North Phoenix Agent Blog

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Sellers who use a Realtor to sell their metro Phoenix area home quickly become familiar with enough acronyms to make the Federal government proud (and confused). ER, SPDS, BINSR, CLUE. It’s enough to make any sane person wonder if their slightly daffy relation ran over a potato farm with the car and needs a ride to the hospital.

(That sentence is mildly smile-inducing inside my head; let me know if it evinces a grin in your neck of the woods.)

So, what’s a SPDS? And is it anything like the edible tuber that’s yummy when served with butter, sour cream and chives next to a big juicy Porterhouse? Read on, intrepid blog browser.

What Are SPDS?
Arizona law requires sellers disclose to buyers all known, material problems about properties they sell. The Seller’s Property Disclosure Statement (SPDS) document created by the Arizona Association of Realtors is a convenient form for doing this. Not working with a Realtor? You’re not exempt from disclosing what you know about the property. You’re just unlikely to have ready access to the nifty form.

Why Do I Need to Do This?
If you sell a property that has a material defect of which you were aware but didn’t tell the future Buyer, you could be liable to a lawsuit. Disclosing everything you know about the property you’re selling can protect you in the future.

What Should I Disclose?
The short answer is everything. The longer answer is that you should disclose everything that could influence a buyer’s decision to buy (or not buy) your property. This includes improvements you’ve made and problems you’ve had, as well as what you did to solve those problems. It also includes anything prior owners did to the property of which you are aware, or even things prior owners did that you suspect or only partially remember.

The bulk of the SPDS questions are phrased, “Are you aware of ….?”  If you aren’t aware, or don’t know the answer, you should answer “no”. Your Realtor is not allowed to fill out the SPDS for you, and is generally not supposed to tell you what to put on the SPDS.

On the last page of the SPDS form, you can add explanations. It’s OK to say things like -

• I think the prior owner replaced some of the PVC plumbing with copper but I only got verbal info on that.
• We had a tub leak in 2003. We repaired the leak and our insurance company replaced the drywall and carpeting.
• We converted the garage into a living room in 1999. We didn’t get permits or HOA permission but we had licensed contractors do the work.

Can I Disclose Too Much?
Don’t worry about ‘killing a deal’ by disclosing what you know about the property. If there’s something that’s so wrong with the property that it’s bad enough to be a potential deal-killer, you should be more worried about getting sued later for not disclosing it now. It’s better to be honest on the SPDS and discuss the property’s condition upfront with your Realtor. Then let your agent make recommendations about marketing the property so that it sells to a buyer who knows all about it and buys it anyway.

How Long Do I Have to do This? 
By contract, Sellers (through their Realtor if they have one) must provide the future Buyer with the completed Disclosure Statement within 5 days of contract acceptance. Buyers, be aware that you should receive this document promptly. Ask questions if you don’t understand the answers! Sellers, remember that honestly and completing filling out the SPDS form will take a little bit of time and some record pulling. So, the sooner you complete the document after listing the home for sale, the better. The last thing you want is to be scrambling to fill out a SPDS form at the 11th hour. It’s kind of like waiting to start your 1040 tax form until April 14.

You Can’t Eat It, But It Can Help You Sell
A complete and honest SPDS will help your property sell. Even if the property has problems, know that every property will sell . . . IF it’s priced right and marketed correctly. There is a buyer for every home. You just need to inform your Realtor and the buying public so the right buyer can find yours.

Related Posts at The North Phoenix Agent

1. Inspection Period
2. Home Inpsections Explained
3. Stuff About Your Neighborhood Your Realtor Can’t Tell People

Related Posts at the Butterhomes Blog - Selling A Home Full of Lizards

Related Posts at The Phoenix Real Estate Guy - Info You Get During the Inspection Period, How to Buy Your First Home and Do I Really Need a Home Inspection?

“Absorption rates are a  calculation of how long it will take for all the homes on the market to be sold, or absorbed, based on how many homes are on the market and how many were purchased in the last 30 days.”  - This is courtesy of blogging legend Theresa Boardman from Minnesota.

Think of it this way - if no more houses were put up for sale, and buyers continued buying at the current pace, the absorption rate is the number of months it would take to sell all the available homes for sale.

Why’s this important? Absorption rate is a good indicator of how balanced the market is. Most real estate experts and practicing Realtors agree that a 6 month absorption rate is about ‘normal’.

Absorption rate less than 6 months? It’s a seller’s market. Sellers have the upper hand and are in a position to be choosy about who they sell to, and to demand a little more from buyers: more earnest money, a bigger down payment, a nonrefundable clause for the earnest money, buyer to pay their own closing costs, etc. In extreme sellers’ markets like metro Phoenix experienced in late 2005, homes sell in hours or days for significantly more than list price.

