Real Estate Terms That Sound Similar But Are Different
The people involved in real estate industry from real estate agent to mortgage brokers to home inspectors are familiar with terms synonymous with real estate. Every real estate transaction uses at least one of these terms and so it's important to know the meaning of each. Most home buyers and sellers on the other hand are only involved in a real estate transaction once or twice in their lifetime unlike a real estate agent who does this everyday, so these terms could easily be misunderstood. Knowing the correct terms when they apply to a buyer or seller is important, if you think you’re getting one thing and you’re actually getting something else that could be costly when buying and selling real estate. Working with a Realtor is is the best place to start as they can recommend other real estate professionals such as a mortgage broker to secure a home loan and determine closing costs and a closing attorney / settlement agent who are familiar with real estate transactions. Regardless of the real estate market a lot can happen in the world of real estate between signing the purchase agreement and closing on the house. Here are some common terms used in real estate everyday that sound similar but in fact have very different meanings.
Pre-Qualified Versus Pre-Approved
Getting pre-qualified and pre-approved for a mortgage are both important steps in the home buying process, but they serve different purposes.Pre-qualification is a preliminary assessment of a borrower's creditworthiness and ability to obtain a mortgage. This typically involves providing some basic financial information, such as income and assets, to a lender. Based on this information, the lender can give the borrower an estimate of how much they may be able to borrow. Pre-qualification does not involve a credit check or verification of the information provided by the borrower, so it is not a guarantee of approval. The mortgage broker has to figure whether an adjustable-rate mortgage or a fixed-rate mortgage should be used whether an FHA or conventional loan, the mortgage interest, so there is a lot of number crunching to be sure the pre- approval is warranted.
Pre-approval, on the other hand, is a more thorough process that involves a credit check and verification of income and assets. To get pre-approved, a borrower will need to complete a mortgage application and provide supporting documentation, such as W-2s, pay stubs, and bank statements. The lender will then review the information and provide the borrower with a pre-approval letter stating the maximum amount they are willing to lend. Pre-approval is a stronger indication of the borrower's ability to obtain a mortgage, as it involves a more detailed analysis of their financial situation.
One key difference between pre-qualification and pre-approval is the level of certainty they provide. Pre-qualification is a preliminary estimate based on limited information, while pre-approval is a more definitive statement of the borrower's creditworthiness. As a result, pre-approval can give borrowers more leverage in negotiations with sellers, as it shows that they are serious buyers who are likely to secure financing.
What Is The Difference Between Title Insurance And Homeowners Insurance
Title insurance and homeowners insurance are two types of insurance that protect the property owner in different ways. Title insurance protects against any defects in the title of a property. This can include issues like fraud, liens, or errors in public records that could prevent the buyer from taking clear ownership of the property. Title insurance is typically required by lenders and is paid for by the buyer during the closing process. The cost of title insurance is based on the purchase price of the property and can vary depending on the location of the plot of land and other factors. It is usually a one time payment purchased at closing and is designed to protect the mortgage lender and the purchaser in the rare case that there is not a clear title to the property. As property is transferred from one party to another that is considered real estate the buyers' need to know they are protected from anything the seller may have done in the past.
Home insurance, on the other hand, protects against damage to the physical structure of the property and personal property inside the home. This can include damage from natural disasters, theft, or accidents like fires or water damage. Home insurance is typically required by lenders, but can also be purchased by homeowners even if they own their home outright. Home insurance policies can vary from state to state in terms of coverage and cost, depending on factors such as the home's location, the age and condition of the home, and the amount of coverage the homeowner wants. Home insurance does have limitations and exceptions and it is important to know what is actually covered and what events natural or man-made are not. If your house is in a floodplain you will need to have separate insurance on top of your regular insurance. If you have been in your home for a while and the home's value has increased it is suggested that you adjust your policy to reflect the new value of the home. Home owners insurance will affect the monthly mortgage payment as will property tax and mortgage insurance if applicable
What's The Difference Between A Home Inspection and An Appraisal
A home inspection and an appraisal are very different and play completely separate roles in the transaction, in fact if the buyers are paying cash an appraisal is not needed although it wouldn’t hurt to get one. A home inspection is also not technically needed but most home buyers choose to have one even with a new home. An appraisal is what the bank uses to determine what the home is worth when a home for sale. The bank wants to know that the money they are lending you to buy the house is fair market value and not more than they would be able to recoup should the borrower go into default. The appraiser visits the property, measures to determine the square footage and the size of the rooms. They will make note of the general condition of the home and then find the closest most recent sales of similar homes. They typically use the three most recently sold homes as comps and make adjustments accordingly to confirm the market value of the home is the same as the sale price. If they find the home is overpriced and will not appraise for the sale price the next step would be the buyer and seller agree on what to do. It is the job of the listing agent to provide the seller with a comparative market analysis before the home sale by finding similar properties that have recently sold. It is however the seller who determines the asking price. As the home increases in value over time the home equity built up will take longer to achieve when the property is over valued.
