Understanding Real Estate Terminology
John Caliendo (Realtor) gives expert video advice on: What is the difference between a "real estate agent" and a "real estate broker"? and more...
What is the difference between a "real estate agent" and a "real estate broker"?
Great question, get it all the time. Very simply, the biggest difference is if you want to open your own real estate company, you have to have a broker's license. Other than that, that's the huge difference.
What is a "chain of title"?
‘Chain of title', quite simply, is the history of the ownership of a given property tracing back to its original construction. Obviously in a newer home that would not be too complicated, but if you're dealing with a home that was built in the turn of the century or thereabouts, you could go with your title representative and by working with your local county or government municipality, find out literally every single owner along the way to find out what maybe uses. This could include what zoning was there at that time, what the property was valued at that time, so forth and so on. ‘Chain of title' is therefore very helpful also for insurance purposes.
What is an "earnest money deposit"?
With regards to buying a house, an earnest money deposit, also called initial deposit, is basically the amount of money that you are prepared to put into the escrow account upon acceptance of the offer of a house. In other words, the term earnest comes that the buyer is acting in earnest, doing what is necessary to perform and actually acquire this house or property.
What is a "homeowner's association"?
With regards to buying a house, a “homeowner's association” can apply to a planned urban development of single-family residences, a town-home or a condo association. Quite simply, a homeowner's association is a group of homeowners that agree to abide by certain rules and by-laws that are drawn out and laid out in these conditions, covenants and restrictions; hence, a homeowner's association. Also, there could be a monthly homeowner's association fee, which goes primarily towards homeowner's insurance, maybe light landscaping, sometimes water, and utilities to a certain extent.
What is a "listing agreement"?
With regards to getting started in real estate, a listing contract or as I prefer to call it, a “listing agreement” is basically the agreement between the seller and the agent as to how long they're going to be working together, what compensation will be going to the brokerage fee, and any other specifics. For example, whether or not a lock box will be involved, whether or not a yard sign will be involved, anything that you wouldn't want incorporated into your agreement between yourself as a seller and an agent would be in a listing agreement.
What is an "exclusive right to sell" agreement?
An "exclusive right to sell" agreement is the agreement between the listing agent and the seller. It means that the agent is the exclusive representative; no one else is representing the seller but that individual or that brokerage firm. An "exclusive right to sell" incorporates all the term of the listing, the amount of brokerage, the listing price, whether or not a lockbox will be used, whether or not a yard sign will be used, and any other pertinent information that both sides agree to.
What is the "Multiple Listing Service" (MLS)?
When getting started in real estate, the Multiple Listing Services (MLS) are located throughout the country and are maintained by your local Board of Realtors. In other words, a realtor is a member of a trade organization. These trade organizations have local chapters called Board of Realtors, these Board of Realtors maintain a database which is the Multiple Listing Service. Now, you as a realtor must be a realtor, not a licensed agent, you must be a member of the trade association and must adhere to a strict code of ethics standards and rules for the Multiple Listing Service. At this point you are able to input, access, and work with the MLS. However, ultimately, the MLS is the bloodline of real estate, MLS is the inventory, and it's the news what is sold, what's in escrow, so forth and so on.
What are "comps" or "comparables"?
When getting started in real estate, “comps” and "comparables" are terms that we use almost everyday in valuation. Comps and comparable basically mean that this is the home I'm interested in, but how do I know what I should be offering? Well, let's find at least three other real estate properties that are incredibly similar to it which have sold in the very recent past. This will help us determine what the market will bear in terms of value for the real estate.
What is a real estate "appraisal" and do I need one?
A real estate appraisal is quite simply an analysis of the property determining its value. This will be sent to an underwriter as part of the loan process. If it's an all cash deal, there is no loan appraisal necessary. The buyer may even want to do an appraisal to make him or herself feel better about the value, but primarily an appraisal is required by the lender.
What is "escrow"?
An escrow is a great source of confusion to homebuyers, because you hear the term a lot. There's the escrow company, the escrow period, the escrow officer, the escrow instructions. Basically, the escrow company is the neutral third party that basically acts as a traffic coordinator in the processing of an escrow. They issue something called escrow instructions, which is basically everything in the purchase agreement reduced to writing. There is the escrow officer which is the physical human body that you will be interacting with when processing your escrow. There's the escrow period, how long am I going to be in escrow before I own the home, 3 day escrow, 4 day escrow, so forth and so on.
What is the "Attorney Approval" or "Attorney Rider"?
The "Attorney Approval" or "Attorney Rider" varies by state and by region. In my experience, we do not have a formal attorney review period. That's not to say other parts of the country do. But in my experience, the attorney approval is when the documents are sent off to a real estate attorney to review them, to make sure that everything is on the up and in the best interest of their respective client.
What is a "home warranty" and do I need one?
A home warranty is a very helpful device to have in place when you're purchasing a home. It's basically in effect for the first year of home ownership with an option to renew in the future, and quite simply it means that there are minor things that can go wrong with the property. In this event, a sales rep will come out and for a nominal forty or fifty dollar service charge, they will correct the problem. Now this is not to say that you're going to get a new roof or new a plumbing or a new this or a new that simply for a forty dollar charge, but for the vast majority of things that may go wrong in the first year of home ownership on the minor side, it's a good instrument to have in place. They virtually, usually run anywhere from three to four hundred dollars for the first year.
What is "homeowners insurance" and why do I need it?
Homeowners insurance is important for a host of reasons, one of which is that your lender may require it as a condition of approving your loan. For example, we like to think that we own our homes, but in reality, sometimes it's the bank that owns the home, and they want to make sure that in the unlikely event of fire or acts of God, what have you, that they have some kind of protection in the replacement of the property. Even if a buyer was paying all cash for a property, homeowners insurance is a very good idea, because if someone slips and falls on a property, or if the house unfortunately burns down, or any other unfortunate incident, obviously it would help in the replacement cost of the home or the property.
What are "real estate inspections"?
When buying a home, a real estate inspection is incredibly important. Real estate inspections come in a host of varieties: virtually anything from a physical inspection, a mold inspection to a radon inspection. Anything that you want to inspect in the property, you have the legal right to do so. Real estate inspections are usually performed early on in the escrow, anywhere from the first 7 to 1, if not 7 to 17 days. Based on the physical inspection, you as a buyer can go back to the seller and ask for certain things to be improved as a condition of you proceeding in the escrow.
What does the term "buyer beware" mean in terms of real estate?
When it comes to buying a home, the "buyer beware" term in real estate is a term that is not germane just to real estate, but to all of consumerism. This means you, and you going in having eyes and ears open, doing as much research as you possibly can, asking as many questions as possibly, and getting as many assurances as you can. At some point, you're going to have to commit, pull the trigger and acquire it, whether it's a plasma screen, a home, a car or what have you.
What is a "closing date" in a real estate purchase?
A closing date is the projected target date of when the ownership will transfer. In my experience, this is truly a target date, as there are several factors beyond anyone's control such as banks, county assessor's offices, title insurance companies and so forth and so on. But to answer the question, that is the date where ownership will transfer.
What are "real estate closing costs" and "title fees"?
When it comes to buying a home, real estates “closing costs” and “title fees” are a function of their lenders' agreement, so it's probably a better question for the lender, and that would be negotiated and agreed upon early. In other words; are we paying points on the loan, no points, what's the percentage rate, what's the incentive on the loan, what is the title insurance company? Therefore, again both “closing costs” and “title fees” are definitely lender questions.