The Housechick Blog

Number 8 - Escrow Closings

While in many states, all parties and their lawyers come together at a closing table to work out final details, sign documents, and transfer keys, this isn’t the case in Tucson and in Arizona at large.

Arizona is an escrow state.  We take all of the house sale documents, all of the money, and give it to an escrow officer, who coordinates the actual transfer of ownership, the settlement statements, the transfer of money, and the signing, among other things.

Remember that escrow is just a neutral third party, paid by both Buyer and Seller to help coordinate the sale and to be a unbiased storage place for the money involved in the sale.

When you buy a home in Tucson, your purchase agreement usually states that you will sign all of the required documents 3 days prior to the closing date.  That means the closing date is not when you sign; it’s when everything records downtown, that’s the actual close of escrow, the date of the transfer of ownership. 

Signing usually occurs on a different day than closing.  Signing is just, well, signing.  No transfer of ownership happens on that day.  In fact, you’re not going to meet the other party over a table at the end, you don’t need a lawyer, you just go to the escrow officer, who has all the documents for you to sign.  It’s just you, the escrow officer, and usually your agent will come along too.  Most likely, you’ll be bringing in a certified check for the remainder of your down payment and closing costs at the time of your signing.

Some people seem a little disappointed that they won’t get to meet the other party, but that’s customary in Tucson.  You may never meet the person who is buying your home (or selling the home you’re buying).

We’re also one of those states where you don’t need a lawyer to buy or sell real estate.  While you are always welcome to hire one to review the various agreements, and are encouraged to do so if you have concerns, the vast majority of homes in Tucson are bought and sold without lawyers.

Summary of the Top Ten Things to Know about Tucson Real Estate so Far:

• Number 1 - A/C and Evaporative (Swamp) Coolers
• Number 2 -The Tucson Military Airport Vicinity
• Number 3 - Termites Love Tucson Homes
• Number 4 - Who does my Tucson Agent represent?
• Number 5 - Flat Roofs: Types and Maintenance
• Number 6 - Basements, Radiators, and other Non-sequiturs
• Number 7 - Tucson Area Fire Districts

Seller carry back financing seems to be a hot idea lately - there’s a lot of folks throwing the concept around.  It is a highly misunderstood and sometimes confusing topic.

A Seller carry back is basically when the seller is the lender - the seller typically has a lot of equity in their house, and a Buyer has a big enough down payment to cover the balance of the existing mortgage.  The Seller can then sell their house to the Buyer, pay off the existing loan with the down payment money, and then carry back a loan from the Buyer, where the Seller gets paid according to the terms of the loan they make with the Buyer.

The seller can also potentially carry back a second loan on the property - in this case, the Buyer would get a traditional first loan from a lending institution, and the Seller would carry a smaller second loan.  First you have to find a traditional lender that will allow a seller carried second this in the current lending market, which is a different story.  Let’s just keep this theoretical.

In Arizona, the Seller would take a trust deed and note - a regular loan just like a bank, with all the rights of foreclosure and whatnot.

Also - please note that with carry back financing, the deed changes hands.  The Seller no longer owns the property.  He sells it.  The Buyer gets the deed at the time of the sale.

So.  Let’s look at this in broad overview. 

Let’s say the Buyer purchases a house for $400,000, just to use some round numbers here.  He gets a $300,000 loan from a bank, a $50,000 carry-back from the Seller, and puts down $50,000 as a down payment.  The Bank has the 1st lien, the superior position.  The Seller has the 2nd lien, the junior position.

Scenario One: The Buyer is happy, healthy, and wise and makes all of his loan payments as scheduled.

Excellent!  The Seller is paid interest on his former equity, both Buyer and Seller are happy with the arrangement, every one lives happily ever after.

Scenario Two: The Buyer pays his first loan, but stops paying the Seller’s second loan.

All is not well.  As a second lien holder, the Seller can foreclose.  Here’s where people get confused.  Foreclosure doesn’t mean you get to take back the property.  Foreclosure ends with an auction, where you may or may not be the high bidder.  Plus, the high bidder has to satisfy the first loan, or take it subject to the first loan.  Who ever is in first place - doesn’t go away.

Scenario Three: The Buyer stops making payments to both you and the bank.

Now you’re in real trouble as the second lien holder, especially if the market value has dropped.  The person with priority is the bank, and if they begin foreclosure proceedings, you can either cure the first guy’s default and foreclose yourself, or you roll along with their foreclosure, hope there’s enough proceeds at the auction for you to get something out of it.  Because if the high bid at the auction only covers the first loan, you walk away with nada.

Seller carry backs are usually highly misunderstood, and if you find yourself considering carry back financing, either as seller or buyer, it’s a good idea to get some professional legal and tax advice.  Please also note that there are a multitude of options and ‘other things’ that can happen with these scenarios that are not discussed here.  If you find yourself in one of these positions, you need to go get your own legal and tax advice.

