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6 Real Estate Terms Demystified
When it comes time to buy or sell your home, your agent is going to use a lot of words you're not used to hearing. It's easy to feel overwhelmed if you're not ready, so here's a few of the harder definitions to keep your eyes from going crossed:
This is one you'll hear a lot regardless of which side you're on. When an offer is made on a home, there are often (but not always) certain conditions that must be met before the deal can go through. The three most common are:
1.) Financing - making sure the buyer can actually acquire the loan or financing. Even if they've been pre-approved for a loan, the lender still has a lot of work before the actual approval.
2.) Inspection - making sure there are no major repairs with the home. If there are, it's up to the buyer to decide what they can live with, and what they may ask the seller for in order to fix it.
3.) Appraisal - making sure the home is worth what's being offered, or is worth enough that the bank providing the loan can collect it's money if the buyer fails to pay.
A contingency allows an "out" for the buyer if any of the conditions aren't met, or can't be agreed upon. For obvious reasons, sellers tend to prefer offers with fewer contingencies. While these three are the most common, they are by no means the only ones you may see. Talk to your agent about what and when certain contingencies are acceptable before any making or accepting offers.
The underwriter is the final hurdle in deciding whether or not to approve the loan. Their job is to review all the documents the buyer has submitted - pay stubs, origin of funds, ect - and the reports generated from the purchase of the home - loan application, appraisal, ect. - and decides whether or not to approve it.
Guidelines and regulations for underwriting have gotten stricter since the credit crisis, so it's not uncommon for the underwriter to request additional documents. Getting the right materials in on time can make all the difference when you're trying to close, so be on the ready if your agent needs help.
Underwriters can sometimes be outsourced, and may not work for your lender. Loans can sometimes take longer to get approved when a lender works with an out-of-state underwriter with less local knowledge. Talk toy our agent for advise on which lenders have a smoother process than others.
Often confused with the deed, the title is the right and ownership of a specific property. The deed documents a specific transaction ("Bob sold John this house in 1992"). The title is a status - a current and historical record of the ownership and any interests in the house.
"Interests" is an important point. The title company will do a "title search" to hunt down the history of ownership, any encroachments, liens, easements, restrictions... we could do a glossary article just on all the types of things a title search looks for.
Essentially, they're making sure that when a new person buys this home, there is nothing else lurking the background that can effect their ownership of this house. They'll also get "title insurance" which secures the buyer and lender in the event that another party has a legal claim on the home, and they stand to lose money they've already invested in the home as a result of title-related disputes.
A rental cap limits the number renters allowed in a condo, development, or community. Also refereed to as the owner-occupancy rate, the cap is there to ensure the majority of the owners and residents have a vested stake in following the community's rules.
If you're buying for investment purposes, you're going to pay a lot of attention to the rental cap. Likewise, if you're buying with the thought of renting out the home later on, this will be an important factor. Something that is less often considered, is that a rental cap may deter investor buyers (who often make attractive, all cash offers) when you go to sell. Every area is different - your agent should be able to tell you how a rental cap may affect you and your neighborhood.
No two words seem to scare buyers more than the "flood insurance." Essentially, it does what it says - protects homeowners against losses from a flood. Flood maps are drawn up by FEMA with different zones based on how likely an area is to flood. If the property falls within a higher-risk zone, a lender will require you to purchase flood insurance before approving your loan.
For sellers, it's important to know if your home requires it or not - potential buyers will ask. Just because you didn't pay it, doesn't mean the maps haven't been redrawn since you purchased. Sometimes, it's worth it to have a survey company come out and see if your home can be re-zoned so as not to require it. Ask your agent - it's not always cheap, but is often paid for in the increased asking price that comes with not requiring the insurance.
An easement is common land or utilities owned publicly or are used by the local community and government. An easement also gives someone the right to use another person's land for a specific purpose, such as a driveway or access road cutting through private land.
Consequently, the owner has no right or authority to build or develop that land. Don't panic - utility poles or water and sewer lines are common, low-impact examples of easements. If there is an easement on the property, that should show up on the title search.
Any others we can break down for you? Ask us on our Facebook!
Or drop us a line at Info@WeichertAndrewsGroup.com or 615-383-3142 for advice or a free consultation.