Buying A Home in Arizona
So many Canadians have now bought property in Arizona that Canadians now own more Arizona Real Estate than any other group of out of state buyers. In fact, 66% of all international buyers in Arizona are Canadians.
There are many reasons for the influx of Canadians. When the Canadian dollar was at or near, or even over par, Canadians had buying power not seen in years.
With the Loonie now trading below 80 cents some buyers are holding back, waiting for exchange rate to improve before buying. The reality is that in the short and medium terms, the Loonie is not expected to rise. However the trend in prices in the Phoenix area is going up. Waiting to buy, might not be the best strategy.
Unlike some other states, Arizona does not impose additional taxes on out of state buyers and there’s no land transfer taxes.
Is it a good time to buy in Arizona?
The greater Phoenix area market has been on a real roller coaster ride. Prices started to increase in late 2003 and then really picked up speed. By early 2007 homes had doubled, or even tripled in price. Then came the sub prime disaster and prices started to drop and eventually fell to 2001 levels. The market was dominated by distressed sales and foreclosure’s. Thousands and thousands of these properties flooded the market and caused prices to plummet. Late in 2011 the steady stream of distressed properties started to dry up. At the same time, investor and second home demand started to increase. By the first quarter of 2012 the market had bottomed out and prices started to increase again. As much as 25% in some areas.The good news is that we are in a rising market again and there are still some outstanding deals out there. Many homes are still priced at less than half of their peak value. Add to that, the fact that Boomers are starting to retire and looking to move to warmer climates. To top it off, Phoenix is one of fastest growing city’s in America.
Do I need a visa or Green Card to buy in Arizona?
Absolutely not! There are no restrictions on Canadians buying property in Arizona or on those selling property in Arizona.
If I buy an investment home, who will rent and manage it?
There are dozens of Property Management companies to choose from. Fees typically are 7% to 10% of the rent.
Do Canadians pay any foriegn, or special fees or taxes?
No, unlike some states, like Florida where foreign owned property is taxed at a higher rate, Canadians are not charged any additional fees. Additionally, Arizona does not have a land transfer tax!
Is there a Capital Gains Tax when I sell?
If you make a profit on an investment, yes you will pay some taxes. This is true in both Canada and the U.S. In the U.S, taxes on gains from Real Estate owned by “nonresident aliens” are taxed at the same graduated rates applicable to U.S persons.
Because tax laws are complicated and everyone’s individual tax situation is different, it’s best to discuss your own situation with a tax professional. We at Can-ix have developed numerous contacts and will be happy to provide you with a cross border specialist.
Searching for the right property
Before entering the Arizona real estate market you should decide on what you intend to use the property for. If you’re planning on living there yourself, your needs will be very different than if you buy strictly as an investment.
Right now there’s a shortage of properties in the lower price ranges. Supply increases as you go up in price. The new home market is recovering and there are some great deals on brand new homes.
The greater Phoenix area has its own MLS system. This is unlike Canada where you can go to MLS.ca and search properties coast to coast. There is no national MLS service in the U.S.
I’ve included a link to the Phoenix MLS system on this site. Please feel free to use it as much as you’d like, there’s no registration to fill out first and I encourage my clients to ask me any questions they may have. If you’ve been to Phoenix before you may have some thoughts on where you may want to buy, if you haven’t been here before, I can point you in the right direction.
Can I get a mortgage?
Yes! As long as you meet standard lender requirements similar to Canadian standards. There are thousands of Canadians who own property in Phoenix today, many with mortgages.
I’ll help you find a lender who has worked with Canadian loans before. Typically you’ll need 25% to 30% of the purchase price as a down payment. Here’s a list of requirements for Foreign Nationals.
- International credit report, which the lender will do for you, or letters of credit reference from any 3 lending institutions, mortgage company, utility company, car loan, or line of credit.
- Bank Statements for the previous 3 months.
- Current list of assets.
- Most recent 3 months of credit card statements.
- Verification of 2 years employment in the same line of work.
Various lenders may require all, some, or additional information.
The Loan Process
Gather documents as above and complete and sign the loan application, the loan then goes to underwriting for pre-approval.
After pre-approval you’ll be given an LSR or Loan Status Report. This is an important document as it shows sellers that you’re a serious buyer and are already pre-approved.
You’re now ready to put an offer on an Arizona home! Once the purchase details have been worked out, the final approval process begins.
- The property will be appraised.
- The loan goes back to underwriting for final approval.
- The title company (more on title companies further down) prepares the documents to transfer the property from seller to buyer.
- Loan documents are signed.
- Your Realtor takes you through the house for a final walk through.
- The House is yours!
Working with a realtor
There are almost 90 thousand individuals licensed to sell Real Estate in Arizona. That’s a lot! Choosing the one that’s right for you is one of the most important decisions you’ll make.
Not everyone who is licensed is a Realtor. A Realtor belongs to the National Association of Realtors and subscribes to a code of ethics. A Realtor also belongs to a Real Estate Board and has access to their local MLS service. This is critical for the Canadian buyer in order to have access to the full range of properties available.
Choose someone who is knowledgeable and who you trust. Not all Realtors are created equal. Many jumped in during the boom and many of those are now out of the business. Choose someone who is a full time Real Estate Professional and who will listen carefully to your needs. You may want to choose a Buyers Broker for your purchase. That individual has a fiduciary duty to you, the buyer.
Preparing the offer to purchase
You’ve found the home you want, now what? You and your Realtor now start preparing an offer to buy it. The offer, called a contract here, if for a resale home is usually prepared on a document called the Residential Resale Purchase Agreement. This is a document prepared by the Arizona Association of Realtors and is the “standard form” for the vast majority of resale transactions. If you’re buying a new home, you’ll be using the builders own contract. These tend to be much longer and vary significantly from builder to builder. In either case, your Realtor should spend as much time as needed explaining it to you and answering any questions you might have.
