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Property Transfers in Arizona Real Estate

Instructor: Racquel Fulton
Perhaps you have heard someone say, 'I just closed escrow'. Learn how the escrow process works in Arizona to transfer real estate to a home buyer from a seller.

Full Disclosure

Jamie wants to buy a new home in Phoenix, Arizona. She found a house in a subdivision and wants her real estate agent, Mike, to write up an offer. A subdivision is a large piece of land that a builder divides into smaller lots. The builder then constructs new homes on the lots and sells them. Before Mike writes up Jamie's offer, he asks her to sign the Arizona Department of Real Estate's disclosure report. Arizona Revised Statutes (A.R.S. §32-2183(B)) requires builders to file a disclosure with the state's real estate commissioner. The disclosure proves to a buyer that a builder has the right to sell the lot. Jamie must sign the disclosure before making her offer.

If Jamie decided to purchase a home from a seller who is not a builder, she will still receive a disclosure. Arizona law requires sellers to disclose material facts about a property. A disclosure may include:

  • Physical condition (such as seen and unseen damage to walls, drains, and roofs)
  • Occupancy status (if the property is vacant, in foreclosure, or has ever been rented out to tenants)
  • Financial status (which may include the existence of unpaid debts, pending liens, or judgments)
  • External condition (erosion within the neighborhood where the home is located and if there is any noise caused by trains or planes)

If a seller does not disclose information that they are aware of, the buyer has the right to file a lawsuit or withdraw their offer to buy the home. Although the disclosure is required by law, there is not a specific form to provide the disclosure. Sellers can prepare a disclosure themselves or complete a pre-filled document. To make it easier for sellers to provide disclosure, the Arizona Association of Realtors (AAR) created the Residential Seller's Property Disclosure Statement (SPDS). When someone sells their home with the help of a real estate broker or agent who is a member of the association, they must provide buyers with the form. The buyer must receive the disclosure prior to or within five days after the seller signs off on an agreement to sell the home.

In addition to the Residential Seller's Property Disclosure Statement (SPDS), more disclosures are needed if the property is a condo or has a swimming pool.

After signing the disclosure, Jamie then signs an offer to buy the home. If the builder accepts her offer it will become a legally binding contract.

A Closer Inspection

Jamie has agreed to buy the home but she can still walk away and cancel the contract. Jamie's contract has given her 10 days to conduct due diligence. Due diligence is a closer review and inspection of the property. Real estate contracts in Arizona usually provide the buyer with the opportunity to conduct home and termite inspections within the due diligence period. If Jamie is not satisfied with the results of the inspections, she can request that the seller fix the issues, negotiate a lower sales price, or cancel the contract.

In The Flow of Escrow

Jamie wants the builder to know that she is serious about buying the home. So she gives her agent, Mike, a $3,500 deposit. Arizona real estate law requires that Mike put the deposit in an escrow account. An escrow (also referred to as a 'trust account') is an account where someone's money is held for safekeeping. Jamie's deposit will be held in Mike's company's escrow account until it's time to finalize her transaction. Mike then presents Jamie's offer and the builder accepts it. Jamie just opened escrow.

Just Opened Escrow

In real estate, an escrow has multiple meanings. In addition to being an account to hold money, it is also a process. In Arizona, real estate transactions are not finalized until an escrow is closed. In a non-escrow state such as New York, the home buyer and seller meet at the same time to complete the transaction. However, in an escrow state, the buyer and seller each fulfill their requirements at separate times so that an escrow can be closed.

The escrow process begins with Mike sending a copy of Jamie's contract to a title insurance company. Title and escrow companies are licensed by the state and are responsible for making sure real estate legally transfers from the seller to the buyer. They also sell title insurance, which protects the buyer from problems that could affect their rights to a home. To check for potential problems, title and escrow companies conduct title searches. A title is a group of rights including the right to live in a home. A search looks into the history of a property's title. Arizona law requires title and escrow companies to search as far back as 60 years before issuing title insurance to a home buyer.

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