What does the preliminary title report and commitment for title contain?
In addition to the findings of the title search, the prelim includes the legal description of the property and this should be checked with the legal description on the sales contract. The sales contract describes the property three ways; the street address, the parcel identification number or the assessor’s number, and the legal description.
There will often be a plat map showing the location and dimensions of the property and often a partial plat map of the subdivision. There may be drawings showing easements of the property on the plat map.
In the description of the property, easements will be described; most property contain utility easements. If there is common property, this too will be noted on the commitment.
If there is a Homeowner’s Association, the commitment will make reference to that fact and indicate where the HOA documents can be found in the recorder’s records. This will include the original documents for Covenants, Codes and Restrictions, and any amendments.
CC and R’s originally were put in place for the benefit of the builder and upon the build out of the subdivision, the Association is turned over, along with any common property, to the residents of the subdivision. There is nothing which requires a HOA; I live in a subdivision built in 1979 and upon the transfer of the “Association” to the residents, the residents promptly voted to abandon the HOA. This document is recorded.
Builders protect their investment by requiring standards so a resident doesn’t paint his house purple or store junk cars in the front yard. This would make the area less desirable for potential buyers and infringe upon the builder’s ability to sell new homes.
HOA dues must be brought up to date if in arrears, prior to transfer of title. Likewise, property taxes will be referenced and must be current prior to transfer of title, including late fees and penalties. The name of the association and management company with contact information is specified.
All liens on the property must be cleared prior to conveyance. And in community property states, the marital status of the buyers are specified. If a married person takes title alone, the spouse must sign a disclaimer deed which is recorded.
And of course any and all mortgages are itemized with the recording number, and including any Home Equity Lines of Credit. And the deed must be recorded from the grantor to the grantee.
Requirements to be fulfilled prior to recordation are itemized as well as the manner in which the documents must be signed, such as margin requirements.
The preliminary title report and commitment for title are important documents and must be read by the buyer, the seller, and both agents so that any errors can be corrected or problems with tile be solved prior to recordation.
Archive for the ‘Purchase Contract’ Category
What does the preliminary title report and commitment for title contain?
Why have a title search? Truthfully you may be purchasing a piece of property which actually may not be yours. Liens follow the property, not the people.
Suppose I sell you a piece of property at a rock bottom price, offer to finance it for you, tell you I will do everything, and all you have to do is give me earnest money of $20,000. It’s such a bargain you hop right on, so you give me good funds for $20,000. We sign the paperwork and alas, the property is now yours. I file all the paperwork and you think I am absolutely wonderful….Until you realize when you purchased that property from me, you also purchased all the liens; they are now your responsibility.
They can be mechanic’s liens for work completed but not paid; medical liens from doctors and hospitals, judgment liens handed down by a court for accidents or other legal entanglements, back child support, internal revenue service liens, HOA liens for back dues–liens for just about anything—you have just purchased all of them and they could be hundreds of thousands of dollars.
That’s just one of the reasons you need a title report. Maybe this is a second marriage and the property was purchased during the first marriage and there are children by that marriage. These children may have claim to the property when that spouse is deceased, and the living spouse actually has nothing.
Perhaps one spouse has died and the surviving spouse has not probated the estate. This happens frequently and the property is in the name of both spouses. A dead person cannot have claim to a property, it must be dispersed as the will deems or intestate (by the state). This must be completed before any transfer of property so that the legal owners can be found and possibly agree to the transfer.
Very often it is an investigative mission to find surviving heirs. I had a situation where the woman who was in a second marriage, wanted to sell her property. She had children by her first marriage and her first husband had died. The wife never took care of the first husband’s estate. He wanted his children to receive his portion of the property.
Immediately that means the wife receives only half of the value of the property, not the full value she anticipated. There were five children, spread all over the country. One of the children had died so his heirs were in line to inherit one fifth of one half of the proceeds of the property. We couldn’t find him and this was going to tie up the conveyance of the property. Finally we located him, and then we were able to put the property on the market. Had we a contract waiting, we probably would have lost the deal.
Good agents always check title prior to putting property on the market. Usually there is no problem, but sometimes a real estate/estate attorney needs to be called to unravel the title in a legal manner. Title insurance insures that good title is being passed to the buyer. Always read the preliminary title report and immediately take care of any red flags.