A home inspector is not as concerned with the sale price but rather with the condition of the property, the electrical, plumbing, HVAC and appliances are some of the items a home inspector will be checking. The agreed upon sale price is often the first hurdle in the negotiations after that comes the repair request after the home has been inspected. The home buyer hires the home inspector to perform tests and inspect the home to discover any defects or concerns before committing to buy the home. Nearly every home has some defect and some have so many the buyer may decide to pass on the home, structural issues, termite or water damage, mold are usually reasons a buyer may terminate the purchase agreement but they may lose their earnest money. Upfront discussions with your real estate broker is key if the property is anything that will cost a lot of money in order to maintain.
A good home inspector recommended by your real estate agent will explain each of their findings to the buyer's and whether an item is of a serious nature or not. The sales price may be relevant in that the house may be such a good deal a few minor problems won’t hurt or it may be priced that high that it should be as close to problem free as possible, this is up to the buyer to decide. In a seller’s market it may be the case that the sellers will refuse to make any repairs knowing they have other buyers lined up that won’t care. Sadly in the over heated real estate market from 2020 - 2022 home buyers were waiving home inspections and appraisal contingencies in order to get their offer accepted.
Plat Map And Survey
A Plat map is usually a certain phase of a subdivision or even the whole subdivision if it’s small enough. It shows the roads, lots, and common areas. It may also show easements and future developments. A plat map gives an overall view of a street or subdivision and can be used to determine the density of houses, future expansions and natural features. It does not give a precise location of a home or the exact measurements of the lot lines.
A survey on the other hand is purchased by the buyer before closing and is a much more precise indication of the property's boundaries, the location of the home on the lot and any easements or infractions on the property including all structures permanently attached to the land. A survey is very important if buyers want to install a fence, plant shrubs or trees along the property line and helps when it comes time to sell the property.
It used to be required by certain loans but these days is often left to the decision of the buyer and is often overlooked as an unnecessary expense. That is until a problem shows up and the initial expense looks like a pretty good deal. For example, as hard as it is to believe, homes sometimes get built on the wrong lot or too close to the lot lines or over the lot lines. A fence that looks like it should be on the property is actually on the neighbors or vice versa. Perhaps you are planning to build an addition or a separate garage or workshop and you find out there is an easement on the property requiring a setback this would have been discovered had a survey been done prior to closing.
Settlement Date And Closing Date
Now most of the time the settlement date or closing date is the same day you move into your new house. However a couple of things have to happen before you get the keys and every once in a while they don’t happen on the same date. Technically the house is not the buyers until the deed is recorded at the county courthouse or relevant municipality. You may find the settlement procedure different in other states but one or two changes at the closing table could be enough to delay the settlement.
Agents need to make the buyer and seller aware of potential delays and they need to be careful that all the paperwork is accounted for. Getting the loan funded and documents signed all has to happen first and then the attorney can record. While this can now be done electronically in some places the time difference is much shorter but if upon closing a legally binding document is missing or incorrect it can mean walking out of the closing without the keys to your new house. Being aware of this rare occurrence ahead of time is very helpful with planning a move and this is why you never want to have the closing date be on a Friday afternoon. If the property is not recorded the buyers cannot take possession and the sellers get to live in the house for two more days.
Buyer’s Agent/Listing Agent
A real estate agent is an individual who assists buyers and sellers in the home sale process. They should be experts in their field that can provide valuable advice to both parties. A listing agent works with the seller's side of the transaction, helping them list their home, market it, and handle negotiations on the sale. On the other hand, a buyers agent assists buyers throughout the process, from researching homes to making offers and conducting inspections. They are often hired by buyers to represent them during the purchase of a home and provide important insights into the local market. While both types of agents have an important role in sales transactions, they ultimately serve different purposes for each party involved in a home sale. A licensed broker does not have to a member of NAR or the national association of Realtors® but they often have additional certifications and designations. Here is a good article from Bankrate called Listing Agent vs. Selling Agent
Thank you for reading my blog post! As a real estate agent in the Clayton/Raleigh Area with years of experience, I strive to provide valuable insights and information to help you make informed decisions in your real estate endeavors. If you have any questions or would like to learn more about the services I offer, please don't hesitate to reach out. I'm here to help you navigate the exciting world of real estate! (919) 601-2268 | [email protected]
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