How to Buy Arizona Real Estate

Okay, you started out back home in Canada or the UK by researching Arizona real estate and how you would finance your Arizona home. Then you found an experienced Arizona Realtor you trusted 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 a home and 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.

If ultimately you can’t reach an agreement with the seller, your Realtor will either return the earnest money check to you or destroy it.

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, 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 does not often keep the buyer’s earnest money when a purchase contract does not close because their are several 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 can not 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 with the failed buyer, the seller could miss out on another offer from another buyer.

An all cash offer combined with a quick close (let’s say, two 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 Loan Status Report

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. The report gives the seller more detailed information about where the buyer stands in getting approval for a loan.

The Loan Status Report 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 Loan Status Report is another reason why you should contact a lender 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 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 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 usually considered personal property and are not included in the sale unless otherwise stated 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

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

Home Warranty

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.”

Offer Expiration

It is not uncommon for offers to be valid for only about 24 hours.

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.

No Gazumping

There is no gazumping in Arizona. The contract is binding on both the buyer and seller. Where in London the seller has more control at the beginning of the purchase process, in Arizona the buyer has more control due to the inspection period.

Next Tutorial: Buyer inspections during escrow

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