The following are a list of common real estate terms and their definitions which you may run across when buying or selling your home:
- Agency: This framework has developed in the law to allow individuals to act through another person or representative. In real estate, it refers o working with a real estate broker to buy or sell property. Your legal agent may have unlimited or limited powers on your behalf and owes you fiduciary duties such as loyalty, accounting and disclosure. In the purchase or sale of real estate, you have several agency options.
- Appraisal: An appraisal is the estimation of a home's market value by a licensed appraiser based on comparable recent sales of homes in the neighborhood. Appraisals are ordered on behalf of a home buyer's lender to protect the interests of the lender
- Appraiser: The person who decides the market value of a home based on its condition and the selling prices of comparable homes recently sold in the area. The appraiser computes a fair estimate of market value to help the lender decide a reasonable loan amount.
- Assessor: A public official who appraises property for tax purposes, determining the assessed value, not the tax rate.
- Buyer’s Agent: A buyer may ask a real estate brokerage company to act as his or her legal agent in the process of purchasing real estate. This can be done by designating one or more sales associates as the legal agent in a written agreement with the broker or by entering into an agency agreement with the real estate broker that would provide that the broker and all sales associates affiliated with the broker would act as legal agents of the buyer. The authority of the legal agent to act on a buyer’s behalf would be limited to those powers granted in the written agreement. In the purchase of real estate, the buyer’s agent acts in the buyer’s best interest.
- Buyer Working With Broker: Traditionally, buyers of residential real estate have worked with a real estate broker or a sales associate on a non-agency basis. In other words, the sales associate acts as the legal agent of the seller and not as the buyer’s legal agent. The sales associate or broker has a responsibility to deal with the buyer in a fair and honest manner, but does not have fiduciary duties to the buyer. The buyer has access to listings available to the sales associate through the multiple listing service and will receive other services from the sales associate such as financing information, determining the range of prices at which a buyer can purchase and assistance in facilitating the closing. The sales associate will try to provide the best quality services to the buyer consistent with his or her duties to the seller.
- Closing: The conclusion of a real estate transaction, which includes delivery of a deed, financial adjustments, signing of notes and disbursement of funds necessary to the sale or loan.
- Contingency: A condition that must be met before a contract is binding. For example, the sale of a home might be contingent on the seller’s paying for certain repairs.
- Conventional Loan: A loan made with real estate as security and not involving government participation in the form of insuring (FHA) or guaranteeing (VA) the loan.
- Designated Agency: This arrangement with a real estate brokerage company will result in one or more sales associates being designated as your legal agent. You can enter into this arrangement either as a seller or buyer. Other sales associates in the firm may be the legal agents of other buyers and sellers and may be the legal agent of the party who buys your property or from whom you buy property. The only individuals owing you fiduciary duties are those designated as your legal agent and not the real estate brokerage company itself or all other sales associates with that company. A real estate brokerage company will generally offer this service to provide representation for both buyers and sellers.
- Dual Agency: In this situation, both the seller and buyer in a transaction are represented by the same legal agent. Thus, fiduciary duties are owed to both parties. The law states that this is not legally possible without the consent of the buyer and seller. If your consent is secured to allow this type of situation, the role of the sales associate will be somewhat limited, and the buyer and seller will act at times on their own behalf in negotiations for the sale or purchase of the property.
- Earnest Money: A deposit given when making an offer on a home to demonstrate good faith. A REALTOR® or attorney usually holds the earnest money, the amount of which varies by community. If the sale goes through, this deposit will become part of the buyer’s down payment.
- FHA: The Federal Housing Administration (FHA) is a United States government agency created in part of the National Housing Act of 1934. It sets standards for construction, underwriting, and insures loans made by banks and other private lenders for home building.
- Fixed-Rate Loan: A loan with the same rate of interest for the life of the loan.
- Homeowners Policy: A multiple peril insurance policy commonly called a package policy. Available to owners of private homes, it covers the dwelling and contents in case of fire or wind damage, theft, liability for property damage and personal liability.
- Impact Fees: A municipal assessment against new residential, industrial or commercial development projects to compensate for the added costs of public services generated by new construction.
- Interest Rate Cap: The maximum interest rate allowed on an adjustable-rate loan for any one adjustment period during the life of the loan.
- Open Mortgage: A mortgage that may be repaid in full at any time over the life of the loan without a prepayment penalty.
- Point: A dollar amount paid to a lender for making a loan. A point is one percent of the loan amount. Also called a discount point.
- REALTOR®: A member of the National Association of REALTORS® who subscribes to a strict code of ethics.
- Seller’s Agent: When you sign a listing agreement with a real estate broker, you are typically signing an agency agreement that makes that broker and all sales associates affiliated with the broker your legal agent. In a designated agency, the broker would name one or more sales associates as your legal agent. The seller’s agent is a limited as opposed to general agent. In other words, the listing or other agreement with the broker gives the selling agent certain authority to act on your behalf in the marketing and sale of the property. However, the selling agent does not have general powers to act on your behalf such as the power to enter into a binding contract for the sale of your real estate. In marketing your real estate, the seller’s agent will act in the seller’s best interest.
- Title: Documentary evidence of the right to or ownership in property, which in real estate is the deed. Title may be acquired through purchase, inheritance, gift or exchange, as well as through foreclosure of a mortgage.
Terms and definitions are strictly for general information. Information is deemed reliable but is not guaranteed and should be independently verified.
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