.

CLUE: This is an insurance claims history showing any claims filed within the past five years or since the owner purchased the property, whichever is most recent. These can be obtained from the owner’s insurance agent or a third-party company. You usually won’t see this on condos where there’s a blanket insurance policy or on a bank owned home.

SPDS: Sellers Property Disclosure Statement, a six-page form that in theory details everything the seller knows about the property. Actual residence in the home isn’t a requirement for completing the SPDS though some investors try to go that route. On a bank owned home, the lender will want this requirement waived by the buyer.

Cure Period: If something goes south, the AAR contract calls for a Cure Period Notice to be sent by the aggrieved party, giving the other party three days to rectify whatever the situation might be.

There’s much, much more to the contract … got questions? We’ve got answers.

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Saw this note buried inside the Realtor remarks on a listing yesterday:

“If the buyer is making multiple offers, please disclose on a separate addendum.”

The question is, does a buyer need to do so?

It’s understandable why a seller would want to know whether a buyer is making offers on multiple properties, hoping that one will be accepted. It only makes sense for a seller to think twice about accepting an offer from someone who may not be fully committed to their particular home and who may change their mind if another offer comes through.

And it’s for the exact reason I would never have a buyer make such a disclosure - it makes no sense from the buyers standpoint to do something that will make it even more difficult to get an offer accepted.

For the past several months, writing multiple offers has been the only way to fly for those looking at bank owned homes. It makes no sense to lose an opportunity on another home while waiting several days for the lender to make a decision on one.

With extremely few exceptions, these sellers never disclose that they are considering multiple offers at once - it’s an assumption one has to make as the buyer based on the current market conditions. And if a seller isn’t required to disclose they’re looking at more than offer, why would a buyer need to disclose they’re writing more than one offer?

There’s one section of the AAR Residential Resale Contract that on the surface appears to throw a wrench into the equation:

5c. Buyer Warranties: Buyer warrants that Buyer has disclosed to Seller any information that may materially and adversely affect the Buyer’s ability to close escrow or complete the obligations of the contract.

Now … standard disclaimers apply: I’m not an attorney and am not providing legal advice in any way shape or form, simply my own opinion. Does not include tax and title, mileage and results may vary, not valid in all states, limited time only.

Could the presence of other offers written by the same buyer, when the buyer only wants to purchase one property, constitute “information that may materially and adversely affect the Buyer’s ability” to buy this specific home? Possibly, but I believe it depends on the intent.

If the buyer’s intent is to purchase this home if an offer is accepted, then I don’t have an issue with multiple offers for this reason - circumstances change, and the contract allows the buyer an out with the inspection period. Properties that seemed suitable on Tuesday may be suitable to a buyer on Thursday for reasons as simple as the discovery of barking dogs or, if you live near one of my neighbors, a really loud and proud rooster.

It’s not a cut and dried situation but, then again, very few things in real estate are.

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When the new Arizona Association of REALTORS contract was issued back in May 2005, the most significant change was the introduction of cure periods and cure notices.

In short, the cure period prevents either buyers or sellers from unilaterally canceling a contract at the first sign of trouble. If something that is supposed to be done isn’t done by one party, the other party generally cannot cancel and instead has to issue a cure notice.

Here are a few of the situations where you may see a cure notice issued:

• Earnest deposit not deposited in timely fashion
• Repairs not completed within the designated time frame
• Loan docs not signed three full days prior to COE (close of escrow)
• Unable to close on the agreed upon COE date
• Failure to issue a Sellers Property Disclosure Statement or Insurance History report
• Utilities not on for inspections or walkthroughs

Once upon a time, any of these could be cause for immediate cancellation. Though the changes had been in the works long before the 2005 hysteria, the release of the contract could not have come at a better time as it prevented sellers from canceling at the slightest excuse in order to sell to someone bidding higher later.

Under the 2005 contract, the offended party would have to issue a cure notice giving the offending party three days to correct whatever wasn’t done. Only then can the offender be considered in breach and the contract canceled. Also, the three-day clock doesn’t start until the notice is issued; if a sale doesn’t close on time and the seller waits a week to issue the cure, the buyer has three days from the issuance to close - it’s not retroactive.

It’s been said that lenders as sellers don’t much care about the niceties of the contract, including cure notices, but I haven’t seen that first hand. Still, it’s important to take note of the provisions of the lenders’ addenda to see what changes to the AAR contract they are trying to slide past an unsuspecting buyer.

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There’s a local agent who I won’t name who once told me handles repair negotiations by handing over the inspection report and saying “fix it.” I’ve always assumed that’s a bit of an exaggeration but you never know.

If you’re using the Arizona Association of REALTORS residential resale purchase contract, you have a 10-day inspection period during which you are to complete your due diligence assuming you haven’t signed an addendum or otherwise agreed to a shorter timeframe.

