Buyer FAQ's

Buyer representation is the practice of real estate practitioners representing the buyer as a client in a real estate transaction. It is also known as buyer agency. The buyer's representative is the agent of the buyer and owes fidelity in all transaction matters to the buyer.

Any parties involved with a real estate transaction who are not owed Agency responsibilities by the Buyer Representative are considered customers.

For example, have you ever called a phone number off a real estate sign to get information about a property? Chances are, you spoke to the listing agent. As a potential buyer, you enter into the conversation without representation. MISTAKE. The listing agent has a fiduciary duty to represent the seller and share the knowledge they gain with the seller. They represent the seller. Not you!

When you have your own Buyer Representative, your agent has a fiduciary duty to represent YOU. The buyer broker agreement is a document that legally obligates your agent to YOU. The buyer broker agreement ensures you that your interests are wholly represented. When you autograph this agreement, you agree to work exclusively with the agent/broker and they agree to fully commit their loyalty and time to you. You acknowledge that your agent may not be compensated by the seller or the seller's agent if your agent does not accompany you on the first visit to a new home/lot, condo conversion, resale property or open house. This is agency.

The Arizona Association of REALTORS adopted the following disclosure containing the admonition:

A Broker other than the Seller's Broker can agree with the Buyer to act as the Broker for the Buyer only. In these situations, the Buyer's Broker is not representing the Seller, even if the Buyer's Broker is receiving compensation for services rendered, either in full or in part, from the Seller or through the Seller's Broker. A Buyer's Broker has the following obligations:

To the Buyer-Client:

(a) The fiduciary duties of loyalty, obedience, disclosure, confidentiality and accounting in dealings with the Buyer.

To the Buyer and the Seller:

(a) Diligent exercise of reasonable skill in the performance of the Broker's duties.

(b) A duty of honest and fair dealings.

(c) A duty to disclose all facts known to the broker which materially and adversely affect the consideration to be paid for the property.

What is the difference between a customer and client in the state of Arizona?

A real estate professional owes fiduciary duties to both a client and a customer. The extent of duty owed to a client surpasses that owed to a customer. It is important to understand the difference between Customers and Clients so that you can make an informed decision as to how you want to be represented.

Customer: A party with a non-agency relationship. Certain duties are owed to a Customer but not to the same extent as a Client

Honesty - No statement or action can result in fraud or misrepresentations.
Accounting - Licensee is required to promptly report to the customer any money received or paid out and provide an accounting of these actions upon request.
Reasonable Skill - The services provided should conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in when they engage. Licensees should not provide specialized professional services outside of the scope of their competence.
Disclosure of Agency Relationships - An explanation of the difference between a customer and a client must be made in a timely fashion so that customers can protect their own interests.
Material Fact Disclosures - Licensee is required to disclose only material facts, such as square footage, number of beds/baths, parking, etc.

Client: The Client is the party whose interests are to be served by the statements and deeds of the agent.

The following duties are required in addition to the duties noted above:

Obedience - Act subject to the client's continuous control (following all lawful instructions).
Loyalty - Agent is prohibited from advancing any interests adverse to the client's interest or taking any actions to the detriment of the client's interest. Agent must keep the client's best interests at heart at all times.
Total & Full Disclosure - Agent is required to disclose affirmatively and honestly all information concerning the transaction and property that might affect the client's decisions.
Confidentiality - Agent is prohibited from communicating personal information about the client told to or learned by the agent within the scope of employment by the client. Personal information must be kept confidential unless the client releases the agent from this duty.
Full Accounting - This duty also requires the agent to safeguard money and property held on behalf of the client. Agent must also appropriately track all client paperwork.
Reasonable Care and Diligence - Agent is required to protect the client from foreseeable risks or harm and recommend that the client obtain expert advice or assistance when the client's needs are outside the scope of the agent's expertise. Agent is "the source of the source."
Negotiation - Negotiate in your best interests with regard to property pricing and terms.

Why should I use a REALTOR?

