Real Estate Terms You Should Know

Get Familiar With Commonly Used Terms in the Real Estate Industry

If you are involved in buying or selling real estate. Or, just for your general knowledge. There are numerous terms, commonly used jargon, in the real estate industry that make up a peculiar language all its own, which would be beneficial for you to learn. This jargon isn’t difficult to master, but there is real danger of hearing and using words you don’t fully understand.

Following are some basic terms that are often misunderstood:

MLS (Multiple Listing Service) — An organization that collects, compiles, and distributes information about properties listed for sale by its members, who are real estate brokers. Membership isn’t open to the general public, although selected MLS data may be sold to real estate listing websites. MLS’s can be local or regional. There is no “one” MLS covering the entire nation.

PITI — Principle, interest, taxes and insurance (PITI) are the four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing the money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

CMA — Comparative Market Analysis. A CMA is a report that shows prices of properties that are comparable to a subject property and that were recently sold, are currently on the market or were on the market, but not sold within the listing period.

Closing Costs — The entire package of miscellaneous expenses paid by the buyer and seller when the transaction closes. These costs include the brokerage commission, mortgage-related fees, escrow or attorney’s charges, recording fees, title insurance, etc. Closing costs generally are paid through escrow.

Contingency — provision of an agreement that keeps the agreement from being fully legally binding until a certain condition is met. One common example is a buyer’s contractual right to obtain a professional home inspection before purchasing the home.

Title Insurance — An insurance policy that protects a lender’s or owner’s interest in real property from assorted types of unexpected or fraudulent claims of ownership. It’s customary for the buyer to pay for the lender’s title insurance policy.

 


Helping The Kids To Buy A House

An Equity Sharing Arrangement Might Be The Answer

Parents helping their children invest in their first home is certainly not a new idea. We see a variety of choices being made in the marketplace. Some elect to co-sign on the mortgage with the children. It doesn’t cost Mom and Dad any money, but it may help the children qualify for a loan. Others either give or lend money for the down payment. A few even decide to put enough money to “buy down” the mortgage interest rate, allowing for the rate to be lower in the first few years, making it easier to qualify for the loan by lowering the monthly payment.

The concept of equity sharing, although used by builders and real estate investors, may also be one of the best methods for helping the kids buy a house. Shared equity allows the children to feel less indebted than with an outright loan, and at the same time gives parents an added tax advantage.

An equity sharing arrangement might work like this: The young homebuyers purchase a home jointly with their parents, they split the down payment and ownership costs including monthly payments, and the children rent the parent’s share of the home. The benefits to the young homebuyers include affording a larger home for less money, having lower down payment and ownership costs, ease of qualifying for the loan, and the beginning of building an investment portfolio. The benefits to the parents include helping the children to afford a home, receipt of rental income, financial and tax benefits, increasing their investment portfolio, and having a reliable tenant.

When the home is sold, perhaps after a specified period of time, the parents get back their initial investment, and the additional proceeds are shared in proportion to each one’s investment.

While shared equity can be arranged between perfect strangers, the beauty of this agreement is seeing a family investing wisely together, with both parents and their children gaining benefits they may not otherwise obtain alone.

Both parties should exercise due diligence by receiving counsel from experts in the areas of accounting, financial planning, and legal.

 


Title Insurance – Is It Really Necessary?

Often Required To Protect The Lender

Many of us often refer to a person who has “bought or sold” real estate. Even in newspapers we see advertised real estate for sale, yet it is only the “title” to real estate which can be bought or sold. Title is sometimes defined as the means whereby an owner is enabled to maintain or assert his possession in enjoyment of property. Another definition is that title is the evidence of right which a person has to the possession of property. As applied to the investigation of titles, the word “title” has acquired the sense of history. Therefore, searching the title, investigating the title, and giving an opinion of title all refer to the compilation and the interpretation of the history of the title, a service performed by the title company. The conclusions of his study into the history of real property are summarized on a policy of title insurance.

It should be remembered that title is synonymous with the words “right”, “interests,” “estate.” Such words are used to denote the degree, quantity, nature and extent to which a person may have an interest in real estate

An insurance policy that is written on title to real estate differs from every other form of insurance in its degree to indemnify an insured in the event of a loss by reason of a defect or flaw of title PRIOR to the date of policy. All other forms of insurance agree to indemnify the insured in the EVENT OF LOSS due to a FUTURE event and after the date of the policy

Basically, title insurance is the company’s opinion concerning the ownership and marketability of title to a particular parcel of real property. This can only be ascertained after a thorough and complete search of all the records affecting title to the parcel insured. A title company is a service organization and performs a service for those interested in buying, selling, or loaning money on real estate. When you purchase a title insurance policy, you are buying the services of experts. The company is willing to back the opinion of these experts with the additional feature of insurance.

Title insurance, in effect, insures marketable title which is, in essence, title that a prudent man, well advised as to the fact in law, would be willing to accept.

Title insurance policies, however, do not insure against several major areas which are either too difficult or too expensive to cover, including defects in title known to the insured, easements and liens not shown by the public records, interest of parties in possession, or matters requiring an accurate survey.

When dealing with real property, title of the seller cannot be assumed. We must ascertain and then be assured that what we bargain for is in fact owned by the seller. A purchaser of real property is not satisfied with assurance that he will not be dispossessed of his property or that no adverse claim may appear to harass his quiet enjoyment of the property. Every person, when purchasing real property, wants to know that he will be able to sell, lease, or mortgage the property freely. Because there are as many interests in land as there are leaves on a tree, a purchaser wants to be assured that his title to the land is marketable.

Title insurance is often required to protect the lender against loss if a flaw in title is not found by the title search made when the house is purchased. You may also get an owner’s policy to protect yourself. Also, attorneys provide title insurance as part of their services in examining title and providing a title opinion.

It is important to remember that a title insurance policy issued only to the lender does not protect you. Similarly, the policy issued to a prior owner, such as the person from whom you are purchasing the property, does not protect you. To protect yourself from loss because of a mistake made by the title searcher, or because of a legal defect which does not appear on the public records, you will need an owner’s policy. Such a mistake rarely occurs, but, when it does it can be financially devastating to the uninsured. When you buy an owner’s policy it is usually much less expensive if purchased simultaneously with a lender’s policy. In addition, if you are buying a home which has changed hands within the last several years, inquire at the title company that issued the previous title insurance about a “reissue rate” which could be a lower charge than the cost of a new policy.

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