Understanding the most commonly terminology and lingo is crucial in successfully navigating any real estate transactions. Have additional questions or see something not explained here? Reach out to us!
AMENDMENT: This document is used when we need to make a change to contract terms. Sometimes it is the closing date or it could also to be agreeing to repairs.
APPRAISAL: This report is completed by a licensed third party hired by the lender. The report usually compares 3-6 comparable sales to give an estimate of value of the house you are buying, this type of appraisal is called the sales comparison approach.
BENEFICIARY: The recipient of benefits, when dealing with real estate it is often from a deed of trust; usually the lender.
CLOSING, aka CLOSE OF ESCROW: Closing most often takes place at the title company but you can also close from anywhere in the US by using a mobile notary. Soon after closing, the title company will fund the transaction and the buyer is then the new official owner.
CONTRACT, aka PURCHASE AGREEMENT: The contract between the Buyer and Seller is usually completed by the real estate agent and signed by the buyer and seller.
COMPARABLE SALES, aka COMPS: A comp is another house that has recently sold and is usually in the same area as the house you are purchasing. It will have similar characteristics as the subject property and is used for analysis in the appraisal.
DISCOUNT POINTS: Points lender may charge to increase the investor's yield. May be paid by either buyer or seller. The number of discount points depends on the rate quoted and the current market rates.
EARNEST MONEY: This down payment amount is negotiated with the seller, it is made in good faith and demonstrates the intentions of the buyer to complete the purchase.
EASEMENT: A right, privilege or interest limited to a specific purpose that one party has in the land of another.
ESCROW: You are "in escrow" when your contract and earnest money have been sent to the title company. While the title company completes the title commitment and examines the survey, they also compile a balance sheet that you will get on the day of closing, called the SETTLEMENT STATEMENT.
ESCROW FEE: Title company's service fee for acting as an escrow agent, carrying out contract instructions, obtaining execution, and recording of necessary documents; disbursing sales proceeds; usually split between buyer and seller.
INSPECTIONS: An examination of the property for various reasons such as termite inspections, mechanical inspections, roof inspections; parties may also require follow-up inspections after required repairs are completed.
LIEN: A form of encumbrance that usually makes a specific parcel of real property the security for the payment of a debt or discharge of an obligation. For example, judgements, taxes, mortgages, deeds of trust.
PITI: An essy acronym to help you remember the four parts that make up your monthly payment. Principal, Interest, Taxes, and Insurance
POWER OF ATTORNEY: In most cases the title company provides this service if needed. Their attorney will be able to draw up a written instrument whereby a principal give authority to an agent. The agent acting under such a grant is sometimes called an "Attorney-in-Fact"
PRIVATE MORTGAGE INSURANCE (PMI): This insurance is designed to protect the lender from default by the buyer. It is usually required when the buyer puts down less than 20% of the sales price. PMI is provided by private insurance companies. A similar type of insurance is issued on FHA loans, Mortgage Insurace Premiums (also referred to as MI).
PRORATED TAXES: Taxes are prorated with the seller paying taxes from January 1st through the closing date, and the buyer paying the remainder. Figures are usually based on actual taxes charged the previous year. any shortages or overages due at the end of the existing year are between buyer and seller.
REALTOR FEE: an amount paid to the brokerage firm representing the consumer (buyer or seller) for real estate services agreed upon in the property listing agreement or buyer representation agreement.
RECORDING: Another service the title company provides is filing your deed and your mortgage with the county in which the house is located.
SURVEY: A statement (drawing) showing the corners, distances, and direction of the boundaries of a tract of land along with easements, encroachments, etc. as may be required in the contract
TERMINATION OPTION: Clause in most contract forms which provides the buyer with an unrestricted right to terminate the contract for an upfront fee which is negotiable. Most buyers will conduct many of their reviews, inspections, and other due diligence during the option period. The buyer must strictly comply with the time period under the option. The option period is not suspended or extended if the buyer and the seller negotiate repairs or an amendment. If the buyer wants to extend the option period, the buyer must negotiate an extension separately, obtain the extension in writing, and pay an additional fee for the extension.
TITLE INSURANCE: Or title policy, is insurance that protects the buyer's interest in the property. When you close on your new house the title company issues this policy and guarantees that the person that is selling it to you is legally allowed to do so. The escrow officer will examine the chain of title to ensure no else has a claim to the property. This premium is paid only once at closing, and is usually rolled into the closing costs.