(If you’re not using the AAR contract, you may not have an inspection period at all - there is not state statute giving buyers any such thing.)

At the end of the inspection period the buyers need to provide the sellers with a Buyers’ Inspection Notice, a two-page form on which the buyer can ask for any repairs, accept the house as is or cancel the contract. The inspection period language is such that a buyer can cancel for any reason as long as he has a reason.

One of the big questions that arises is what a buyer should ask for on the inspection report since there’s no restraints on what can be requested. If a buyer really wanted to do so they can ask for new carpeting, new paint and a gold-plated toilet to be installed … my hunch is these requests would be rejected quickly.

Big-ticket items that appear on the inspection report usually are no-brainers. It’s the smaller items that often are the subject of debate.

For instance, if there are outlets in the kitchen not on a GFCI circuit and such an outlet is relatively inexpensive, do you ask for the change? What if there are broken outlet covers? Or missing or burned out light bulbs? Or a plumbing fixture that has developed a leak thanks to Arizona’s wonderful hard water?

All of these present a bit of a dilemma … they’d be inexpensive to fix for the seller, but they also would be inexpensive to fix for the buyer.

Do you ask for them?

Naturally, my answer is that it depends. If there are several larger items that you really want or need done, focus on those first. Don’t water down the request by adding a bunch of small things so the seller is confronted with a list of 37 items because the likelihood of getting the important items repaired decreases as the seller starts feeling the buyer is being less than reasonable. (A few years ago, a friend of mine almost watched a deal go south because there was a cracked outlet cover in the garage - a $2 fix.)

If there aren’t any big ticket items, then maybe some of the smaller requests would make a little more sense. Much depends on what the tone of negotiations has been so far (and if the agent on the other side of the transaction as sufficient gray matter to present this and other requests to the seller without them flipping out. Some do, some don’t.)

Always keep in mind the repair negotiations are just that - negotiations. You may not win all of the battles but by keeping an eye on the ultimate goal - purchasing a house that will fit your needs - you can win enough without major arguments ensuing.

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Earlier this week I detailed the beginnings of the purchase process here in the Phoenix real estate market, particularly as it pertains to bank owned homes. So let’s say you’ve survived that part. What comes next?

Assuming nothing in the bank addendum changed the basic timelines set out in the Arizona Association of REALTORS Residential Real Estate Purchase Contract, here’s where you go from here (and if you used a cocktail napkin for your contract then you’re on your own.):

1) FINANCING. If you’re financing your purchase, you’ll have five days to formally apply for your loan. This also is the time when you need to get any and all additional documentation requested to the lender all so your mortgage officer can order the …

2) APPRAISAL. This one almost always comes out of pocket and payment’s due at the time of the appraisal. Costs vary but you’re looking at somewhere around $150. The appraisal is ordered by your lender in the name of your lender so if for some reason you decide to switch lenders midstream you’ll need to do this again. In short, the appraisal is an opinion of the home’s value. Your loan will be for the lesser of contract sales price or appraised value so if the house doesn’t appraise, you’ve got some decisions to make.

3) INSPECTIONS. You’ll have 10 days to complete all of your inspections and due diligence. This is the time to hire a professional home inspector to check the home. These inspectors are generalists so it’s possible (if unlikely) that you’ll need additional specialists to determine the state of certain systems. You’ll also want to get a termite inspection to see if which group your home falls into - those houses with termites and those that will get them someday. Welcome to Arizona.

4) TITLE REPORT. This is sent to you by the title company and shows you if there are any irregularities in the title. This is one of those items that never seems that crucial until something strange comes up. You’ve got five days to look it over and if you don’t like what you see you can cancel the contract.

5) REPAIRS. Repairs? On a bank owned? In some cases, if repairs are needed for a loan to be approved the seller/lender may be willing to do them. Before discovering the bank didn’t own the house, Fannie Mae had taken care of a water leak, some apparent mold and had shocked the swimming pool to a lovely shade of blue to meet FHA requirements. If you’re paying cash, by the way, you are more or less on your own … but cash still works better from a leverage standpoint.

6) CLOSING. Loan docs and deeds are supposed to be signed three days before the actual close of escrow date. This tends to be a moving target in as much as for those wanting to close early, you often can sign one day and fund the next. Docs need to be notarized. If you’re local, you can do this at the title company. If you’re out of state, you’ll need a notary. And if you’re in Canada, you’ll need an attorney since attorneys are the only notaries there.

7) FUNDING. Funds must be in cleared funds - either a wire, which is the most common, or a cashier’s check. Once you’re funded, the escrow company records the deed and you’re the owner of the home.

Granted this is a high-level overview; if you have specific questions, you know where to find me.

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