I’ve written about this before, but my friend’s dog died a few days ago from Valley Fever, and I thought it might be time for another mention.

Valley Fever is a fungus that is in the dirt in this area, and the fungal infection is contracted by inhaling the spores.  As dogs are wont to snuffle and dig, they are at risk for Valley Fever.

People get it too.  For most, it might feel like a mild cold, and you’ll never know the difference.  I don’t have any fact to back this up, but locals say that if you’ve been living here for a couple years, you’ve probably had it and not known.

In your pet, it can cause anything from a mild respiratory inflammation to seizures, lameness, and occasionally death.  The most common early symptoms are coughing, fever, weight loss, and loss of energy and appetite.  If the infection has spread outside the lungs, symptoms can also include lameness, back or neck pain, and seizures. 

The good news is that a large portion of dogs that have Valley Fever can control the infection and will never develop symptoms.

Testing for Valley Fever is usually done with a blood test - there’s an excellent description of the disease, the testing and titers, and treatment at the Valley Fever Center for Excellence at the U of A.

Treatment is usually made with anti-fungal medicine, which I can tell you is quite expensive, and the courses can last months, if not a year or more.  My brown pup was on Ketoconazole for about 14 months, and his titer - which started at a level higher than the lab was able to determine - never dropped under 1:16.

Rest in peace, Nico.  You will be missed.

I’m working on a new and improved (hopefully) version of the Tucson market statistics page, so I’ve been considering what kind of information would be helpful to include and at what level of detail, and balance that with not having statistic generation become a full time job.

By the way - if there’s something you’ve been dying to see on that page, or some other metric you’d be interested, leave a comment and I’ll put it on the list for consideration.

Anyway.  So I was perusing the latest market statistics put out by the Tucson MLS, and at the end of the president’s introduction, she says that the ratio between list price and sales price averages at 95.34%.

The list to sales price ratio is a figure that hasn’t been included in those reports for a while, at least not in a prominent manner, like it used to be.

So I’m looking at that 95% sales price to list price ratio, and I’m thinking - of my most recent buyers and sellers, no one paid 95% of list.  Most of my buyers found very well priced homes, moved quickly, and got those houses.  My last few listings haven’t closed yet, so I can’t disclose specifics, but we’re pretty darn close to list price on those too.

What all the averages and numbers don’t take into account is individual pricing.  Sure, maybe we can use average numbers if the house is average and the price is average.  But sometimes, we’re looking at a new listing, with a fabulous price - and there’s no way you’ll get it for 95% of list.  Heck, I’ve been in bidding wars and multiple counter offers several times this year.

There seems to be a perception that buyers can get sharp discounts off of every house.  And I’ll gladly agree that there are still vastly overpriced homes out there where that applies.  But it isn’t a hard and fast rule.  You can’t just take 5% off every list price and expect that to be accepted.  Some sellers ARE pricing very well, are demonstrating clear value, and their houses are selling fast.  You’ve really got to analyze each home individually, on it’s own relative merits, before making a decision as to value.

Back to my numbers now.  I wonder - if you track the rate of change of, say, average sales price or active listings, would there be too much bounce in the data, especially on a per area basis?  And would smoothing it take away any value that data might have had?  Anyone?

Today I finished up the last little chores at my old house, gathered up all our spare keys, and took home all the towels and fancy soaps and the candy jar from my home that I’m selling, due to close a bit later this week. 

That’s a good house, and it was a little sad today, taking my last stuff out.  I remember when we first bought it, all the terrible orange sponge painted walls, the pink vertical blinds, the nasty carpet, the lawsuit-waiting-to-happen stairway and deck on top of the roof.  The scary dark kitchen.

I remember digging out the clay sewer line to replace it, being hip deep in my front yard with my hat and a variety of shovels.

I remember taking a sledge to the kitchen, learning to make eggs and toast on the barbeque, and discovering it was when the mini-fridge coils touched the gas line, the house power shorted out.

My father taught me how to use a table saw when we built new kitchen cabinets on the back porch.  I remember renting a concrete mixer, hauling 20 bags of quick-crete into the yard, mixing it all up, building forms for concrete countertops on top of those newly built cabinets.  Most of all, I remember my husband wheeling the first load of concrete into the kitchen - my father and I both stuck our shovels in, stopped, and he looked up at me and said, “Are we really going to do this?”

Yup Pop, we are, and we did.  And they turned out beautifully.

I remember painting a random series of horizontal stripes of varying colors and width in the hall bathroom.  Not my finest idea.

