Whether you are buying or selling a home during a real estate transaction you are going to run into a few terms you are unfamiliar with. Below is a list of common real estate terms – and not so common terms – that you can reference as you move forward with your purchase or sale.
In a hot real estate market it is not uncommon for you to find the perfect home right as another buyer is signing a contract with the seller. While this can be frustrating, not all hope is lost. Real estate deals fall through all the time, for a myriad of reasons. You may not have control over whether the deal goes through, but you can make a backup offer that will put you first in line should the seller need another buyer.
A backup offer may not guarantee that you get the home you want, but it is a useful tool to keep you in the running in the unpredictable world of real estate transactions. See how a backup offer works in real estate sales. Understanding a backup offer well could be the key to getting the home you want!
Closing Cost Credit
Closing cost credits are a common request you will get from buyers when selling a home. They are also often referred to as seller’s concessions when a credit is given for something other than closing costs.
While at first, it can seem strange to be asked to help a buyer purchase your home, closing cost credits can be quite useful. They give the buyer more breathing room to take care of all the little things that need taking care of after purchasing a home, and they help you close a sale.
For instance, as a seller, you may be able to get a buyer to agree to purchase your home with existing problems by offering closing cost credits. The buyer can use the money saved to make the improvements after purchase.
It is always important to clarify with a real estate agent who he or she represents – because it may not be you, or just you. In the case of dual agency, an agent will take over the role of buyer’s and seller’s agent, serving both the buyer and seller in a real estate transaction.Some states have made dual agency illegal, while others have strict rules that must be adhered to during dual agency. Whatever your state’s laws concerning dual agency, the fact is that it is an arrangement that does not serve your best interests.
In most transactions, the buyer wants to buy for as little money as possible, while the seller wants to sell for as much money as possible. Those two goals are at odds with one another, which means that a dual agent cannot effectively serve both parties. You are much better off with an agent beholden only to you, whether you are a buyer or a seller.
What many real estate agents do not understand about dual agency is you CANNOT by law give either the buyer or seller any pricing advice. The agent essentially must become a neutral party. In dual agency, both the buyer and the seller give up someone in their corner fighting for their best interests.
It is an awful arrangement. The only real winner in dual agency is the real estate agent. This is one of the benefits of having the Marr Team on your side, we have a sellers and buyers agent so that one never represents both sides.
An escalation clause is legal jargon a buyer can put in an offer that states that the buyer will outbid other offers on a home up to a certain price point. Escalation clauses are more common in seller’s markets. Escalators are designed to help a buyer win a bidding war which becomes quite common in hot real estate markets. While an escalation clause can be useful for the buyer, some sellers may find the addition of such a clause confusing. The seller may wonder why the buyer did not offer more if he or she was willing to pay the ceiling amount for a home. With an escalation clause, it becomes important that the listing agent understand them – many do not.
MUD (Municipal Utility District) Tax
A Municipal Utility District (MUD) is a political subdivision of the State of Texas authorized by the Texas Commission of Environmental Quality (TCEQ) to provide water, sewage, drainage and other utility-related services within the MUD boundaries. Municipal Utility Districts are funded through bonds. Homeowners then pay off those bonds through MUD tax. As the debt decreases, MUD taxes may also decrease over time. Some neighborhoods, such as Light Farms, is in a MUD.
PID (Public Improvement District) Tax
A public improvement district (PID) is a taxing entity which can finance, construct and maintain public improvements. A PID may be formed to address any type of public improvement or service. It has authority to issue debt and to impose a mill levy against real and personal property within the district. Some neighborhoods, such as Mustang Lakes, is in a PID.
Pre-Qualification Vs Pre-Approval
Sellers need to know the difference between pre-qualification and pre-approval letters from a lender. A pre-qualification letter is relatively easy to get and simply states what the estimated borrowing ability of a buyer. A pre-approval letter is much more involved, requiring most of the documents and verification necessary to get a mortgage loan. When you are selling, you want a pre-approval letter to prove that a buyer is really in a position to purchase your home.
A pre-qualification letter is most useful for buyers who want to get an idea of what price range they can shop in. It is not adequate for a seller considering offers from buyers. If you are selling, do not settle for anything less than a pre-approval letter.
With a pre-approval the lender will mention that they have run the borrowers credit, as well as verifying their income and employment.
Private Mortgage Insurance
Private mortgage insurance, also referred to as PMI, is insurance that a lender will force you to take out as a buyer if you put down less than 20% on your home. PMI is there to protect the lender, who considers you a greater risk based on your lack of down payment.
Unfortunately, private mortgage insurance can boost your monthly mortgage payment noticeably, so most home owners are eager to get rid of it. The most straightforward way to eliminate PMI is to reach 80% of your mortgage. You can also try creative options like refinancing, appraisal, and remodeling.
Many home buyers will, in fact, go out of their way to avoid paying private mortgage insurance. Often seeking other means of getting a loan that doesn’t require putting down twenty percent. Private mortgage insurance is a good thing. Without it, many buyers would not be able to get into a home.
Right of First Refusal
A right of first refusal clause is a valuable tool for sellers who find themselves dealing with a home sale contingency. A home sale contingency is a clause that some buyers will put into offers that state they will buy a home – but only if their home sells first.While the home sale contingency is quite convenient for the buyer, it puts the seller in a weak position. But a right of first refusal clause provides an alternative for the seller.
The right of first refusal clause allows you to keep your home on the market. If you get an offer on the home, you inform the first buyer and give him or her a specified amount of time to eliminate the home sale contingency and purchase the home – typically 24 to 72 hours.
Real estate title insurance is a type of insurance that covers financial loss from defects in title to real property and the invalidity of mortgage liens. If a lawsuit attacks the title of your home due to defects in the title, the insurance protects you financially. Lenders will offer the option of purchasing title insurance when you take out your mortgage. It is a one time fee for the insurance, which can be a substantial extra cost when added to all the other costs of buying your home. While it is a significant one time fee to a buyer, it’s worth it!
These are a just a few of the critical real estate terms buyers and sellers should understand. When buying or selling a home, it is important to be well educated with the help of a great agent helping along the way. Give us a call today, we would love to help you with your real estate needs.