Your REALTOR has expert knowledge of the market and all the changes taking place. Working with a REALTOR saves you time and money and greatly reduces the stress and worry for you. Your REALTOR will also be skilled in negotiations and will facilitate and prepare all the necessary paperwork. Having REALTOR representation also greatly reduces your liability. In a market like todays, this is more necessary than ever! Your real estate professional should definitely be a full time agent, experienced, knowledgeable, assertive, and trustworthy. When making one of the biggest investments of your life, it's important for you to be represented exclusively by a buyer's agent.

How much does it cost for me to be represented by a REALTOR when buying a house?

The best part about working with a REALTOR when buying a house is that the seller pays your REALTOR's commission! REALTORS get paid through the seller, so there is really no reason not to use a REALTOR when buying a house.

What are some of the benefits of renting vs. buying?

The best benefit of owning a home vs. renting is that you're not throwing your money away or helping someone else pay their mortgage! There are incredible tax benefits for owning a home, as well as the added benefits of equity and appreciation. The average net worth of a person who earns between $30,000-$50,000/year and owns a home is $126,500 vs. someone in that same income bracket renting is $10,600. Owning a home also allows you to express your personal preferences in your home, like paint, remodeling, etc. In addition, many landlords do not allow pets, especially larger dogs. When you own your home, you don't have to live under someone else's rules.

What are some of the tax benefits of buying a home?

Owning a home is a great tax write-off - equivalent to having children or dependants. Not only can you write off mortgage interest on your house payments every month (which is the majority of the payments), but you can also write off property tax and mortgage insurance. Some tax professionals advise people to lower their withholdings on their paychecks, which will be offset by their home write off, to put more money in your pocket every pay period. *See a tax professional for more details.

What is a foreclosure?

A foreclosure is when the home owner has stopped making their payments and the bank has started the process to claim their asset. The home is then auctioned off, usually at the county courthouse, to the highest bidder. Normally the bidder must pay cash for the property within 24 hours of winning the bid. If the home does not sell at the auction, it reverts back to the beneficiary (the bank holding the original deed of trust). Foreclosure properties don't work for most people, unless they are savvy, experienced investors.

What is a short sale?

A short sale is when the owner has experienced a financial hardship or life change such as a divorce, job loss, death, loan reset, etc and has become unable to continue to make the monthly mortgage payments and is unable to sell because the home is currently worth less than what is owed on the property. The owner works with the lender and the lender agrees to take a loss on the property to avoid the foreclosure process. All real estate contracts for sale must be approved by the home owner and the lender.

What is an REO property?

A REO property has already gone through the foreclosure process and is now owned by the bank in their "real estate owned" division. The bank is now the seller of the property. Other common names in the current market for REO's are: bank owned, lender owned, and foreclosure.

Can I lowball bank owned homes?

That depends on the current market. Most bank owned homes are already listed very low below market value, so they attract a lot of buyers and typically get multiple offers, so in this case, no - you cannot make a low ball offer if you want to be the winning bidder of the property. If there is no competition on a property, you have a much better chance of negotiating, but most people are surprised at how firm the banks hold to their prices. Unlike "typical seller", there is no emotional attachment, so they are more likely to play "hard ball".

Are short sales going to work for me?

Short sales do not work for most people. The two biggest keys for a buyer to a successful short sale are patience and an open ended time frame. Because short sales require bank approval, the process is extremely long - typically 4-12 weeks before they approve the short sale and your offer. After the bank approval of a short sale, there is another 30-45 days in the process. If you are in a lease, it's really difficult to time a short sale with the end of your lease. If you are not generally a patient person and not prepared to wait for at least 1-2 months without any word about your offer, a short sale is probably not for you. Many short sale properties also experience "bidding wars" because of the length of time that the property is kept active on the market. Buyers usually find that they get better deals on bank owned properties vs. short sales.

When is the best time to buy?

Now is definitely the best time to buy! We are experiencing one of the best buyers markets in history and people are getting amazing deals-especially first time home buyers. In addition to the great low prices, interest rates are at an all time low, making mortgage payments more affordable than rent in some instances. There are still great tax advantages to owning a home, and the government keeps offering awesome incentives to get people to buy and stimulate the economy. We may not see this combination of opportunities again for a very long time.

