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The Home Buying Process: Part 4 - Escrow and Inspections - The Phoenix Real Estate Guy
The Home Buying Process: Part 4 – Escrow and Inspections
May 17, 2008 By Francy Thompson
Thanks to everyone who wrote and encouraged me to complete this series. The last few weeks have been crazy!
When the buyer and seller have reached an agreement on the contract; the contract, counters and addendums are signed – its time to open escrow. In the state of Arizona escrow is handled by a title company. The title company should be indicated either in the offer or counter offer(s). They will need *readable* copies of all the paper work, the earnest money, contact information for buyer, seller, and their agents. An escrow number is assigned to the account and a receipt for the earnest money will be issued. They will investigate the title of the property to ensure the seller can legally sell the property. They also order payoff information on existing liens, order information from the homeowner association (if it has one),calculate and prorate taxes, liens, interest, rents and insurance policies; arrange for title insurance protection for the buyer and lender; pay costs and liens as agreed upon by the parties to the transaction; close the transaction after all instructions from buyer and seller have been satisfied; prepare a closing statement for the parties to the transaction, showing disposition of funds in the transaction; and arrange for recording of the conveyance documents and any other legal instruments necessary to transfer title to the property pursuant to the purchase agreement. Escrow closes when the county recorder notifies title that the deed has been changed from the seller’s name to the buyer’s name.
In the state of Arizona the inspection period is typically the first 10 days of the contract for dwellings and 15 days for bare land. These time frames – as with just about anything else in the contract can be negotiated as part of the offer. The inspection period begins at midnight after the contract (including addendums and counter offers) are signed and delivered. The contract states that it is the buyer’s responsibility to inspect *everything* about the property. This isn’t just the condition of the property. Your inspections should include the schools, HOA, utilities, square footage, services, earth fissures, crime statistics and anything else that could affect your decision to purchase the property. We occasionally have a buyer who does not want to pay for a home inspection. Their justification is that if it looks OK then they don’t need to pay the cost of a professional inspection. Image if you decline the professional inspection and later find the property has some major structural issues – and you now own the home AND the problem?
1) A Clue Report; 2) and the Sellers Property Disclosure Statement or “SPuDS”. This is the statement of what the seller knows about the property. If the seller has never lived in the property it can be difficult for them to have information about the property. The buyer will be required to initial receipt of this document. Initialing receipt does not mean that the buyer accepts what is in the SPuDS. You should be aware that if there is an underlying problem that the seller has not yet discovered – it would be impossible for the seller to disclose it. The buyer should use the SPuDS to aid their inspection process. (Here is a sample blank SPDS)
A professional inspection of the structure can take two to five hours depending on the size and age of the property. If possible, the buyer should plan to attend at least the last 30 minutes of the inspection (but this is not required). Attending will give the inspector the opportunity to explain any issues noted in their report. Due to liability issues the inspector is required to note every tiny thing that they find – no matter how minute or insignificant. Keep in mind, sometimes things sound a lot worse than they are. Meeting with the inspector at the end of the inspection to go over the issues they have noted will help you understand the inspection report and the condition of the property. Most inspectors will be glad to answer your questions by phone as well. You are paying for the service – so don’t be shy about asking questions and getting verification.
Be sure to complete your inspections by the last day of the inspection period. There is a form that must be completed, signed by the buyer(s) and received by the seller’s agent no later than 11:59pm the last day of the inspection period (if the form isn’t received by that time your inspection automatically ends and you do not have the opportunity ask for repairs to be made. You have to take the property “as is” or risk loosing your earnest money). The form is called the Buyer’s Inspection Notice and Seller’s Response (BINSR). The BINSR is *only* used to address inspection issues and cannot be used to negotiate the contract (it cannot be used for changes to the closing date, sales price, etc). There are *not* a lot of negotiations available with the BINSR and you should discuss with your agent the importance of each item you wish to have repaired by the seller. Is that item important enough to you that you are willing to cancel the contract and move on to another property if the seller refuses to fix it? The seller is only obligated to repair a “warranted item” that is non-functional (such as the heater or air conditioner). If it works – even if it doesn’t work well – they don’t have to fix it.
There are currently a lot of Phoenix properties being sold “As Is”. This does not mean that you cannot have the property inspected – you should as you need to know what you are purchasing – it means that you may not ask for repairs.
The Arizona Department of Real Estate deems the inspection so important that they have attached an advisory to the front of the standard residential resale contract.
Here’s an inspection situation we had with one of our buyers:
The inspection cost was difficult as they were first time buyers who had saved just enough to cover closing costs and moving expenses. They were very close to not getting an inspection, but they eventually decided to have it done. The inspector found that there had been a fire in the attic several years earlier. The tresses were weak and were starting to have issues holding the weight of the tile roof. The home needed major repairs. The current sellers had declined the home inspection when they purchased the property – they said they couldn’t afford it. Now they are faced with thousands of dollars in repair costs from a fire that happened before they purchased the property. Our clients cancelled the contract on this home and are now happily living in a property they love!
We recommend you should always, ALWAYS have a home professionally inspected (yes, even brand new homes).
Filed Under: Buying Real Estate Tagged With: buying
Relieve My Stress - says
Its good idea that both buyers and sellers get into agreement before that agreement should be made in better manner it doesn't support on particular side or make favor on one side.
These are all good tips. I have written some similar info on my blog, but not in so much detail. I think I will for sure start to do this for the first time home buyers.
Kevin – I can't take credit for the detail. This one was written by my lovely bride Francy, and she's a detail oriented kinda gal. (Which is why she's such a great real estate agent!)
Nice blog you have there BTW!
I really enjoyed reading your blog. I was searching for real estate relevant sites when I found your blog, in fact I had been searching for a company to do a home inspection for me and I found a great company called http://www.homeinspectionspecialist.com ,much the same way as I found your site. Anyways they inspected my new house before I bought it and I found out a lot of things about it that I would have not known without the inspection. In fact their inspection report help me get over $40,000 off the asking price. I look forward to all the updates. Thanks again,
I am glad that there are companies that offer building inspection services. They were very essential in inspecting building structures before the buyer can purchase it. It also provides security.
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