22 Sep Real Estate Terms to Know
The process of purchasing or selling a new home or office can be difficult at times, especially if it is your first time. To make matters less burdensome, you should brush up on certain real estate terminology in order to better comprehend contracts listed for each property you consider. Having a greater understanding of the real estate process will help you find the best choice for you and your family. Check out the terms below to get started.
Appraisal – The estimated value of a given property. This is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. A licensed appraiser will compare your property to other homes that have sold in the area and undergo an investigation of the property to determine the fair market value.
Appreciation – The increase in a property’s market value. If the property decreases in value, that’s depreciation.
Buyer’s Agent vs. Listing Agent – Typically, there are two agents involved during the home buying process: The buyer’s agent and the listing agent. The buyer’s agent represents the party buying the home, while the listing agent represents the home seller. A dual agent is when there is only one agent representing both sides of the transaction.
Closing Costs – The fees paid to close the deal. Both Buyer and Seller pay closing costs. These can include costs such as title searches, appraisal fees, taxes, broker commission, attorney’s fees, lender fees, title insurance, ect. Buyer’s closing costs will differ from Seller’s. For example, Seller usually pays 100% of the broker commission, Buyer usually pays 100% of the appraisal fee and both parties’ usually share the cost of the title insurance. This is often the last step of the real estate transaction.
Contingency – Contingencies create obligations and conditions in a contract which, if unfulfilled, can result in adverse outcome for either the Buyer or Seller. These are often on a timeframe, and act as a back-out option for potential buyers who change their mind about a property. For example, if a Buyer discovers that they are unable to obtain the loan, he/she will be able to take advantage of the contingency and cancel the contract.
Deed – A deed determines who has ownership of a property. This is the document transferred from Seller to Buyer at the end of a real estate transaction.
Earnest Money – This is a deposit made by the buyer to demonstrate their sincere interest in the property. Once the loan closes, the earnest money is used as a credit towards the property. However, if the loan does not close and it is due to Buyer not meeting a contingency, Buyer may lose his/her earnest money.
Equity – You can think about equity as the percentage of your home that you actually own. This can be calculated by taking the market value of your property and deducting the amount you owe on the mortgage. As the loan is paid off, equity is built up. Thus, any equity available goes back to the homeowner in the event of a sale.
Escrow Account – An escrow account is a trust account created by a third party to hold housing expenses. This can include homeowners insurance, property taxes, and mortgage payments. For example, your lender may set up an escrow account to collect money and submit payments when needed.
Forbearance – The temporary postponement of mortgage payments. This is agreed upon by both the lender and the borrower in order to delay payments and avoid foreclosure.
Foreclosure – The legal process in which the lender attempts to recover the mortgaged property when the mortgagor/borrower fails to keep up his/her mortgage payments. The lender can force the sale of the borrower’s home to recoup the balance on the loan.
Joint Tenancy – This is a special form of ownership between two or more persons who co-own a property with equal ownership and rights to the property. In this case, the owners would enjoy the right of survivorship.
Lien – A lien is the legal claim of one person or entity upon the property of another person to secure the payment of a debt or the satisfaction of an obligation.
Mortgages (Adjustable vs Fixed) – The payments for the principal and interest associated with a fixed-rate mortgage remains the same throughout the entire time frame of the loan. Interest rates are kept at a certain rate and don’t fluctuate. An adjustable-rate mortgage, on the other hand, has a variable interest rate. Monthly payments can either increase or decrease, and often begin with a low interest rate that steadily increases after a certain amount of time.
Pre-approval Letter – A pre-approval letter is an estimate made by the bank on the type of loan a borrower may qualify for, as well as how much the borrower may borrow, which shows home sellers what you can afford and that you are a serious buyer.
Settlement – The actual closing of the real estate property upon closing the deal. At this point, the seller and the buyer sign all required documents for title transfer and mortgage.
Title Insurance – A title is a piece of documented evidence that proves that a real estate owner lawfully possesses a property. Property owners may then choose to buy title insurance, which protects them from any property loss or damage they may encounter due to undisclosed ownership claims or fraud related to the property.
Zoning – Zoning laws are restrictions on how real estate can be used. Properties can be zoned for residential, commercial, agricultural or industrial usage. For example, a neighborhood homeowner may not be legally allowed to raise chickens in his yard because the property is not zoned for that purpose.
No matter how far along you are in the real estate process, it is never too late to learn more about the current industry. Schedule a consultation with an experienced real estate attorney so they can help you carefully assess your options and ensure a secure transaction.