Absorption rate more than 6 months? It’s a buyer’s market. Buyers have time on their side. They can be picky about finding exactly the right house, and take their time making a decision about which house to make an offer on. Buyers can also offer less than asking price and request that the seller pay for negotiables like closing costs and appraisals. In severe buyers’ markets (like much of metro Phoenix has been in for recent months) buyers can also ask for seller assistance towards down payments.

Related Posts

1. How Much Earnest Money?
2. May 2008 - Metro Phoenix at 9 Month Absorption Rate
3. Dec 2007 - When Will it End??

Thinking about buying a home? Have questions, need info, but aren’t ready to speak with a lender yet? Have a fear that a pushy salesperson will bug you till you sign?

See this awesome glossary of mortgage terms compiled by Jack M. Guttentag. Jack is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania, and founder of GHR Systems, Inc., a mortgage technology company. He contributes to InmanNews.com where I get my daily fix of real estate news. You can see excerpts of Inman headlines on my main website, the NorthPhoenixAgent.com.

Related Entries:

• PMI Defined
• What’s an 80/20 Loan?
• How Much Earnest Money is Enough?

FINALLY. I get it. I had the V8 moment. Now I understand why every blogger Realtor I know is tweeting. 

Life happens between blog posts. Use Twitter to send & receive interesting little snippets of daily life as it happens to people you know. You can follow me at @northphxagent

This video by CommonCraft, posted by Daniel Rothamel over at The Real Estate Zebra explains it all.

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Federal Fair Housing law prohibits discrimination in housing because of:

• Race or Color
• National Origin (the country in which one was born)
• Religion
• Sex
• Familial Status (whether one has children or not, whether married or not)
• Handicap/Disability

Some states include additional groups, such as “sexual orientation”. You can check your state’s protected classes here.

The most common question I hear from buyers is “Is this a good neighborhood?”

What they’re really asking about of course, is either the crime rate or the type of people living in the area. Fair Housing law prevents me, your Realtor from telling you about the neighbors if that conversation might stray into discussing one of the protected classes. Most Realtors just don’t discuss the topic at all, for fear of violating Fair Housing law. It’s rumored that the FHA sends testers out to work with Realtors, secretly checking for violations of the law. True? I don’t know but I don’t want to find out.

Besides, my idea of “nice” or “good” neighbors might vary wildly from yours. Some people find the idea of living near folks of another race, religion or sexual orientation is a big problem. Others don’t care. My best advice to buyers in this scenario is to drive through and walk through the neighborhood yourself, at different times of the day, to see what you see. Talk to your potential new neighbors. Realtors can’t ask or answer questions about the protected classes but buyers can, and should. You’d be surprised what neighbors will tell you!

As for crime, I can and will point you towards websites that list crime statistics, usually by ZIP code. I usually beg off answering the ‘crime’ question, because one person’s ’safe neighborhood’ is another person’s ‘fringe neighborhood’ is another person’s ‘hood.’

Housing not covered by the Federal Fair Housing law

• Single family housing not sold through a broker
• Owner-occupied housing of no more than 4 units (you own a duplex & rent the other side)
• Housing operated by private clubs which limit membership (co-op’s)

The first bullet above applies to For Sale By Owner homes. Selling it yourself? Discriminate all you want. I’m kidding of course, but the government can’t interfere if you want to sell your home yourself but intend to refuse to sell it to someone who practices the B’hai faith or was born in Australia.

The second & third bullet points don’t apply much in metro Phoenix. But there are duplexes and fourplexes in our Valley, and even a few co-op’s down in South Scottsdale. No one can force you to rent ther other side of your duplex to a family with 17 kids if you abhor children. Similarly, the co-op board reviews applicants who want to purchase a unit, and they make their own rules about who can move in.

For more information, see the Federal Fair Housing booklet and information about updates to Fair Housing law. Think you’ve been discriminated against in housing? The National Fair Housing Advocate Online can help. Note that all these resources apply to housing you buy. For help with rental situations, see the Arizona Residential Landlord Tenant Act.

Private Mortgage Insurance is just what it sounds like – insurance. It’s required on home loans where the buyer puts less than 20% cash down. Statistically, buyers with less than 20% cash down payment are more likely to default on their home loans than those who have ready cash.  Issued by private companies like MGCI Investment Corp and PMI Group, these policies paid off the mortgage lender if the buyer defaulted.

PMI fell out of favor in the boom-boom years of the late 90’s and early 2000’s (see entry for 80/20 Loans). But with the credit crunch roiling the markets since early 2007, it’s back in a big way. PMI will add $50 or $100 (or more) to your monthly mortgage payment. But for most buyers, it’s cheaper to pay a little every month than scrape for years (decades?) to save 20% of the purchase price of their new home.

Real Estate Glossary - 80/20 and 80/15/5 Loans

These were home loans that were essentially creative ways to get around the rule that you must pay Private Mortgage Insurance if you put less than 20% cash down on a home purchase. They were the darlings of the market in the late 90’s and early 2000’s.