Before October 3, pre Consumer Financial Protection Bureau (CFPB) regulations, the title company drew up the closing disclosure statement which used to be known as the HUD-1. With the implementation of CFPB, in Arizona, it is now the responsibility of the lender to draw up the closing disclosure and get it to the escrow officer with whom the buyer and seller will “close escrow”. The real estate agent should also be present and explained the closing statement to the clients prior to close of escrow.
Lenders, under CFPB, are now required to get the closing disclosure to the parties three business days prior to the scheduled closing. It is a simpler form that the HUD-1 and spells out the loan amount, the interest rate, the monthly principal and interest and any prepayment penalty .
The projected payments show how the payment is calculated with principal, interest, mortgage insurance and estimated escrow which includes taxes and insurance. Projections are for Years 1-7 when Mortgage interest is required and then from years 8-30 or the life of the loan when mortgage insurance is no longer required. Estimated taxes and insurance are spelled out in a separate box. These are not static costs, they can rise yearly as taxes increased as well as insurance.
Closing costs are estimated and the cash to close is spelled out. The second page is a breakdown of the closing costs detailing all loan costs; loan origination fee, services the borrower did not shop for; and services the borrower shopped for.
Taxes and government fees which include recording fees are spelled out as well as all pre paids which include hazard insurance premium, mortgage insurance, prepaid interest, and tax escrow accounts on a monthly basis. The initial escrow payment at closing will include insurance, mortgage insurance if applicable, and taxes and these are computed in the closing costs needed by the borrower to close escrow. Other fees will include Homeowner’s Association fees, Real Estate commissions with the amount and to whom it is paid, and owner’s title insurance.
The third page includes a calculation of “cash to close” which includes total closing costs, anything paid out of escrow such as an appraisal, any closing costs which are financed, and the down payment, any deposit, the funds for the borrower from the loan, any seller credits or other adjustments, and then the cash to close figure is derived.
The remainder of page three is a summary of all the transactions from the previous pages, and shows the borrower’s transaction as well as the seller’s transaction so the net due seller is calculated. Any deposits, amount of the loan, and seller credits are displayed; adjustments such as taxes or HOA fees, showing as a debit or a credit for the buyer and the seller. Any mortgage payoff is shown on the seller’s side.
Page four are loan disclosures about features of the loan, whether there is a demand feature, if the loan can be assumed, what happens with a late payment, if there is negative amortization, and will the lender accept a partial payment. The escrow or impounds will be spelled out, and the estimated property taxes if the buyer declines an escrow account will be shown.
The last page shows the total amount which will be paid if the buyer holds the property for the length of the loan and makes payments as scheduled. The amount of interest paid during the life of the loan is shown as well as the amount financed. The higher the loan interest rate, the greater the amount of interest paid. The annual percentage rate is shown and is different than the interest rate for the loan. The APR includes all the funds necessary to close escrow. And then the box which will show the total interest rate percentage over the life of the loan will knock your socks off! It is the total amount of interest paid over the loan term as a percentage of the loan amount.
Contact information for the lender, the mortgage broker, the real estate broker for the buyers and seller and the settlement agent are listed with name, address, identification number, state license number, contact person and the contact identification and state license number, e mail address and phone number.
To view this form: http://files.consumerfinance.gov/f/201311_cfpb_kbyo_closing-disclosure.pdf
The manner in which a buyer takes title to a property in Arizona has legal and tax consequences.
Arizona is a community property state. Neither the real estate agent nor the escrow officer can give legal advice on how to take title. However general guidelines have been published and are reproduced here. These are definitions provided by Fidelity National Title Agency, Inc. Thank you.
COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP: Community property with right of suvivorship is a method of ownership by husband and wife that vests title in the surviving spouse upon the death of one of the spouses.
COMMUNITY PROPERTY: Arizona is a community property state. There is a statuary presumption that all property acquired by husband and wife is community property. Community property is a method of co-ownership for married persons only. Upon death of one of the spouses, the deceased spouse’s interest will pass by either a will or interstate succession.
SOLE AND SEPARATE: Real Property owned by a spouse before marriage or any acquired after marriage by gift, devise, descent, or specific intent. If a married person acquires title as sole and separate property, the spouse must execute either a disclaimer deed or quit claim deed.
