Real Estate Terms
If the property is a new unit in a common-interest community or a condominium hotel, or if the community is subject to any developmental rights, or contains converted buildings or contains units which may be in a time share, or is registered with the Securities and Exchange Commission, the buyer must also be provided with a Public Offering Statement disclosing applicable information, including:
- development rights of contractors
- construction schedule
- description of proposed improvements
- mechanical & electrical installations
- initial or special fees
- number & identity of units in timeshare
Unless the buyer has personally inspected the unit, the buyer may cancel the contract to purchase, by written notice, until midnight of the fifth calendar day following the date of execution of the contract. This provision must be stated in the contract.
A trust sale means that the home is being sold by a trustee of a living trust – and not a private party. More often than not this is because the original homeowner has passed away, or has placed their assets in a living trust.
The trustee may not be as emotionally attached to the property as a traditional owner, which could translate to them accepting a less attractive offer as the trustee may prefer to offload the property.
Transfer tax is a transaction fee charged upon the transfer of a property’s title. It is imposed by the state, county, and municipal authority where the transaction is taking place and is based on the property’s value and classification.
Typically, the seller is responsible for paying real estate transfer tax, unless otherwise agreed upon during the transaction.
Termites are small, pale, soft-bodied insects that feed on wood, and can be highly destructive. The WDI (wood-destroying insect) report, also known as the Termite Report, includes a diagram of the property and the location of active and/or previous WDI activity.
The report can also and sometimes include what may be necessary to resolve such possible infestations such as spraying or tenting. The WDI report will rarely if ever include the cost for such items, as that may be considered a conflict of interest.
A VA loan requires a termite report to be paid by the seller.
Tenancy in common describes a type of joint ownership of a property, whether a single family property or a commercial building. The tenants in common all own the property, but in different ratios.
Depending on the property type will determine the ease or difficulty in securing financing. Also to note, tenants in common do not have the right to survivorship (the surviving owners do not get to split up the deceased tenant’s property interest), and instead, the deceased tenant’s ownership interest/percentage actually falls to their own estate, as defined by their will or the governing law.
Subject to inspection, or “submit offers subject to inspection”, means that the seller is not allowing the property to be viewed without an accepted offer. Some common reasons for this are privacy concerns of the occupants or uncooperative tenants.
The thought of buying a property sight unseen can be daunting for the traditional buyer, which can be used to your advantage as this will inevitably drive overall interest down.
It’s also not as bad as it seems as, under the standard purchase contract, you will have an inspection period, during which you can cancel the sale with no penalty.
In a short sale, the property is being sold for less than the debt secured by the property. Short sales will require the approval of the seller’s lender(s) as the proceeds of the sale will be just “short” of the amount owed; most lenders’ processes of approving short sales are long and drawn out, requiring more time to close than a traditional sale.
Sellers may offer concessions to incentivize buyers to purchase the home, or sweeten the deal.
Concessions are most readily seen as a contribution towards the buyer’s closing costs, up to certain limitations and approvals by a buyer’s lender, which ultimately leaves more money in a buyer’s pocket when all is said and done.
Concessions are usually based upon what the market is. In a seller’s market, expect fewer or no concessions.
Rent-back, or leaseback, refers to an arrangement whereby the buyer, who is now the new homeowner, agrees to allow the seller, the now-tenant, to stay in the house beyond the close of escrow. The terms are negotiated prior to the situation occurring and will often involve a lease deposit, a daily rental rate, and a length of time allowable.
The rate can sometimes be determined by looking at the new homeowner’s monthly out-of-pocket for the mortgage as well as the possible inconvenience this may cause them in delaying their own move, all factoring into a daily rate.
Refinancing is when you restructure your home loan, replacing your old loan with an entirely new loan that has different rates and payment structures. The main reason people refinance their home loans is to get a lower interest rate on their mortgage, and therefore lower not only the monthly payment but also the overall debt owed.
You can also refinance your loan to get rid of Private Mortgage Insurance (PMI).
An actively licensed real estate agent and REALTOR® are often used interchangeably, although not every real estate agent is a REALTOR®. A REALTOR® is a member of the National Association of REALTORS® (NAR).
A REALTOR® promises to uphold the Code of Ethics of the association and to hold each other accountable for when serving the public, customers, clients and each other, with a high standard of practice and care.
Real-estate owned is a designation given to properties which are owned by a lender due to an unsuccessful foreclosure sale at auction.
REO properties can sometimes present an opportunity for a buyer to be purchased for below market value as most banks would prefer to reinvest the proceeds, rather than waste time marketing the property for an extended period.
Additionally, the bank will often market the property “as-is” meaning they are unwilling to make any repairs to the property, which can make financing tricky.
A quitclaim deed is a document transferring ownership of property from one party to another. It transfers the title of the property — but only transfers what the seller actually owns.
If two people own a home jointly, one person could only transfer their half of the property via quitclaim. This type of transaction is commonly used when property is being transferred between family members not using traditional real estate channels.
