On to C & D, realty terms buyers should know.
Caveat Emptor Latin for “let the buyer beware”. It means buyers need to perform their own checks, inspections, and research to ensure the property is as described and worth the purchase price.
Certificate of Title A document that identifies who owns a property. It often comes in the form of a deed and is recorded with the county the home was purchased in. When a home is sold a transfer of title will be accomplished to identify the new owner.
Closing When new ownership of a property occurs, according to the terms in the sales contract. This typically occurs at an attorney’s or escrow agent’s office. The transaction will be recorded in the county of purchase, passing ownership from the previous to new owner.
Closing Costs Closing costs are paid by the seller and buyer at closing. Some of the more common payments include any appraisal costs, agent commissions, deed filings, inspection fees, legal costs, lender fees, prepaid interest, property taxes (prorated), and transfer taxes.
They are tax deductible, and typically paid through escrow. Non-recurring closing costs are paid once (i.e. title insurance) while recurring closing costs (i.e. property taxes) are paid periodically.
Co-Broke Co-broke is when two brokerages share the commission on a home sale. One broker typically represents the buyer and the other the seller. The commission and split is determined at the onset of the real estate transaction.
Code of Ethics The Code of Ethics is a standard of conduct required by the National Association of REALTORS® on its members. It contains 17 articles that describe the performance and service duties as they apply to assisting clients, customers, other members, and the public in general.
Collateral Collateral is either property or other assets a buyer offers to secure a loan. If the loan is defaulted on, the collateral item(s) become the property of the lender. They are considered secured loans and will typically have a lower interest rate than an unsecured loan. For real estate mortgages, the collateral is the home with the loan against it.
Comparative Market Analysis (CMA) A CMA is an in-depth review and analysis of a home by a real estate agent to determine the fair market value of a home. Items considered include size, condition, location, and the amenities the home possesses in comparison to similar properties.
Commission The payment made during closing to the brokerages represented in the purchase and sale of a home. It is a percentage of the purchase price and can vary depending on type of transaction, pre-negotiated percentages, location, and any number of other factors. It is identified upfront in writing.
Commission Split A commission split is the sharing of commissions between the listing agent and the broker of the buyer.
Commitment Fee The commitment fee is a fee paid to the lender for assuring the loan will be available at a future date, regardless of economic conditions. It is often referred to as an origination fee. The lender guarantees an interest rate, for a set period, while the home purchase is ongoing.
Compensatory Damage Often associated with money lost as a result of a breached contract. Courts will determine the actual compensation received.
Conforming Loan A conforming loan meets the loan terms and amount financed requirements (currently $417K to $721K depending on the area) for loans set forth by Fannie Mae and Freddie Mac. Loans over that amount are considered jumbo loans (see below).
Construction Loan A short-term loan (usually 1 year or less) to obtain funds to construct a a property or make a major home addition or improvement. They are variable rate loans that often have higher interest rates than traditional mortgage loans.
Contingencies Provisions in a contract giving buyers an opportunity to back out of a contract if certain events or conditions fail to occur (i.e. house does not appraise, inspection issues, etc.). Sometimes a home purchase is contingent on the buyers ability to sell their existing home.
Conventional Mortgage Loan A loan that is not insured by the Federal Housing Administration, often characterized by having strict guidelines on loan requirements. A benefit is these loans can be used to secure mortgages for second homes.
Conveyance The transfer of title or property to another person (the buyer) after a set of conditions are met (closing).
Counter-Offer An offer made after a previous offer has been rejected, either by the buyer or seller. All previous offers are void unless re-negotiated.
Credit Report A report detailing the credit history of an individual, made available by a credit reporting agency. Items you will find on the report include credit cards, outstanding loans, list of employers, as well as addresses lived.
Credit Reporting Agency There are 3 major credit reporting agencies, Equifax, Experian, and TransUnion. They collect and sell consumer credit history information to banks and mortgage lenders. They are regulated by the Fair Credit Reporting Act. Annually, you can receive a free copy of your credit report.
Credit Score A numerical rating calculated from your credit report that helps lenders determine your credit worthiness based on your past history, payment record, and current financial status. A higher credit score can help buyers obtain a lower interest rate on their mortgage. The scoring system goes up to 850.
Debt-to-Equity Ratio A measure used by banks as a condition to providing a mortgage, often with equity cash provided by the buyer. It is often called loan-to-value ratio and is used to determine how much money the lender will make available.
Debt-to-Income Ratio The percentage of your monthly gross income used to pay your housing costs is the front ratio. The back ratio is any additional consumer debt you may have. The qualifying ratio is determined by the type of loan you are seeking to get (33/38 percent is fairly common).
Deed The document that transfers ownership of property from the seller to the buyer. The transfer of real estate must be in writing.
Deed Restriction A deed restriction is a limitation on what you can do to a property that is often placed by a homeowners association in the way of conditions, covenants, and restrictions.
Depreciation A loss of property value that can result because of the condition of the home, economic factors, and the age of the property. If the home has depreciated below the existing loan amount, you have negative equity.
Disclosure Typically when sellers disclose major home defects (i.e. electrical, plumbing, roofing, flood zone issues) so the buyer is aware of the issues before purchasing the home. By law, sellers have to disclose the presence of lead-based paint in homes built before 1978.
Discount Points A payment made by the buyer to the lender during closing to secure a lower interest rate on their mortgage. Each point generally costs 1% of the loan amount and lowers your interest rate by a predetermined amount (i.e. 0.25%). A 0.25% discount on a 4.0% interest rate would make the new rate 3.75% over the life of the loan.
Down Payment This is essentially your deposit contribution to the property you want to buy. You will make a real estate down payment before you take out a mortgage, lowering the mortgage amount by the amount of your down payment. Generally down payments need to be at least 3% – 20% of the property value.
As an example a house that costs $200,000 will require you to make a down payment in the region of $6,000 to $40,000 depending on the lenders criteria. Some loan types do not require a down payment…check with a lender to find out what options are available in your area.
Dual Agency A dual agent is a broker or salesperson who represents both the buyer and seller in the same transaction.
Due Diligence Due diligence is checking all aspects of the property before buying it to ensure it is structurally sound and as described.