JOINT TENANCY WITH RIGHT OF SURVIVORSHIP: An undivided interest in property taken by two or more joint tenants. The interest must be equal; occurring under the same conveyance, and beginning at the same time. Upon death of a joint tenant, the interest passes to the surviving joint tenant or tenants, rather than to the heirs of the deceased. If a married couple acquires title as joint tenants with right of suvivorship, they must specifically accept the joint tenancy to avoid the presumption of community property.
TENANCY IN COMMON: A method of co-ownership where parties do not have survivorship rights and each owns a specific undivided interest in the entire title.
CORPORATION: Any group of people “incorporating” by following certain statutory procedures many take title to real property in the name of the corporation.
GENERAL PARTNERSHIP: Title may be taken in the name of a general partnership duly formed under the laws of the state of the formation of the partnership. A partnership is defined as a voluntary association of two or more persons as co-owners in a business for profit.
LIMITED PARTNERSHIP: A partnership formed by two or more persons under the laws of Arizona or another state and having one or more general partners and one or more limited partners. A certificate of limited partnership must be filed in the Office of the Secretary of State, a certified copy of which must be recorded.
Arizona is a title company state. The escrow company- escrow officer- closes escrow, not an attorney. In attorney states, close of escrow takes place with the attorney for the buyer and seller. The attorney is responsible for clearing the “chain of title”. In title company states, it is the title company which insures the chain of title.
The escrow company and title company are often used interchangeably, but they are different. The escrow company is responsible for preparing all documents and ordering the title report from the Title Company. The escrow company holds the money and disburses it according to instructions from the lender, reviews the files to make sure all the conditions of the contract have been met and makes sure all contingencies have been fulfilled.
Some of the larger Brokerages have relationships with title companies; on the purchase contract, the Title Company and the Escrow Company are different. Often the prices for title and escrow are higher than if the same company performed both functions. It is the buyer’s choice to choose the title and escrow company.
In Tucson, we are seeing real estate agents “recommend” in the MLS listing, that a specific title company or escrow officer be used. The buyer and buyer’s agent can choose any company and does not have to abide by this “recommendation”. The purpose is to generate more business for that company (owned by the brokerage) which generates more money for the brokerage, which is allegedly used for additional marketing. (These relationships also exist for the lender and the home warranty company.) The Consumer Financial Protection Bureau, is investigating whether this is a violation of RESPA rules –The Real Estate Settlement and Procedures Act since consumers allegedly pay more.
Most big brokerages have disclosures in the myriad of paperwork which clients are asked to sign. Whether those disclosures are explained to the client depends upon the agent;some agents can’t explain the documents to be signed.
Once the contract has been signed, the agent “opens escrow”. The earnest money check and the purchase contract are given to the escrow officer. The escrow agent orders the title search. The preliminary title report is issued and it is important for the agent to read the “prelim” in case there are red flags.
Often a person with a common name will be flagged for back child support, or a lien on the property. These must be cleared prior to transferring title. If the buyer/seller is not this person, he/she will have to sign a “not one in the same” document and provide proof he/she is not that person.
Other onerous title issues may occur. If there has been a death of one of the owners and the estate has not been probated, often heirs must be located and/or the estate probated prior to the surviving spouse transferring title.
On occasion, I have had to refer these title issues to a real estate/estate lawyer. However, it is far better to insure the title is clear prior to listing the property so that any transaction can flow smoothly. Waiting until escrow has been opened and title problems solved may put the kibosh on the transaction.
When dealing with sellers where one party may be incapacitated, it is important to get a durable power of attorney. Sometimes this takes a while; agents are often eager to get property on the market. Being knowledgeable about title issues prior to putting a property on the market is essential for a smooth transaction.
The Lender must issue Loan Status Updates, otherwise known as LSUs, when requested by either the seller’s agent or the buyer’s agent. The first page of the LSU is similar to the Pre-Qualification form but is issued after mutual acceptance of the contract.
The close of escrow date is specified, the name of the buyer, the name of the seller and property address as well as Assessor’s number, and the city.