When you make an offer, sellers will require you to submit proof of funds. If you’re buying a house with a mortgage, it shows them that you have the cash available for your down payment and closing costs. If you’re paying all cash, your proof of funds shows you actually have the money.
The following documents qualify as proof of funds:
- Original or online bank statements with bank letterhead
- Copy of a money market account balance with the bank’s logo or letterhead
- Certified financial statements, such as an income or cash flow statement that’s been signed off on by an accountant
- An open equity line of credit
A probate sale happens when a homeowner dies without writing a will or leaving a property to someone. In such situations, the probate court would authorize an estate attorney, or other representative, to hire a real estate agent to sell the home.
The total process will usually be a bit more complicated and therefore will take more time than a conventional sale.
A special insurance paid by a borrower in monthly installments, typically of loans of more than 80 percent of the value of the property.
If you have ever wondered why it is common to put 20 percent down for a down payment, avoiding PMI is the reason.
A preliminary titel report reveals any issues with a title that need to be dealt with by the seller in order to deliver a clear title. It gives details such as ownership history, liens, and easements. The title company gathers this report by searching existing property records at the county recorder’s office.
This report is required for a title insurance company to issue a title insurance policy. Most lenders require borrowers to purchase title insurance coverage to protect their interest in a property.
A mortgage pre-approval letter is important because it gives home buyers an idea of what they can afford. A mortgage pre-approval letter is issued by the lender and identifies the terms, loan type and loan amount the buyer qualifies for after checking the buyer’s debt-to-income ratios along with cash on hand and credit history.
Many sellers or their agents require a mortgage letter with any home offer that isn’t all-cash, since it acts as proof the buyer has been qualified to get financing.
A loan contingency is a clause or addendum (also known as a mortgage contingency) in an offer contract that allows a buyer to back out of a deal and keep their deposit if they are unable to secure a mortgage with specified terms during a fixed period of time.
A written document telling the borrowers that the mortgage company has agreed to lend them a specific amount of money at a specific interest rate for a specific period of time. The loan commitment may also contain conditions upon which the loan commitment is based.
A property lien is unpaid debt on a piece of property. It’s a legal notice and denotes legal action taken by a lender to recover the debt they are owed. It can come from unpaid taxes, a court judgement, or unpaid bills and can slow down the homebuying process when unattended.
An inspection happens when buyers pay a licensed professional inspector to visit the home and prepare a report on its condition and any needed repairs. The inspection often happens as part of the due diligence period, so buyers can fully assess if they want to buy a particular home as is, or ask the seller to either complete or pay for certain repairs.
An iBuyer is an online company that makes an offer on your home “instantly”. iBuyers then resell your home for a profit. While iBuyers advertise convenience and the ability to save you money and the ability to avoid paying commissions, it usually costs the seller more money to sell through an iBuyer. Some companies will advertise lower to no commissions but the seller will pay more in fees that are not readily advertised than what a commission would be for a regular agent.
A homeowner’s association is a private association that manages a planned community or condominium. When you purchase a property that is managed by an HOA, you agree to abide by the HOA’s rules and pay its monthly or annually HOA dues. If you fail to pay and/or comply, they often have the ability to file a lien against the property and/or foreclose on the property. HOAs are designed to help retain property value in neighborhoods by keeping everything up to a certain standard they set forth.
In Las Vegas, the majority of homes built from the 2000s onwards have HOAs.
A home sale contingency is for a buyer to indicate to a seller that part of their condition to purchase the seller’s property relies on the buyer’s ability to finalize a close on their current property. This is often negotiated with a clause in a contract or with an addendum to a contract. An example of how such a contingency can be used would be if a buyer needs to sell their property in order to have the down payment required on the purchase of the new property, or would rather use their sale proceeds instead of their savings to make the down payment.
Depending on the market, it could hamper negotiations with a seller when a contingency is part of the picture.
If a homeowner doesn’t make a mortgage payment (usually, for more than 90 days), foreclosure is a legal process during which the owner forfeits all property rights.
If they are unable to pay off outstanding debt on the property or sell it via short sale, the property enters a foreclosure auction. If no sale is made there, the lender takes control of the property.
With fixed rate mortgages, your interest rate stays the same for the duration of the loan. They are often available as 10, 15, 20 & 30-year loans. The 15- and 30-year loan are by far the most popular type of home loans, accounting for about 75% of all U.S. residential mortgages.
FHA loans are part of a group of loans that are insured by the federal government. This means that instead of actually lending money, the FHA insures banks and private lenders that they will cover losses they might incur in the event that the borrower does not repay the loan in full or timely.
This is a “fixer-upper” loan, which combines the mortgage loan with a loan to help pay for repairs or updates, such as structural repairs, or energy-related updates. It is not intended to lend based off of luxury upgrades such as adding a swimming pool or tennis courts.