Can I use a REALTOR to buy new construction?

Yes! Some buyers have a misconception that they will get a better deal working directly with the sales office of a new build home but that is simply not true. The agents in the sales office of new builds represent the builder. Although they do represent you as well when writing up a contract, their first loyalties belong to the seller. So buyers do not have anybody "fighting on their behalf". New builders actually like working with outside REALTORS because it reduces their liability in the process and time spent working with clients. Having your own personal buyer broker representation on a new build home is the best way to assure that you are getting the best deal, best incentives, upgrades, lot location, etc.

How much money do I need to have for a down payment?

That depends on your specific loan program. In today's market, most minimum down payments for conventional loans are 10% of the purchase price. Some lenders are able to do 5%, but it is a much trickier process and may include a rate "hit". FHA minimum down payment is currently 3.5%. VA programs do not require any money down. Rural housing programs do not also require any money down. If you are buying an investment property, the typical required minimum down payment is at least 20%.

What is the FHA loan program?

FHA is a government loan program that has recently become popular again and has helped millions of first time home buyers buy homes. It is a very attractive loan program because it is one of the lowest down payment programs available to the majority of people. It is not as credit score driven as conventional loan programs and has very competitive interest rates. It is not limited to first time home buyers, like many people think. You can obtain a FHA loan (if you qualify) as long as you do not have any other current FHA loans. The maximum loan amount for FHA is currently $356,000.

How much are closing costs?

Closing costs vary from person to person, depending on loan size, credit score, down payment, etc. A good rule of thumb is that closing costs are "typically" 3% of the purchase price for "average" price homes. They are higher for lower priced homes (under $100,000), and lower for higher priced homes (above $250,000). The good thing about buyers markets is that you can negotiate and request that sellers pay for buyers closing costs.

Where's the best area to buy?

There is no real "best" area to buy - as it depends on each person's individual situation. There are certainly areas that have higher appreciation and resale value - typically more urban areas. The laws of supply and demand dictate the real estate market, so keep in mind that areas of high demand will have less supply and vice versa. Your REALTOR can do a market analysis of your areas of interest to let you know which neighborhoods hold their value stronger than others.

How many homes should I look at before I buy?

There is no specific number of homes that people should look at before they buy. Some buyers will look at less than 5 homes before finding their "dream home" and some may look at more than 50. The best way to narrow down and not be on the high end of this scale is to have your priorities clear and in order so that you will be able to recognize your "dream home" when you see it. This question also depends on what type of market your area is experiencing - if it's a buyers market, there is a lot more listing inventory so you may have more homes to look through in your favorite areas. In a sellers market, there will be less available so those numbers will be lower.

What is a home inspection?

A home inspection is ordered by the buyer and is preformed by an Arizona licensed home inspector. The inspection is done during your 10 day inspection period after you have an accepted contract on a home. The home inspector provides a thorough general inspection of the property and all its components and reports the findings to the buyer so that the buyer knows about any issues present with the home. The typical cost of a home inspection is $300-$400, depending on size/condition of the home and is paid by the buyer. This is considered a "closing cost" so the buyer can bill the cost of the inspection through escrow to be included with all the final fees.

What is earnest money?

Earnest money is money that a buyer puts towards the property after opening escrow that "holds" the property, or shows the seriousness or intent of the buyer to complete the purchase of the property. In seller's markets, typical earnest money is 1-3% of the purchase price and in buyers markets, that number is lower. The earnest money is typically held by the escrow company and is then applied towards the buyer's down payment or closing costs at the close of escrow. The earnest money is refundable to the buyer if the contract is cancelled within the parameters of allowable contingencies outlined in the contract. If the buyer breaches the contract, the seller has the right to retain the earnest money as damages for time lost marketing the property.

Should I have an appraisal done on the property?