It is page two however, which tracks the progress of the loan from the reception of the contract and all addenda from the buyer’s agent. Understanding these items which the lender must fill out with the date completed and his/her initials, marking each box a yes or a no, is a journey through the loan process.
Once again, the lender must assure that he/she has the buyer’s name, income, social security number and the address of the property, as well as the estimate of value of the property and the amount of loan requested. The lender verifies that the loan estimate has been sent and the buyer indicates his/her intent to proceed with the loan.
The lender receives a signed Form 1003 (http://www.mortgagesanalyzed.com/gyan/docs/fnma-form-1003/fnma-form-1003.php) which is the loan application form as well as all of the lender disclosures.
CFPB regulations now have the appraisal being ordered almost immediately and usually prior to the home inspection. In the “olden days”, pre CFPB, the home inspection was done first and then the go ahead given to the lender to order the appraisal. Buyer’s agents should now order the home inspection upon mutual acceptance of the contract as soon as possible.
Down payment sources are identified and the lender must review the Title Commitment to make sure there is no clouded title on the property, then the lender can lock the loan program, interest rates, points, and specify when the lock expires. Once the lock expires, that interest rate is no longer guaranteed and the buyer may have to pay a higher rate which potentially could prohibit him/her from purchasing the property since the total loan amount would exceed the amount of pre-qualification.
The appraisal is received and the property must appraise for the loan amount requested. We will talk about low appraisals in another blog tomorrow. If the appraiser has requested any repairs, the list must be provided to the buyer and the buyer and buyer’s agent must acknowledge receipt. These repairs must be completed and the appraiser must go out again and ascertain that the repairs have been done as a condition before the lender can issue documents for signing. The second trip is an additional expense to the buyer. These repairs are called PTD, prior to documents conditions.
The lender package goes to the Underwriter, the silent but powerful person in the back office. It is the underwriter who makes sure the conditions of the loan have been met and issues the final decree that the buyer has loan approval without PTD conditions.
The lender now orders closing documents and completes the closing statement, formerly a task done by the closing agent. This was called the HUD-1 and is now called the Closing Disclosure Statement. The lender reviews all, making sure all prior to funding conditions have been met and then orders funds to be sent to the escrow company. The buyer and seller sign the loan documents and another property has transferred ownership.
To see the new documents, check this website:
With the October 3 implementation of the Consumer Financial Protection Bureau’s regulations governing mortgages and lending, additional requirements fall upon the lender. Serious buyer generally are pre-approved before they look at property. Most professional agents will insure their buyer has met with a lender so the buyer will not be disappointed down the line if he/she cannot qualify for the house wanted.
The Arizona Association of Realtors® Pre-Qualification Form has basic information required by the lender. This includes whether the buyer has consulted with a lender and if not, the buyer must declare he has not consulted with a lender yet by checking the appropriate box. If this is the case, chances are the seller will not take any offer submitted by the buyer very seriously, or will require that the buyer talk with a lender before considering the offer.
The lender declares his company,his/her name plus the Arizona License and NMLS number,along with the address, e mail, phone and fax numbers, signature and date. The buyer must also sign and date the Pre-Qualification form and the buyer’s legal name must appear in the first lines of the Pre-Qual form.
The lender must indicate the buyer marital position; married, unmarried, or legally separated and note whether the buyer is relying upon the sale or lease of a property in order to qualify for the loan, and/or whether the buyer is relying upon seller concessions to close the loan.
The type of loan and whether it is a loan a primary or secondary residence, or a non-owner occupied residence such as a rental is necessary plus the type of property; Single Family Residence, Condo, Townhome, Manufactured Home, or Mobile Home.
The lender must provide any FHA loan buyer with the pamphlet, “For Your Protection: Get a Home Inspection” as well as discussing assets, liabilities, and income, then obtaine a Tri-Merged Residential Credit Report.
After these discussions, the lender will calculate how much loan the buyer can pre-qualify, and make an assumption of the monthly principal and interest plus mortgage insurance, property taxes, insurance, HOA due, and flood insurance. The lender will stipulate that the monthly loan amount not exceed x dollars with an interest rate not to exceed a specified percentage and must indicate whethert the interest rate is fixed, adjustable, and if there is a pre-payment penalty.