The escrow holder is the impartial third-party who collects the money, written instruments, documents, personal property, or other things of value to be held until the happening of specified events or the performance of described conditions, usually set forth in mutual, written instructions from the parties.
One of the major advantages of buying over renting. Equity is the investment a homeowner has in their home. To calculate equity, take the market value of the home and subtract any mortgages or liens against the property. The amount leftover is the amount of equity you have in the home.
If you buy a home worth $250,000 for $240,000, you gain what is known as instant equity, because there is a $10,000 difference between the value and the cost. When you sell a home you bought for $250,000 for $260,000, you’ll get to keep the equity in the home after the close, once all the expenses are paid.
It’s important to build equity as homeowners can leverage this financial asset to obtain loans to help finance items such as home repairs, or to pay off higher-interest debt.
The money given to the seller at the time the offer is made as a sign of the buyer’s good faith. It shows not only that the buyer is serious about buying, but that they are also willing to put their money where their mouth is. The earnest money deposit eventually goes toward the total down payment.
In Las Vegas, the EMD is held by the agreed upon escrow company from the Residential Purchase Agreement.
A due diligence period of time might be available in the purchase agreement, which is a time frame provided to a buyer to fully examine a property, often by hiring experts to inspect the property, perform tests, etc., so that a buyer may decide on how to proceed.
A buyer might also be afforded an opportunity to renegotiate the contract based off of their findings or possibly even to terminate within a specified time period, in order to not be considered in default of the contract. Due diligence allows a buyer to fully understand what they are buying.
Debt-to-income, or DTI, ratio is a number used by mortgage lenders which is determined by the total of your debt expenses, plus your monthly housing payment, divided by your gross monthly income, and multiplied by 100. This helps lenders determine affordability based off of their available loan programs, and allows them to estimate how much you can afford to pay monthly for a mortgage.
Where the shareholders of the corporation are the inhabitants of the building. Each shareholder has the right to lease a specific unit. The difference between a co-op and a condo is in a co-op, one owns shares in a corporation; in a condo one owns the unit fee simple.
A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.
If a buyer is having trouble getting approved for a loan, they can elicit the help of a co-borrower. This person is usually a family member or friend who’s added to the mortgage and guarantees the loan. They’re listed on the title, have ownership interest, sign loan documents, and are obligated to pay monthly mortgage payments if the buyer is unable to.
CLUE (Comprehensive Loss Underwriting Exchange) is the insurance industry’s national database that assigns individuals a risk score. CLUE also has an electronic file of a properties insurance history. These files are accessible by insurance companies nationally. These files could impact the ability to sell property as they might contain information that a prospective buyer might find objectionable, and in some cases not even insurable.
Closing costs are an assortment of fees, including fees charged by: a lender, the title company, attorneys, insurance companies, taxing authorities, homeowner’s associations, real estate agents, and other closing settlement related companies. These closing costs are typically paid at the time of closing a real estate transaction.
Closing costs are completely separate from the down payment.
The end of a transaction process where the deed is delivered, documents are signed, and funds are dispersed. Once all of these items are completed, then a buyer’s access to the property is then provided, and the buyer is considered the new homeowner.
Note that signing and closing are not the same thing, rather, signing is part of the closing process.
A buydown is a mortgage-financing technique lowering the buyer’s interest rate for anywhere from a few years to the lifetime of the loan. Usually, the property seller or contractor makes payments to the mortgage lender lowering the buyer’s monthly interest rates, which, in turn, lowers their monthly payments.
Instead of a traditional fixed-rate mortgage in which the owner pays on the loan in installments, a balloon mortgage is paid in one lump sum (e.g., the balloon payment). It’s usually associated with investment or construction projects that are issued for the short term and don’t require collateral.
A type of mortgage that is generally paid over a short period of time, but is amortized over a longer period of time. The borrower typically pays a combination of principal and interest. At the end of the loan term, the entire unpaid balance must be repaid.
One in which the buyer agrees to fulfill the obligations of the existing loan agreement that the seller made with the lender. When assuming a mortgage, a buyer becomes personally liable for the payment of principal and interest. The original mortgagor should receive a written release from the liability when the buyer assumes the original mortgage.
A contract or offer clause stating that the seller will not repair or correct any problems with the property. Also used in listings and marketing materials. Sellers will often do this for houses that are priced below market value that need work done.
As-is can also be used in contracts. “As is” is in the condition at the time the offer was written, and should something happen to the property from the time the offer was written to the closing time which alters that condition, then that property is no longer “as is”, as it was, and should be brought back to its original “as is” condition at the time of offer, at the cost of seller. Or in the alternative, the seller should release the buyer from their obligation to purchase and refund the monies spent by the buyer, such as earnest money.
Fees that mortgage companies charge buyers at the time of written application for a loan; for example, fees for running credit reports of borrowers, property appraisal fees, and lender-specific fees.
For rentals, application fees are required to apply. These fees cover running credit reports. They are sometimes refundable and other times not.