Lenders issued the buyer two loans. Loan #1 was for 80% of the purchase price; Loan #2 was for the remaining 20% of the price. For buyers with 5% cash down, the lender issued an 80% loan and another 15% loan. Voila! No PMI payment required. This also made the monthly payment more affordable, since PMI payments can add $50 or $100 (or more) to the monthly payment.

80/20’s and 80/15/5’s are totally gone since the credit crunch of early 2007 changed the lending landscape. See my friend Shailesh Ghimire, The AZ Mortgage Guru for more on how these loans are totally unavailable.

Related Posts: Real Estate Glossary - PMI

The Due Diligence Period in a home purchase contract is the time during which the buyer conducts any and all inspections of the home that she/he chooses.

The Due Diligence used to be called the Inspection Period. Most agents and home buyers/sellers still call it that. The AAR changed the terminology to Due Diligence when they overhauled the language in the purchase contract in May 2005.

Legally, buyers can pretty much take the house apart brick by brick and inspect it all, as long as they put it all back together again the same way it was. Practically speaking, most buyers get a general home inspection and often a termite inspection. Some add a roof inspection, a pool/spa inspection, a mold inspection, and maybe an inspection of the heating & cooling systems.

Buyers usually pay for their own inspections (although who pays is technically and legally negotiable). Almost all inspectors require payment up front. Termite inspectors are the one exception. I’ve worked with many termite inspection companies that take payment out of the escrow funds when the house closes.

Typically, the Due Diligence Period lasts for 10 calendar days, although buyer and seller may negotiate for more or less. It’s important to note that the Due Diligence Period — and all contract time periods — are counted on calendar days. Weekends count. Holidays count. The Due Diligence Period begins on the first full day after the contract is signed by both parties and delivered to both.

After the Due Diligence Period ends, the buyer and seller have a chance to negotiate again over which recommended and/or requested home repairs are completed.

A really common question I’m asked by buyer clients (especially first time buyers) is, “How much earnest money should I put up?”

Technically, I’m not supposed to tell you. I think this was a rule dreamed up by the legal eagles in our profession. They worry that if Realtors simply tell clients what to offer, how much to put down, how much earnest money to use, and so forth. . . . well, we’re essentially price fixing and could be sued later by disgruntled buyers who are having buyer’s remorse.  At least that’s what I remember from my rookie training classes. I used to be a paralegal and have lawyers in the family, so I’m pretty ultra-sensitive to the myriad of ways agents get themselves sued.

Since I like to keep on the right side of my company’s legal department, and since I haven’t got a brass farthing worth suing me over, I won’t state a ‘proper’ earnest money amount here. But I’ll explain what’s typical, and what earnest money is and does.

Earnest money is the amount of money a buyer submits with an offer to purchase a house. You actually write a check and send it (actually, usually it’s a xerox copy of the check) with the purchase offer sent to the home seller. Earnest money proves the buyer is ‘in earnest’, or serious about buying that house. If the seller accepts the offer, the earnest money is immediately deposited with the escrow/title office. It becomes part of the purchase price of the house.

For example: Buyer looks at a house with an asking price of $29,900. Buyer makes an offer of $25,000. That $25,000 is made up of — (1) $4,000 cash down payment, (2) $1,000 earnest money, and a promise to get a home loan for the remaining $20,000.

One rule of thumb about earnest money is, “put up as much earnest money as you can afford to risk.” The risk bit is important. Earnest money is forfeitable if the buyer breaches the contract. In plain English this means that if you, the buyer, back out of the purchase after your Due Diligence period, the seller has the right to keep your earnest money as compensation for the lost time on the market. I’ll write more tomorrow to explain Due Diligence - it’s essentially the timeframe for the buyer’s inspection(s).

Generally, a scraper is another term for a total tear-down. These homes are often 30+ years old (in metro Phoenix), and require a complete gut-and-remodel to bring them up to contemporary livability standards.

Scrapers are usually built on an old floorplan model and have a formal dining room and living room, low ceilings, and a generally dark and dated feel. Owners will frequently tear down all interior walls to the studs, move the mechanicals (duct work, plumbing, electrical wiring, etc.) and then rebuild.

(BTW, for my younger readers, the formal dining room was where the family gathered for Thanksgiving and Chrismukkah dinners. The formal living room was where your Grandma would have kept the “good” furniture covered in clear plastic that nobody was allowed to sit on.)

I’ve also heard scraper used to refer to a house that needs a complete cosmetic remodel — you need to rip out and replace every bit of flooring, cabinetry, countertops, appliances and fixtures.

Either way, it’s a whole busload of work, not to be undertaken lightly. Remember the old Tom Hanks movie, The Money Pit? Yeah, that’s what we mean by ’scraper’. If you’re considering a remodel on any scale, contact a knowledgable Realtor to ballpark the return on your investment, and get hooked up with reliable contractors. Live in the metro Phoenix region? Good news! I know lots of reputable contractors, and can give you a great idea of the current market ROI on your remodel. . .