The buyer will have to provide specific documentation and the lender will check off if this documentation has been received. Buyers should bring to the lender, the last two paystubs, W-2 forms, tax returns for the past two years, corporate tax returns if applicable, documentation of the down payment and any reserves required, documentation for all sources of gift funds, documentation of credit and liability, and any other paperwork the lender may require.
Once this is done, the lender will provide a loan status update to the Seller and the brokers within ten days of mutual acceptance of the contract.
What happens if either the buyer or the seller fails to comply with the terms and conditions of the contract? The Arizona Association of Realtors® purchase contract makes provisions.
There is a “cure period” which is a three day period in which the party which defaults has to “cure” that default. The party which has been breached sends a “cure notice” to the breaching party stating they have three days in which remedy the default. If the non-complying party continues the default, breach of contract is assumed. The non-breaching party can request all earnest money as liquidated damages and may cancel the contract. The non-breaching party may also bring action against the party who has breached the contract through mediation and arbitration.
Provision is made for alternative dispute resolution and all mediation costs are to be paid equally between both parties. Unresolved issues will be submitted to binding arbitration and both parties will agree on the arbitrator in accordance with the American Association of Arbitration Rules for the Real Estate Industry. The decision of the arbitrator is final.
However, if parties do not want to go to binding arbitration where the judgment is non appealable, they may elect to go to court action within 30 days after the mediation conference.
Any action by the US Government such as Internal Revenue, Small Claims Court, Judicial or Non Judicial foreclosure or any lis pendens does not constitute a breach and are excluded from the Alternative Dispute Resolution. In the event that legal action is undertaken, the prevailing party has the attorney’s fees paid by the non-prevailing party.
Section 8 consists of 29 blank lines in which any additional terms and conditions of the contract can be written. If the buyer desires something to be removed from the property such as a pile of bricks, the agent would specify “bricks at northeast corner of property to be removed from property and area to be landscaped so bare ground is not visible,” or something to that effect.
When we think about real property, we know nature can take her toll. Between the contract acceptance and close of escrow, if there is a loss to the property, such as a tree falling on the house, and the damage exceeds ten per cent or more, either the buyer or seller may cancel the contract. If it is less than ten percent, the damage must be fixed and the terms of the contract can be enforced.
The price of the property is public record and the contract reiterates that. The contract is governed by Arizona law and time is of the essence. The parties, including the Realtors® must act in a diligent manner.
Compensation to the parties is through a separate agreement, usually the Exclusive Right to Sell, otherwise known as the Listing Agreement. If the buyer is paying his/her own commission, funds are to be collected at the close of escrow.
Copies and counterparts include faxed copies, Xeroxed copies, e mailed copies, other electronic type copies and generally electronic signatures are acceptable. The only form where counterpart signatures are unacceptable is the Lead Based Paint form. All signatures must be on the same form.
All days are calendar days and begin at 12 midnight, ending at 11:59 pm. If we signed something on Tuesday, the counting of the days will begin Wednesday at 12 midnight. If close of escrow is Friday, and signing must be three days prior to close of escrow, that signing must take place on Monday. Tuesday would count as the third day, Wednesday, the second day and Thursday the day before close of escrow.
The contract must be read in its entirety and include any addenda. The buyer has the right to accept subsequent offers but any subsequent offer is a backup offer and will only go into first position if the primary offer is cancelled.
If a party wishes to cancel the contract, this may be done by writing stating the notice for cancellation and delivering the notice to the Escrow Company as well as the other party. Delivery of notice can be by hand delivery, faxed, sent by electronic mail, or by overnight courier service.
Earnest money will be made out to the Escrow Company and should not be cash. The form of earnest money will be described such as personal check, cashier’s check, money order, etc., and the place of deposit is identified.
The seller and the buyer are indemnifying the brokers for anything they can discover about the property during the inspection period and this includes loans, insurances, or other investment information.
The last section of the contract identifies when acceptance by the seller is to occur. Until acceptance, the buyer has the right to cancel the contract.
The signatory page identifies all parties to the contract, the buyer, the seller, the buyer’s agent, and the seller’s agent. If a counter offer is to be issued, the seller will indicate that on the signatory page. If the seller rejects the offer, provision is made for that condition also.
