Congratulations! You’ve come to an agreement with the seller on price and terms and now the home is, as we say, “in escrow,” “under contract,” or “pending,” they’re all the same thing.
There are many protections for buyers in the “Residential Resale Real Estate Purchase Contract” of the Arizona Association of Realtors, referred to here as the “contract.” The goal is to give buyers the opportunity to thoroughly inspect and investigate the property before being “locked in” to the purchase.
10-Day Inspection Period
Typically, you have 10 days to do all of your inspections and investigations of the home. You can inspect anything to do with the home – its condition, the neighborhood, the schools, the zoning, the development plans for the area, just about anything related to the home.
The Arizona Association of Realtors has a comprehensive list of items you may want to inspect or investigate during the inspection period.
Cancellation
It’s very easy for you, the Buyer, to cancel a contract during the inspection period and receive a full refund of your earnest money. If you find anything you don’t like about the house – its condition, the neighborhood, the roads, the schools or just about anything related to the house and the surrounding area – you can cancel during the inspection period and get your earnest money back.
The inspection period is by far the most likely time a contract will be canceled or as they say, “fall out of escrow.”
Home Inspectors
I recommend as strongly as I can that you hire a licensed home inspector (typically $250 to $350) to inspect the physical condition of the home. The inspector will give you a report that will detail every little thing they find wrong with the home.
I recommend that you try to meet the inspector in the house at the end of the inspection so he can go over his findings with you in person. It’s much easier to understand a problem when the home inspector shows it to you in person instead of just reading about it in the inspection report.
Scheduling Home Inspection
I also recommend that you call home inspection companies within 24 hours of reaching agreement with the seller. The home inspection company you choose may not be able to schedule your home inspection right away.
You want the inspection done as early as possible in case the home inspector recommends further inspections. For example, if the home inspector recommends a full roof or air conditioning inspection, you want to have time to complete the roof or HVAC inspection before the 10-day inspection period ends.
Inspection Report
Okay, you just received the detailed report from the home inspector, now what?
If you don’t like what the inspector found or what you found in your own investigations of the house and the surrounding area, you can simply cancel the contract and receive a full refund of your earnest money. You will be out the cost of the home inspection, of course.
Buyer’s Inspection Notice
It’s more likely that you won’t cancel the contract but you’ll ask the seller to make some repairs.
First, you will have to decide what, if anything, from the inspection report you will ask the seller to repair. You will certainly ask the seller to repair any items that are “deal killers” for you. You may also want to request the seller to repair some things that aren’t deal killers but which you would like to have repaired, if possible.
Your real estate agent will prepare the written “Buyer’s Inspection Notice” which people often call the “Request for Repairs.” This request for repairs has to occur within the 10-day inspection period and can only occur once.
If you don’t ask for any repairs within the 10-day inspection period, you have automatically agreed to buy the home as is.
Seller’s Response
After your real estate agent sends your request for repairs to the seller, the seller has 5 days to respond to you.
If the Seller agrees to make all the repairs you requested, the inspection period is over and you’re locked into the contract, subject to any outstanding contingencies.
If the Seller agrees to make some of the repairs but not all of the repairs you requested, you will then have 5 days to decide whether you want to, essentially, take it or leave it.
If you decide to “leave it” within your 5 day period, you can cancel the contract and receive back your full earnest money deposit.
If you decide to “take it,” the seller is obligated to make the agreed upon repairs by at least 3 days before close of escrow.
End of Inspection Period
After you and the Seller come to an agreement on repairs, the inspection process is over and you are now locked into the contract, subject to any remaining contingencies in the contract.
Seller Property Disclosure Statement
The Arizona Association of Realtors Purchase Contract includes a provision that says the seller will give the buyer, within 5 days of contract acceptance, an Arizona seller property disclosure statement (old version).
The SPDS (pronounced “spuds” by real estate agent ) can give you a lot of extra information to consider during the inspection period. Sellers often only fill out part of the form.
If you don’t like something in the SPDS, you can cancel the contract (within 5 days of your receipt of the SPDS) and receive a full refund of your earnest money.
Insurance Claims History
The Seller will typically give the Buyer within 5 days of contract acceptance, a 5-year insurance claims history on the home.
Here’s how seeing the insurance claims history helps you.
Let’s say a Seller “accidentally” forgets to mention in the Seller Property Disclosure Statement that he had a roof leak in 2010. You will still find out about the roof leak from the insurance claims history report, if the Seller made an insurance claim for the damages from the roof leak.
If you don’t like something in the Insurance Claims History, you can cancel the contract (within 5 days of your receipt of the Insurance Claims History) and receive a full refund of your earnest money.
By the way, as always, your real estate agent is your representative and the 5-day clock starts ticking when your real estate agent receives the Insurance Claims History. When a document is delivered to your real estate agent , it’s considered to be delivered to you.
Few, if any, other States include this extra protection for home buyers — the insurance claims history.
Congratulations! If you made it through the inspection period without canceling the contract, the odds of your purchase closing successfully are very high.
Appraisal
If you’re borrowing money to purchase the home and using the Arizona Association of Realtors Purchase Contract form, your offer is very likely contingent upon the home appraising for at least the price agreed to in the contract. After the inspection period is ended, your lender will order an appraisal and charge you for it in advance (typically $300 to $400). This fee is in addition to any other fees you pay your lender.
Walk-Through
Your real estate agent will arrange for you to “walk though” the home a day or two before closing so you can verify that the agreed upon repairs, if any, have been completed and that no damage has occurred to the home since the date the contract was accepted.
NEXT LESSON >> How to complete the purchase
###