You now have a signed purchase contract; time is of the essence. This means that you have to be proactive to satisfy all of the contingencies and actions agreed upon before your close of escrow date. You have a lot to do.
Aside from working with your lender to close your loan, there are a number of important things that you need to do before your home closes.
Let’s discuss some of the most common and critical actions you will need to take after your offer is accepted.
Title Commitment and Title Insurance
Before you purchase the home, the escrow company that was agreed upon in the purchase contract will perform a title search and provide a preliminary title report and title commitments. The title search determines if there are any pre-existing legal claims to the property. If a title problem occurs after you have purchased the home, title insurance protects against any financial loss or damage as a result of any claims against the property, defects in the title to the property, and other matters that may affect your right to use and enjoy the property.
Two types of title insurance include:
- Lender’s coverage — which protects the lender’s interest in the property and will defend that interest should any claims arise.
- Owner’s coverage — which protects your interest in the property for as long as you own the property.
Examples of situations where title insurance would offer coverage include:
- Someone claims to have an easement through the middle of your property.
- Someone claims to be the true owner of a piece of your property.
- A bank tries to foreclose on your home because a mortgage that was recorded on the property was never satisfied by a past owner.
According to the Arizona Purchase Contract, once you have received the title commitment, you have five days to provide notice to seller of any items of which you disapprove.
Typically, all purchase offer using the standard Arizona Residential Real Estate Purchase Contract are contingent upon a home inspection. You typically have a 10-day period when the contract is first accepted to complete the inspection and other standard inquiries related to the suitability of the home.
A home inspection gives you an opportunity to find out any unexposed issues that need to be addressed before you buy the home. A home inspection gives you detailed information about the overall condition of the home. A qualified inspector will do a thorough examination of the home to make sure that it is not hiding any structural, mechanical (ex. air conditioning unit) or other issues. The inspector will identify any items that need to be repaired or replaced. In case there are serious problems uncovered, you will need to be prepared to ask for repairs, a reduced price, or walk away from the property.
A thorough home inspection should take an inspector about three hours to complete. Most inspections will leave you with an action list, perhaps several things that will need attention after you move in. The cost of the inspection depends on the type, size and location of the home. It is not out of the ordinary for a home inspection in Arizona to cost between $200 and $600.
A typical home inspection will include checking the following:
- Electrical systems
- Heating and cooling systems
- Structural elements
- Doors and windows, and
Most homes will only experience a few minor issues, but some older homes may have more problems than they are worth. The damage to the homes could cost you thousands of dollars if you are unaware of the damage prior to purchasing the home. While disclosure of some problems is mandatory, many homeowners do not even know that some of these problems exist until they try to sell their homes.
Even though you will have to spend money upfront for a home inspection, you may save more money than you anticipated once the results come back.
There are a couple of ways that you can commonly negotiate a lower price on the home before signing the final contracts.
- Ask the seller to make repairs – This is the best way to save money on your new home. While you will not see a reduction in the final price of the home, you will not have to make as many repairs down the road. Also, you will not have to worry about the repairs once you have moved into the home.
- Ask the seller for a price reduction – If the seller does not want to spend money on the repairs that you have requested, he or she may agree to drop the final price of the home.
You typically need to obtain a written homeowner’s insurance quote from an insurance agent during the inspection period and have it in place when you close.
Homeowners insurance is a package policy and should include:
- Personal liability insurance — which protects you if someone sues you after being injured on your property, and
- Property coverage — which protects you against fire, theft and specific weather-related hazards.
In Arizona, a lender is prohibited from requiring coverage above the “replacement value” of the improvements to the property (including the house, garage, outbuildings, etc.). Your insurance agent will help you determine how much coverage you need.
All homeowner’s policies include a list of exclusions, or things the policy will not cover. It is important to read and be familiar with the exclusions itemized in your policy.
All homeowner’s policies exclude water damage caused by flooding. You need to find out if your home is located in a flood zone. If you are getting a loan to buy the home, the lender will typically request a flood certification as part of the loan process.
Aside from flooding, most homeowner’s policies also do not provide coverage for:
- Normal wear and tear of personal property.
- Loss of animals, birds or fish.
- Damage to automobiles.
- Water damage due to sewer or drain back-ups – These losses are normally not covered by a homeowner’s or flood insurance policy (see above). This coverage may be available separately as an additional endorsement (an amendment to a policy), but may not be offered when buying homeowner’s insurance unless you ask for it.
- Damages resulting from war, nuclear hazard, neglect, earth movement, or power failure.
- Additional cost of repairs due to changes in building codes or local laws enacted since the home was built. Separate coverage may be available as an added endorsement.
