The Real Estate Purchase Process
Selecting Your New Home:
•Prior to, or at least during your home search, you will need to decide how you will be financing your new home.
•If you need to finance your home with conventional financing, it is important to talk to a professional who can guide you further. This is a simple step and your realtor can assist you with contacting professional loan officers.
Finding Your Dream Home and Making an Offer:
•Once you have selected your house of choice you will be ready to “make an offer”. This is not as simple as saying how much you are willing to pay.
•In Arizona the offer is a legal written Purchase Contract, which spells out each detail of the transaction including: How you will finance the purchase – cash or bank loan.
How much you will pay – the “offer”.
Who pays the Closing Costs – the Buyer, Seller, or shared by both.
The date you wish to get possession of the property – “Close of Escrow”.
Many other importantimportantimportant details…
•Your realtor will complete this Purchase Contract with you and will explain each of these details for the Seller to consider.
Earnest Money:
•When this Purchase Contract offer is submitted, it is normal for the Buyer to put down a deposit in the form of Earnest Money. This is a “Good Faith Deposit” to show the Seller that the Buyer is serious about this transaction. This is important because once the offer is accepted, the Seller will be taking thethethethe house off the market while the Buyer goes through the inspection process.
Earnest Money is usually paid by the Buyer in the form of a personal check.
The check is deposited into an escrow company’s escrow account. This is called “opening escrow”. The Buyer chooses which escrow company to use, except possibly in the case of a Short Sale when the bank that owns the property makes that decision.
Circumstances in which the sale does not go through and your Earnest Money is returned to you:
•If you find something wrong with the house and reject it during the Inspection Period and cancel the purchase, the Earnest Money is returned to you.
•If you cannot secure financing for the purchase: As long as you have made a good-faith effort to secure the financing, the Earnest Money will be returned to you.
Circumstances under which the sale could not go through and the Earnest Money is NOT returned to you:
•Once financing is secured, if you fail to bring all funds necessary prior to the sale’s Closing (called “Closing Costs”) you could be in breach of the sales contract. You could lose the purchase and NOT have your Earnest Money returned.
•You back-out of the purchase outside of the Inspection Period.
As long as you perform in good faith as you have promised – to buy the house – your Earnest Money will be counted toward your down payment of the successful sale.
Earnest Money is presented by the Buyer to show the Seller that the Buyer is serious about the purchase, and that the Buyer will only back-out of the purchase under pain of forfeiture of the Earnest Money (except for reasons given during the Inspection Period). Keeping the Earnest Money is the Seller’s compensation for a sale gone wrong caused by the Buyer.
How much Earnest Money to submit? This is entirely a personal decision on the part of the Buyer.
•Earnest Money is NOT required for a valid Purchase Contract. Zero is a legal amount.
•When offered, Earnest Money is usually 1% to 2% of the Buyer’s offered price.
•In general, the lower the offer, the higher the amount of Earnest Money. The Buyer wants to entice to Seller to accept the low offer, and uses Earnest Money to do so.
•On the other hand, a Buyer making an offer at full-price (or higher!) could choose NOT to include Earnest Money and let the high offer be the enticement.
Loan Status Report or Bank Letter:
Any Purchase Contract offer should include a Loan Status Report or Bank Letter. The LSR is a document signed by a lender stating that you are pre-qualified (good) or pre-approved (even better!) for a certain dollar-amount loan. It is proof to the Seller that the Buyer really has the money to make the purchase.
Cash purchases where no financing is used should include a Bank Letter or statement showing that the Buyer has sufficient cash to make the purchase.
The Purchase Contract is submitted to the Seller – what next?
•The Seller now has several options:
1.To accept everything in the Purchase Contract as submitted by the Buyer.
2.To simply reject the offer and say No!
3.To Counter-Offer with different terms and conditions.
This is a very normal part of the process. Some things that may by “Countered” are:
Price
Closing Date
Amount of Earnest Money (Deposit) submitted by Buyer
Any other detail in the Purchase Contract.
•This process can often take a few days, as details pass back and forth from Buyer to Seller until both parties are satisfied with the terms and conditions of the Purchase Contract.
Next comes, The Inspection Process:
•The Buyer now has a period of time, normally 10 days, to complete all the inspections he/she wishes to carry out. This normally consists of a Professional Home Inspection that is paid-for by the Buyer. Even if the purchase does not go through, the Buyer is responsible for paying the Home Inspection Fee.
•The inspector will normally spend severalseveralseveralseveral hours at the property and test all the electric &&&& plumbing, check the roof and crawl spaces and generally check everything in the house. The Buyer’s Realtor is often present at these inspections just to keep an eye on things on behalf of the Buyer.
•Other types of inspection can include:
Termite inspection
Swimming Pool
Mold inspection
Roof inspection by a roofing company
Fees for these inspections are the responsibility of the Buyer.
•During the inspection process the Seller will also submit “SPDS” (pronounced SPUDS). This is the Sellers Property Disclosure Statement in which the Seller discloses the property’s history. This can include:
Roof leaks
Appliances not working
Any other problems of which the Seller is aware.
The Seller will also present an insurance loss history report. This can either be in the form of a letter from the insurance company, or from a specialized insurance reporting bureau such as CLUE. This provides you with any claims that have been made against the property during the previous 5-year period that may affect your ability to obtain insurance of the property.
•At the end of the inspection period, the Buyer has an opportunity to request that the Seller fix, or compensate for, any problems that have become apparent during the inspection process.
•In turn, the Seller has the opportunity to agree, modify the requests or simply say NO.
•If the Buyer is not satisfied with this response, the BuyerBuyerBuyerBuyer always has thethethethe option to back-out of this purchase contract within the Inspection Period and have their Earnest Money refunded in full.
The Escrow Period:
•The Title & Escrow Company is the Independent Company with whom the Buyer’sBuyer’sBuyer’sBuyer’s Earnest Money has beenbeenbeenbeen deposited. This company will carry out all the necessary searches to guarantee that the house title is free and clear, to transfer to the Buyer.
•The Escrow Company will arrange for Title Insurance to guarantee that the Buyer will own the house without claims from other parties. The Owners Policy Title Insurance is most commonly paid for by the Seller.
Close of Escrow:
•Close of Escrow (COE) is the date at the end of the transaction when change of ownership takes place.
•Papers will be signed by each party prior to this date, financing will be in place, and the Buyer (if so stated in the Purchase Contract) must pay the Buyer’s share of the Closing Costs.
•Once papers have been signed, they are recorded at the County Recorders Office.
•It’s final – the sale has completed!