Contract documents change from time to time and are not cast in stone. The Arizona Association of Realtors® and the forms committee has spent many hours laboring over this document and other documents which are made a part of the transaction. I have attempted to explain this contract so that you understand what you are signing.
Section 4 of the Purchase Contract entitled “Disclosures” is one of the most important segments of the contract and does the most to protect buyers from both seen and unseen problems with the property.
The Seller’s Property Disclosure Statement, otherwise known as the SPDS, is the sellers testimony to what they know about the property and what has occurred on the property while they have owned it.
The buyer and the buyer’s agent should read the SPDS carefully because there may be tip offs to potential problems which may not be noticeable. The buyer can ask for further enumeration of any item on the SPDS and this is also a good tool to be used by the Home Inspector.
Items of material fact must be disclosed, such as a roof leak, the presence of polybutylene plumbing, structural problems, wood infestation, electrical or environmental problems, sewer and wastewater treatment problems, high noise area, flooding, water damage, or the manufacture of meth. The SPDS can be used in a court of law to illustrate that the seller was covering up a problem. Legally required disclosures are mandatory and non-disclosure is considered fraud.
The seller, when filling out the form, should not guess. If he/she does not know the answer to a specific question, he/she should say unknown. That will alert the buyer to do some further investigation for the answer to that particular question. The SPDS is an important document referenced in the Disclosure section.
Very often, agents will put the SPDS, the Lead Based Paint Disclosure, and the Insurance Claims History on the Multiple Listing Service so that any potential buyer considering that property has access to as much information as possible prior to making an offer.
The Insurance Claims History, also known as the CLUE report, provides insurance history for the property for the past five years or the length of time the seller has owned the property, whichever is less. The seller can ask the insurance company for “a letter of experience” which details any claims made. The buyer can determine what, if any, problems are with the property including burglary. The seller should be able to get this letter from the insurance agent free of charge.
Any property built before 1978 must have a lead based paint addendum initialed and signed by the seller, the buyer, the seller’s agent, and the buyer’s agent. This is federal law and the penalties for noncompliance are very stiff. The buyer may investigate for lead based paint at his/her own expense. Most properties built prior to 1978 may have lead based paint which has been covered by a non-lead based paint.
Young children in the tenements on the east coast often would “gum” the window sills while looking down at the street. The incidence of mental dysfunction was noticeable and the federal government determined that ingesting lead based paint caused mental retardation. FHA buyers must be given the lead based paint pamphlet, “Protect Your Family from Lead in Your Home”.
Property in Tucson is identified by metes and bounds and by plat. Identification by a plat would be a typical subdivision, Rainbow Sunset Subdivison Lot 33. Metes and bounds uses Township, Range and Section, such as PTN W240.33′ E374.04′ S1050.61′ SW4 NW4 4.13 AC SEC 27-11-9.
If the property is in an unincorporated area- that is out of the City of Tucson and in the county- and five or fewer parcels are being sold, the seller must complete and have notarized an Affidavit of Disclosure. The seller is attesting to the presence or non-presence of utilities, type of road, septic or sewer, legal and or physical access to the property and other pertinent information. This resulted from the state trying to curb wildcat subdivisions when people purchased homes and then realized there was no water or the piece of property was considerably smaller than they believed.
The Affidavit of Disclosure must be signed by the buyer as well as the seller and it is recorded by the escrow officer with the paperwork transferring property from seller to buyer. The buyer may disapprove any of the items on the Affidavit within the inspection period or five days after receipt of the Affidavit.
There is an entire section on Due Diligence which I will discuss within the next two days and should be considered in conjunction with this section.
If there are any changes made to the SPDS during the period the property is in escrow, the seller has an obligation to notify all parties of the change. For instance, there is a hail storm and as a result there is roof damage. The buyer has five days after this notification to disapprove the contract and withdraw.
During the period of the escrow, the seller warrants that he/she will maintain and keep the property in good repair so that all mechanical systems are working at the close of escrow. The property is to be conveyed in the condition it was in when the buyer first made an accepted offer on the property. This includes all appliances, pool systems, special electrical systems, or other systems attached to the property. The seller will remove all personal property and debris from the property. I once wrote a contract which included “all dog feces to be removed from property and all holes filled.”