That’s the house where I learned to change a light fixture, to install blinds, to install doors, to paint and stain and finish, to build with wood, to lay flooring and baseboards.  To pick paint colors and lay gravel.  To dig long, deep trenches.  To snake a drain.  To troubleshoot a swamp cooler.  To destroy a kitchen and tear down walls.  To tape and texture drywall.  To hang a microhood and install a dishwasher.

It’s where I learned not all walls are square, not all floors are level, and that there are solutions to both.

Bye-bye, home.  I’m going to miss you.

Although that’s a redundant title, as ‘monsoon’ generally means ’season.’

I must not have been paying attention.  This year, the national weather service declared monsoon season to start on June 15 and end on September 30.  It’s good to know the national weather service can declare weather. 

They have all sorts of Tucson monsoon season statistics and maps and whatnot over on the National Weather Service Monsoon page for Tucson.

We used to declare the monsoons had arrived when the dew point was at over 54 degrees for three consecutive days, I believe.  The days would get muggy and people would check the news - it it monsoons yet?  No?  Oh.

But no more.  Dates have been set.  Welcome, monsoon.

Now if only the rains would start…

I have clients right now that find themselves in a less than desirable situation - through entirely no fault of their own.  On our part, we’ve acted in good faith and honored the various obligations and promises made in the contract.

I won’t go into details here because everything is still pending, but I’ve been reviewing the whole situation in my head to see if there was some little thing that I could have done to avoid this whole mess.

And quite honestly, there was no way to anticipate or avoid it on our side.  But I have a feeling I know exactly what happened on the other side of this deal, and I can make sure that I don’t make that kind of mistake. 

Here’s what I can take away from this situation, so far:

Whether it’s your first home sale (or purchase) or your fiftieth, you always need to review and read everything.  It sounds so basic, right?  Read what you sign. 

What I’ve learned in 5 years in this business is there is a large segment of people that - if you put a pen in their hand and a form in front of them, they’ll sign it without really reading it.  Those are the folks you’ve got to slow down, refocus, and make sure they understand what they’re getting into.

There’s many times that I’ve sat and had long discussions with my clients, deciding how to negotiate, what to offer or counter, and then at the end, we write it all up.  That’s why I sit there and take notes during our discussion so that we don’t forget some small important item.  And then when I put a form in front of you to sign, we need to review it again and make sure that it is exactly what you want it to say.

Now, if EVERYONE practiced real estate that way, my clients wouldn’t be in this mess.  Nevertheless, here we are.

Oh, and I know a good real estate attorney, should you find yourself in need of one…

Summer has spung (or does Summer sum?).

The weather man says it’s going to be 107 this week.

And I don’t mind the temperature, really.  You live in the desert long enough, you learn how to deal with it, how to keep cool.

However, it is time to issue my annual summer complaint about people trying to sell their home in the Tucson summer while leaving off their air conditioner.

I can’t tell you how many vacant houses I’ve walked into over the past few days where it was 90 degrees.  Inside.  I tell you, no one wants to spend time in and contemplate a home when you’re slowly roasting.  It’s exhausting.

Please, those of you selling your home here in Tucson, vacant or not - let’s turn on that air conditioner.  Give yourself a fighting chance to keep someone in your home long enough to possibly consider purchasing it.  You don’t have to set it to 72, somewhere in the low 80’s is acceptable.

Your potential Buyers will thank you!

Now THAT’s a novel idea! 

I had a nice conversation via that little Plugoo chat box on the sidebar with someone who is saving to buy a home, thinks they’ll be ready to buy in about a year.  They were asking whether prices would remain steady or fall, as they missed the bubble before and don’t want to be priced out again.

They were nervous about missing an opportunity but didn’t want to get into a mortgage that they couldn’t afford.

I like these people already. 

I tend to be on the conservative side when it comes to money.  I don’t ever want to be a slave to my mortgage, and tend to buy well under my approval limits.

Oh, and as far as prices go, in the next year?  I can’t see the future, but I would guess we’re not going to see any huge run-ups very soon.  In my humble opinion, I would expect prices to continue along their current trend at least through 2008, if not well into 2009. 

And to who ever that was on Plugoo - good luck to you!  I hope when you’re ready to buy, you have every confidence in your savings and your finances so that you can make clear, comfortable choices.

Whenever I help someone buy or sell a home, there’s a lot of research to be done about the property and the area.  There are a lot of cool resources out there, but one of my favorite are the GIS maps from the City of Tucson.

Check them out at the City of Tucson map center.

Floodplain maps, neighborhood maps, maps of the washes, street mileage maps, maps of lights and traffic signals, all sorts of good stuff.  There’s even links to the Oro Valley and Pima county mapping sites too.

Don’t forget to check the Tucson police department site, they have Tucson crime density maps too.

But as always - even the maps have a disclaimer.  Information found there is deemed reliable, but not guaranteed.