The first item to consider of course is PRICE. How much do you want to offer. Your Realtor can provide you with comparable homes that have sold recently, but you decide, its your money.
Next is the amount of the deposit, called “earnest money” in Arizona. This is the amount you submit with the contract and it goes toward the purchase price if the offer is accepted. Typically this amount is about 5% of the listed price in Arizona. This shows the sellers that you’re serious about buying their house. If no agreement is reached, your Realtor will either return the cheque to you or destroy it, as per your instructions.
Now we come to the down payment. As I explained above, Canadians will generally have to put down about 25% of the purchase price. That is not true in all cases, Canadians living here full time on Visas or Green Cards will often put much less down. Your contract will make the sale contingent on you being able to arrange a mortgage.
This brings us to the closing date. This is the date set for the transfer of the property to you from the seller. In Arizona this is typically 30 to 60 days from the contract’s final acceptance. Of course this is negotiable between the parties.
Another item to be discussed will be fixtures and chattels (personal property) to be included with the home. The general rule is that if its permanently attached (decks) its a fixture and if its movable (appliances) it’s a chattel. Because one person’s fixture is another’s chattel, it’s a very good idea to clearly identify everything that comes with the property in the contract.
Now is also the time to ask for the seller to contribute some, or all, of the buyers closing cost. Although this is rare in Canada, it’s common in Arizona. Market conditions play a major role in determining whether, or not, the seller will agree to these costs. In a sellers market it’s unlikely, and in a buyers market (today’s conditions) it’s often used as a seller’s incentive.
Another difference Canadians will notice is that escrow companies are used instead of lawyers to close most Real Estate Transactions. The buyer will almost always choose the escrow company for both parties.
Although not unheard of in Canada, in Arizona Home Warranty coverage is almost always included in the purchase and the seller is very likely to pay for it. Most warranty coverage is for 1 year and includes most major components of the home. There’s usually a small, per service call, fee to be paid by the new owner.
Another part of the contract will deal with any additional items not previously covered in the “standard form”, such as removal of items in the yard or any unusual requests the buyer might have.
Your contract will also have an expiration date, after which the offer to buy is no longer valid by you. You might decide to give the sellers 24 or 48 hours to accept or reject the offer.
Once the contract has been finalized by you, your Realtor will present it.
This process is almost identical to the way things are done in Canada. It’s at this point the sellers can accept your offer exactly as presented and you now have a deal or, the seller can “sign back” the offer with any changes they want. The parties then negotiate back and forth until they either come to an agreement, or walk away.
If an agreement between the parties is reached, your Realtor will take the contract and all other proof of negotiation to the title company and “open escrow”. The escrow company is a private entity that both buyer and seller will use to transfer the title from one party to the other. The escrow company is a neutral party that will rely on the contract for instruction.
After your offer is accepted
Now it’s time to conduct your inspections. You have 10 days from the date of acceptance to inspect the home, neighborhood, schools and anything else you want to check on. Your Realtor can provide suggestions to you on items that perhaps you hadn’t even thought of.
If you find something not to your liking, and it could be almost anything, including the colour of a neighbours house, you can cancel the deal and get a full refund of your earnest money.
Certainly the most common inspection, is the home inspection. It is highly recommended that you hire an experienced licenced inspector. He, or she, will provide you with a written report outlining any area of concern, such as broken or worn items that could cost you later.
No home is perfect, including a new home, so it’s almost certain the inspection will turn up something. If you want the seller to fix, or address an issue, or any number of issues, your realtor will draw up a “request for repairs” and submit it to the sellers realtor. This MUST be done during the ten day inspection period. If you don’t request repairs during this period, you have agreed to buy the house AS IS.
The seller has 5 days to respond to your request. If the seller agrees to everything you requested then the inspection period is over. If the seller agrees to some, but not all, of your requests you have 5 days to decide what to do. If you choose to accept the sellers response, then the seller must complete all agreed repairs no later than 3 days before closing. You may also choose to not accept the sellers response and walk away from the deal with your full earnest money refunded.
Other documents that the seller will provide to you will include a “sellers property disclosure statement” (SPDS) which must be provided to you within 5 days of the contract acceptance. This document will provide additional information regarding the condition of the property and should be read carefully. You have 5 days from receipt of the SPDS to examine it and if you find something not to your liking you may opt out of the deal, receiving a full refund of your earnest money.
You’ll also receive a 5 year insurance claim history of the property from the seller within 5 days of acceptance. This report can point out if the property has had an unusual amount of claims or claims from faulty workmanship, such as electrical fires. You also have 5 days to examine this document to see if you will proceed with the escrow or opt out with your earnest money.
After the inspection period almost all the hard work is done. At this point the odds of you closing escrow are high. Just a couple of more things and you’re done!
Your lender will want an appraisal to verify the value of the property. Once the appraisal has been accepted, just one thing remains. A couple of days before closing you and your Realtor will walk through the property once more to make sure any agreed to repairs were done and no damage has occurred since you put in the offer.
Closing the deal
During the escrow period, your escrow company has been collecting and sending documents related to your purchase, performing duties similar to what a lawyer would do for you in Canada. Once all the documents have been prepared and assembled the escrow company will either courier them to you in Canada, or if you’re in Arizona you’ll come to their office to sign them.
Once all the funds have been received in the escrow account, the escrow company will create a new deed of ownership and send it to the County where you purchased for “recordation”. Once the new deed is recorded you own the property!