Buying or Selling? Learn These Real Estate Terms

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For most people, their home is the most expensive purchase they’ll ever make and their most important investment.

While most people use professional help–a licensed real estate agent–the process can still be mystifying. Familiarity with a basic glossary of real estate phrases can help buyers and sellers clear up the confusion.

Pre-Approval/Pre-Qualification Letter
Mortgage lenders will research a buyer’s finances and will let buyers know how much they can afford to borrow. Then, they’ll write a letter to be attached to the purchase agreement to prove the buyer qualifies for the amount they’re offering. Many sellers will not consider an offer without a pre-approval letter attached to an offer.

The MLS, or Multiple Listing Service, allows direct access for real estate agents to find properties on the market and to make comparative market analyses of recent sale prices within a neighborhood. This can help determine how much to list for or to offer on a home. It’s much more accurate and comprehensive than general Internet sites.

Purchase Agreement
The PA is the written contract between buyer and seller that includes all terms and conditions under which a property will be sold. This traditionally includes the price, financing, earnest money, date of closing and possession, down-payment amount, contingencies and agent commissions. But PAs are extremely flexible and can include whatever both sides agree to as long as it is legal.

Make an Offer
Buyers make an offer by having their real estate agent deliver the purchase agreement to the seller’s agent. The seller can accept the PA or make a counter offer. When both buyer and seller sign the PA, it becomes a binding legal document.

Earnest Money
Also known as a “good faith deposit,” this is a percentage of the amount of the offer meant to shown that the offer is sincere. This amount becomes part of the down payment. If the deal falls through, the money is returned to the buyer, but if the buyer backs out once the purchase agreement is finalized, this money goes to the seller.

There are two kinds of inspections, seller’s and buyer’s. In some locations, sellers are required to have an inspection with the documents available to buyers at the property. Even if there is no legal requirement, a seller can choose to have a home inspection to give buyers confidence in the quality of the home. It can also protect sellers if the buyer later claims that there are problems.

A buyer’s inspector will go through a home looking for any problems in structural, heating, plumbing, electrical systems and more. Despite what you see on TV, no home passes or fails an inspection. If problems are found, buyers can use the inspection to negotiate repairs or a lower price.

Once a purchase agreement is signed, the mortgage company will hire a licensed appraiser to evaluate the condition of the home; it’s paid by the buyer and attached to the closing costs. A home can fail an appraisal. If an appraisal says that the amount offered is too high, the deal will fall through unless the buyer and seller can appeal the appraisal, renegotiate a lower price or the buyer can find cash to make up the difference. Government loans, such as FHA and VA, have stricter requirements than conventional loans.

Title Insurance
Title insurance protects against a cloud on the title, such as a long-forgotten lien or other encumbrance such as a long-lost relative with claim to the property, which would put doubt on the seller’s ability to sell. Title insurance can pay for costs to rectify these problems. Without title insurance, the cost from legal and other fees would be the buyer’s; with the worst-case scenario, the buyer might lose the house.

Condominiums and Cooperatives
Condos are individually owned apartment units; residents own the interior of their unit and pay dues, which can be nominal or substantial, to cover maintenance, repairs, security and use of common areas of the building. A condo differs from a townhome in that with a townhome, you own the building and the land beneath a home.

Co-op owners do not own their unit. Instead, they are shareholders in an association, voting on financial and management decisions. Often prospective shareholders who wish to live in a co-op are required to go through a vetting process and be approved. Famously, after he resigned, President Richard Nixon was denied the chance to live in a NYC co-op when residents voted against him.

Association Rules and Documents
When buying in an association, read the association documents carefully. They disclose the rules, regulations, bylaws and restrictions on an owner’s use of their property as well as the annual budget and financial records of the association. They are legally enforceable. If there is something you can’t live with, this is not the place for you. ■

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