There are warranties which survive closing which include the fact the sell has notified the buyer of all latent defects which materially and or adversely impact the value of the property. Any payments in the previous 150 days to contractors regarding the property have been paid by the buyer, and that information concerning wastewater treatment is current and correct.
The buyer must warranty to the seller that anything which might impact his/her ability to purchase the property has been disclosed and that the buyer has done all inspections and accepts the property at the close of escrow. If the buyer is relying on verbal representations, they must be disclosed in writing.
It is imperative that the buyer performs “due diligence” on the property, especially if purchasing the property “AS IS”.
The inspection period is ten days from mutual acceptance of the contract. All days are included, that is calendar days, not working days or week days. Encourage your agent to schedule the home inspection as soon as possible in case other inspections may be needed.
The buyer can inspection for virtually anything at buyer’s expense: environmental, physical, specifics such as roof, HVAC, pest and in Tucson, termite, sewer or septic
connection, information about the neighborhood, CC and R’s, and or other pertinent information. During this period of time, the buyer should be making sure information is being given to the lender for loan approval if not otherwise obtained, that he/she can obtain insurance on the property, that health and safety codes have been met.
In Arizona, the seller’s agent does not have to disclose if the property is in the vicinity of a sex offender, if the property was the site of a felony, death, suicide, and/or murder. The buyer can investigate for these conditions if they are of material concern. In checking these items, the buyer should consult the Arizona Buyer Advisory which is a compilation of links where a buyer can obtain various information which may impact his/her desire to proceed with the property purchase.
The buyer’s responsibility is to provide the seller with copies of all reports obtained at no charge.
If square footage is important to the buyer, or size of rooms of significance for furniture placement, the buyer must complete these investigations during the ten day inspection period. Military people coming from Germany often have a shrunk and it is important to measure the wall space and the size of the shrunk since often, the room is not large enough.
Tucson has two types of homes, those that have termites and those which are going to get termites. Most of our termites are subterranean termites and the cost to treat is generally less than $500. Many lenders will not release loan documents (conditions to close) unless the termite treatment has been done. Generally VA and FHA loans will need termite treatment if called termites exist. Proof of treatment will be required.
The buyer’s agent should check to determine the property is not in a flood plain zone. Although Tucson is desert, there are plenty of areas which are deemed flood plain by the Army Corp of Engineers. These areas will require additional insurance, often costing the same or more than general hazard insurance.
If obtaining homeowner’s insurance is important, and it should be, this should be done during the inspection period. The lender may require insurance prior to sending loan documents for signature. The buyer should ask for quotes from the same company from which he/she purchases automobile insurance. The package of auto and home should be discounted somewhat. Purchasing insurance from the lender is often costly.
The buyer should know if the property is on sewer or septic. If septic, then the tank must be pumped and certified and documents filed with the Department of Environmental Quality. This is a cost to the seller but the buyer should know the location of the septic. Sometimes it cannot be determined if the property is on sewer in which case the buyer’s agent will have to order a dye test to confirm whether the property is on sewer.
Arizona is known for the numbers of child drownings and swimming pool barrier regulations are in effect in several towns. The buyer should receive a copy of the Arizona Department of Health Services approved private pool safety notice and know what barriers regulations exist.
The buyer must know and must initial a clause which specifies that the real estate agent and broker are simply that, real estate professionals. They are not licensed or qualified to conduct inspections and the buyer should contact professionals in the specific disciplines for professional information.
At the end of the inspection period – or the inspections – the buyer will sit down with the agent and write the Buyer’s Inspection Notice and Seller’s Response. In this, the buyer will indicate what situations are to be corrected by the buyer prior to close of escrow. The buyer will respond in writing within five days and indicate what he/she will or will not do. If the seller is unable or unwilling to do the repairs requested, the buyer may withdraw from the contract and have all earnest money returned.
If there are non-working warranted items, the buyer must let the seller know.
Home warranty plans are offered by several companies and cover basic problems. Additional coverage can be purchased for additional cost. Often the buyer will request a home warranty from the seller. The costs of these can run to $600 or more, so be aware of what you are purchasing or asking the seller to purchase.
The seller will make the home available prior to the close of escrow for a final walkthrough where the buyer checks the condition of the property and insures that all repairs have been done in a workmanship like manner. All utilities must be on and the expense is to the seller.