This series of articles covers the basic topics of buying residential real property in the U.S. as a foreign buyer. Some aspects vary by individual state. For state specific information the author is using the state of Arizona. Most other states will be very similar.
The Purchase process - In the U.S. each state has its own set of rules regarding the purchase of real estate including the type of purchase contract used, the method of closing (finalizing) the sale, and even the duties and titles of the parties involved. Some states have a "fill in the blank" procedure while some are much more open ended. In Arizona a real estate agent can write a purchase contract from scratch if they wish although nearly all residential transactions use a set of standardized forms put together by the Arizona Association of Realtors. This is generally referred to as an MLS contract and its addendums.
When buying a house or condo in Arizona the purchaser will very likely work with a standardized set of documents. Builders and developers typically have their own contracts which are usually more verbose and are slanted in the builder's favor but most "ordinary" sales use some subset of the following:
MLS Purchase Agreement - This form, currently nine pages, spells out the basics of the offer and sale. The various protections the buyer receives are also included here. For instance, there's a built in inspection period (generally 10 days) during which the buyer can have the property inspected by a professional inspector. The home inspectors are very thorough and will inspect all electrical, plumbing, roofing, etc. and report back any issues found. If repairs are needed the purchaser has some options available to him/her including cancelling the contract outright, asking for items to be repaired prior to closing, and so forth. This one section is very important and takes up nearly two pages but is really very straightforward.
Other items spelled out in this document include the method of closing, when and where the closing will take place, any financing contingencies, what personal items go with the property (appliances, light fixtures, etc.) and so forth.
HOA Condo Addendum - Arizona law requires that the buyer be informed of the regulations and fees of any HOA (Home Owners' Association) or condo association associated with the property. The rules vary, based on the size of the complex, on who provides this information but, regardless, it must be provided to the buyer prior to the closing.
AS IS Addendum - This addendum is more and more common today and has to do primarily with bank-owned properties and/or "short sales". An AS IS addendum is basically telling the potential buyer that the seller will make no repairs. It should be noted that this DOES NOT take away the buyer's protection of a 10 day inspection period as mentioned above. Commonly a bank will state that they have never been in the property, have never seen the property, and therefore don't really know its true condition. They also are not in a position to make repairs very easily as they are most likely many miles away from the property (usually in another state). The buyer still has the right to inspect the property and walk away if they want to or ask for an adjustment in price based on repairs needed.
SPDS and BINSR - Related to the above are the SPDS (generally pronounced "spuds" like the potato). This Seller's Property Disclosure Statement is intended to have the seller disclose all known defects in the property. Again, with bank owned properties the argument is made that the bank has no way of knowing of any defects. Commonly on these property listings you'll see "no SPDS". For this reason it is prudent that every buyer get a professional inspection. The cost is around $350 or so and well worth it. The BINSR (pronounced like "binzer") is the actual inspection document. It stands for Buyer Inspection Notice and Seller Response.
Short Sale Addendum - This document is also common in today's environment. A "short sale" means that a property is being sold for less than the existing loan(s) on the property and the bank is being asked to allow the loan(s) to be paid off "short" or for less than the amount owed. If a home is being sold as a short sale then the seller must submit the offer to the lender(s) and wait for their approval (or disapproval) before closing. The short sale addendum simply spells out that the sale is contingent upon this approval.
Above are the general documents used for purchasing property in Arizona. Closings are handled at a licensed escrow company whose job it is to make sure all documents are in order and to record the sale at the county. Provided everything is treated with care along the way it is generally a very organized process. It's when shortcuts are taken or steps not finished in a timely fashion that headaches can arise. For foreign buyers there are a couple of more considerations that should be addressed by an attorney or CPA. We will cover these in the next parts of this series, taxes for foreign property buyers and common questions on foreign ownership of U.S. property.