Yes - absolutely! If you are obtaining financing, an appraisal is required and will be ordered by your mortgage broker. The property must then appraise at or above the list price as a condition of your loan. If it appraises lower, the buyer must make up the difference, the seller must reduce their price to that appraised amount, or the parties can mutually cancel the transaction. If you are purchasing a property with cash, an appraisal is still a great idea to protect your investment.

How will I know what price to offer on a home once I find one I like?

After you find a home, your agent will look at all the comparable properties in the neighborhood to determine if the property is listed at, above, or below market value. There are several factors that determine your offer price as well, for example, the activity on the property. If a home is getting multiple offers, you need to go in with your best foot forward and submit an offer to be accepted, not countered. Also; the seller's motivation. If the seller is not extremely motivated to sell, it's unlikely they will accept a much lower price than they are asking. Your agent will help you figure out all these things and come up with an offer strategy.

How do I know if the home I like is in a "good area"?

"Good area" is very subjective and what someone thinks is a good area may not be to another person. The best way to check out an area is to drive around and notice the activity taking place, especially at night and on the weekends. We also encourage clients to get out and talk to neighbors - they will give you the best information. Checking into crime statistics online or calling your local police district for information are also highly recommended.

When I start looking at homes, what are the key things I should be looking for?

The best thing to do when beginning your home search is to define your priorities. Are you more interested in location or home size? Bedrooms or square footage? Pool, garage, condition, laundry, proximity to school, etc are all things to think about when buying a home. List the most important items or "needs" first, and then the "wants". In real estate, location is definitely one of the most important factors that determine resale value, so be sure to be clear on where you'd like to live. Then search for homes that meet your "needs" first. Hopefully the home you find incorporates many of your needs and wants, but be realistic about what is available in your price range.

Is a new home better than an older home?

This is also a matter of opinion. Some people prefer older homes and some people prefer newer homes. Typically newer homes are in more rural areas, or the outskirts of town. Some of the benefits buyers find with new homes are; *More square footage or bedrooms, less problems with mechanical systems and components, builder warranties, ability to pick design your own upgrades, never been lived in, larger closets, community and neighborhood recreational activities (master planned communities). Some of the downsides we've heard with new homes are distance or drive times to work, smaller backyards and lot sizes, wait time with building, HOA dues, little negotiation on prices, cost of upgrades, construction quality. With older or resale homes, some of the benefits buyers find are: *Larger lots and backyards, more vegetation and trees, quality construction, charm, competitive pricing, shorter closing dates, closer to town, established neighborhoods. Some of the downsides we hear of older homes compared to new homes are; *Outdated interiors, more maintenance and problems, lots of previous owners, smaller closets, non-functional floor plans.

What things should I investigate before I put an offer on a home I like?

The most important thing is to check out the area (see question about "good area"). Drive around, talk to neighbors, drive the distance to work, look at comps, and look into local schools if that's material to you.

How can I protect myself from something mechanical breaking right after I buy a home?

We always recommend that clients purchase a home warranty to protect yourself from unexpected problems in your first year of home ownership. A standard home warranty is $325 and covers major mechanical malfunctions in the first year. Most companies charge a service call fee of $55 and the cost of the repairs are covered by the home warranty company after that. You also have the option to renew your warranty every year. In buyer's markets, many sellers will pay for this cost.

How do I choose a lender for my loan?

Having an experienced, knowledgeable, trustworthy lender is crucial in this process and we usually advise that you go with someone whom comes recommended by someone you know who has used his/her services. We have several lenders that we use frequently and recommend to our clients.

Are there any financing programs for first time home buyers?

This is a great question for your mortgage broker - they will have the most up to date information for what's available for your situation. When the lending world changed after the fall of the sub prime market, a lot of the popular first time buyer programs went away, so currently the loan program of choice for most first time buyers is FHA.

How much money do I have to put down to buy an investment property?

This varies from person to person, situation to situation, but most of the time, borrowers are required to put down at least 20%.

What is a good faith estimate?

A good faith estimate, or commonly called GFE is something that is required to be provided to you by your mortgage broker that is a breakdown of payments and fees for your loan.

I keep seeing the words SPDS & CLUE - what do they mean?