- Watercraft – If you own a boat, you should ask your agent or insurer if it is covered. Some policies will cover small motorboats and sailboats, but not larger ones.
Termite inspections are not covered under the standard home inspection. A termite inspection is a separate inspection that will give you an idea of structural damage to the home that has been caused by termites and other pests. If you choose to obtain a termite inspection or your loan program requires a termite inspection in order to be approved for the loan, the Arizona purchase contract states that you will have to order and pay for it.
The inspection shouldn’t take long and will entail the inspector looking underneath siding, in basements, attics, and on the foundation of the home to see if there are termites present or if there are other insects such as ants, or fungus that are destroying the wood.
Surveys are vital in solving property disputes about where your land ends and a neighbor’s land begins, but they are not required. If you aren’t sure if you should have a survey done, you should seek the advice of your real estate agent. When you complete the purchase contract, you will specify if the survey will be paid for by you and/or the seller. A survey is an assessment of property lines to determine the exact amount of land that is part of the property. The survey will show any improvements on the land, andy variances, easements or encroachments on a property.
The land surveyor will study legal documents pertaining to the property, such as deeds and land documents recorded in the local county recorder’s office, when preparing the survey. The surveyor will visit the property to perform measurements and verify the accuracy of any existing land documents.
Septic System Certification
If you are buying a property what has a septic system, Arizona law states that it must be inspected by a qualified Transfer of Ownership Inspector? This requirement cannot be waived.
The seller of the property is responsible for obtaining a qualified inspector to perform the inspection within six months before the property is to be sold. The inspection report that is generated will act as the full disclosure for the septic system. It does not guarantee compliance with the local building codes and is not a guarantee that the system will work in the future. It simply discloses the conditions at the time of the inspection.
Before the closing date of the property, The seller will provide you the completed report and any other documents that relate to the permitting, operation, or maintenance of the septic system
Once you buy the home, you have 15 days to submit a completed current version of the Notice of Transfer form with the required fee to the Arizona Department of Environmental Quality or the appropriate county authority.
On-Site Well Testing or Shared Well Agreement
If the home that you are buying has an on-site well, the seller is required to provide you a disclosure statement regarding the functionality of the well and any well records that he or she has within 5 days of the contract acceptance. If you want, you can have an inspection performed on the well that certifies the well’s gallons per minute pumping rate and recharge rate. More information from the inspectors perspective can be found here.
If the property has a shared well agreement, you will need to determine if it meets the requirements of the loan program that you have selected. For example, here are the requirements to qualify for an FHA loan.
For a property to be eligible for consideration for FHA mortgage insurance, any shared well must:
- Serve existing properties which cannot feasibly be connected to an acceptable public or community water supply system.
- Serve no more than four living units or properties.
- Be capable of providing a continuing supply of water to involved dwelling units so that each existing property simultaneously will be assured at least three gallons per minute (five gallons per minute for proposed construction) over a continuous four-hour period.
- Provide safe and potable water.
- Have a valve on each dwelling service line as it leaves the well so that water may be shut off to each served dwelling without interrupting service to other properties.
- Be directly connected to the pumping energy source (not through a dwelling) and energy used for pumping must be separately metered.
- Be covered by an acceptable well-sharing agreement. Such an agreement must:
- Be binding upon signatory parties and their successors in title;
- Be recorded in local Deed Records;
- When executed and recorded, reflect joinder by any mortgages holding a mortgage on any property connected to the shared well.
- In addition, the agreement must contain essential provisions such as well water sampling and testing, continuity of water service to “supplied” parties, prohibition of well water usage by any party for other than bona fide domestic purposes, the establishing of easements for all elements of the system, establish the right of any party to act to correct an emergency situation, specify required cost sharing and many other critical stipulations.
Swimming Pool Barrier Regulations
If the home that you are buying has a swimming pool, then you need to find out if there are any applicable state, county, and municipal swimming pool barrier regulations and agrees to comply with and pay all costs of compliance with said regulations prior to the close of escrow date unless otherwise agreed in writing.
The swimming pool barrier regulations may be a surprise to the seller since many of the local ordinances have gone into effect since he or she bought the home.
The Arizona Association of Realtors has created this Buyer Advisory brochure that covers many of the common issues that you should investigate if they are applicable to the home you are buying.
This home buyer series is intended to provide general information regarding the process of how to buy a house in Arizona. It is not intended to provide buyers with legal, accounting or financial advice. You are advised to seek the services of a skilled professional this those fields.
Additionally, this home buyer series does not set forth all qualification criteria for any of the loans described herein; all interested persons must successfully meet qualification criteria and complete the application process to obtain such loans.