SPDS is an acronym for Sellers Property Disclosure Statement. A SPDS is provided to a buyer from a seller within 5 days of acceptance of offer and it is a disclosure of known defects and material items associated with the home. A seller is by law require to disclose to any potential buyers any known defects with the home. The buyer then reviews the information during the inspection period. A CLUE report is also known as an insurance claims report. The seller will also provide to the buyer a report from their insurance company which lists any claims reported in the last 5 years of the seller's ownership. Bank owned homes and many short sale properties will not provide SPDS or CLUE reports.

What is the difference between a pre-qualification and a pre-approval?

A pre-qualification is a little more general and can be done rather quickly. For a pre-qualification, the lender will pull your credit and ask you general questions about your financial situation. For a pre-approval, the lender will verify your assets, liabilities, and income by gathering your W2's, pay stubs, and other relevant information. It's a good idea to wait until you've been formally pre-approved before you start house shopping.

I've heard there are a lot of termites in Arizona. Is this something I should be worried about?

It's been said that there are two types of houses in Arizona - those that have had termites and those that will have termites. They are very common in Arizona and usually easily treatable and not normally cause for concern. Just make sure to get at least a one year warranty when having termites treated.

What should I do during the 10 day inspection period?

This is your due diligence period where you should verify anything that's material to you. The most common are the home inspection and termite inspection. It's also a good idea to verify the cost of home owner's insurance, drive the distance to work, and really check out the neighborhood. We strongly encourage talking to the neighbors to get a better feel for the neighborhood.

How do property taxes work in Arizona?

Property taxes on owner-occupied residences are levied on Assessed Value. In Scottsdale, which is situated in Maricopa County, Assessed Value is 10% of Full Cash Value. The amount of taxes you pay will vary based on where you live.

The Assessor's Office will update the assessed value of the property every year. The Assessed Value is determined based on a computer analysis of information like previous sales in the neighborhood, view, lot size, and square footage, to name a few variables.

Property taxes are billed to the homeowner (or mortgage company if your taxes are paid out of the escrow account) twice a year. You can either include property tax payments in your mortgage payments or pay property taxes separately.

The taxes are billed in arrears, meaning that: The second half of the previous year's taxes is billed on March 1^st, and payable before May 1^st. The first half of the current year's taxes is billed on October 1^st, payable before November 1^st.

In what ways can I hold title to property in Arizona?

First of all, we recommend that you discuss the various title options with your lawyer or accountant before making any decisions that will affect the title to your new property. Here are some of the options that may be available to you:

Community Property: for married persons only. The State of Arizona assumes all property acquired by husband and wife is community property. One spouse cannot partition the property by selling his or her interest, but each spouse can will one-half of the community property separately.
Community Property with Right of Survivorship: for married persons only. As above, except: upon the death of one spouse, the estate passes to the other spouse outside of probate.
Joint Tenancy with Right of Survivorship: this method of ownership gives title to the last survivor. The individuals can be either married or unmarried, but married persons must specifically accept the joint tenancy to avoid the presumption of community property. Each joint tenant holds an equal interest in the estate, and can partition the property by selling his or her joint interest. Upon death, the estate passes to the surviving Joint Tenants outside of probate.
Tenancy in Common:parties do not have survivorship rights and each owns a specific interest in the entire title. Each tenant's share can be conveyed, mortgaged, or devised to a third party. Upon death, the tenant's proportionate share passes to his or her heirs.
Sole and Separate: real property acquired by a spouse before marriage or any acquired after marriage by gift, descent, or specific intent. If a married person acquires title as sole and separate property, his/her spouse must execute a disclaimer deed.
Corporation: title may be taken in the name of a corporation if that corporation is duly formed and in good standing in the state of its incorporation.
General Partnership: title may be taken in the name of a general partnership duly formed under the laws of the state of the formation of the partnership.
Limited Partnership: title may be taken in the name of a limited partnership under the laws of the State of Arizona or another state. A Certificate of Limited partnership must be filed in the Office of the Secretary of State, a certified copy of which must be recorded.