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What is “Buyer Agency” in Real Estate? And Why You Need it!

What is “Buyer Agency” in Real Estate? And Why You Need it!

What is Buyer Agency in Real Estate?

If you’ve bought or sold real estate in Maryland since 1999, you’ve been given papers explaining Agency, among the myriad of paperwork your real estate agent hands you.  As a buyer, your agent explained buyer agency to you and gave you a “Buyer Agency Agreement”. If you are a seller, your listing documentation explained the agency relationship you have with your listing agent.

Agency is Representation

Maryland is a progressive consumer advocacy state, and as such, was on the cutting edge of the issues of Agency and Representation, compared to many of the states in the U.S. Before Jan. 1, 1999, all Real Estate agents in Maryland represented the seller, (worked for the seller’s best interest). There was no representation for a home buyer, no one to negotiate on their behalf, legally.  Prior to that time, there was a lot of confusion, a lot of misleading information, and a lot of ignorance of the issue. With the advent of Buyer Agency, we (Chris and I) believe the real estate industry improved tremendously. So what is buyer agency in real estate?

A.  Agents Who Represent the Seller

1.  Seller’s Agent –

The agent that lists and markets the property.  He exclusively represents the seller. His duty is to the seller, even though he may assist a buyer who is unrepresented. In the case of an unrepresented buyer, the listing agent must give fair and ethical treatment to the buyer, but his fiduciary responsibility is to the seller.

2.  Cooperating Agent, or Subagent –

An agent from a different brokerage than the seller’s agent, can assist the buyers in purchasing, but has a duty to the sellers. Again, the agents owe fair and ethical treatment to the unrepresented buyer, but still have a duty to represent the best interests of the seller.

If you read that correctly, buyers, hopefully you’re wondering, “Who would want that?? It sounds like the deck is stacked unfairly.” We think it is, too.

B.  Agents Who Represent the Buyer

1.  Buyer’s Agent –

When working with a buyer, an agent must get a written agreement between the buyer and themselves – a Buyer’s Agency Agreement. Then, the agent represents the interests of the buyer, may negotiate on their behalf, and has a fiduciary duty to the buyer. It is also known as Buyer Representation.

2.  Dual Agent –

this one is tricky because it is different in different states. In Maryland, a real estate agent may not represent both the buyer and the seller. It’s illegal. It really is a conflict of interest in a negotiation. How can an agent “represent” the best interest of a buyer AND a seller, when they are negotiating? They both have opposing objectives, for the most part…the seller wants to get the best price and conditions, and so does the buyer. In Maryland, the Broker is the only one who can be a Dual Agent. Here’s how that works:dual agency is a no-no

Most of the time, home buyers who are serious and educated on the process will work with a buyer’s agent. However, when an agent shows their own listing to an “unrepresented” buyer, and that buyer wants to write an offer on that listing, they have two choices:

  • The unrepresented buyer can work with the listing agent, who must offer what Maryland law calls “ministerial acts”. This means they owe the buyer fairness and good service. They help them put an offer together. But they don’t represent the buyer. They are still negotiating on behalf of the seller. They have no duty to make sure the buyer gets the best price or terms. That duty is to their seller client.
  • The other choice, if the buyer wants representation, (and if the agent is smart) is that the Broker will assign another agent from the same brokerage firm to represent the buyer. In the situation where a buyer and seller are working with agents from the same brokerage, the Broker is the Dual Agent. He or she must stay neutral in the representation of the buyer and the seller, but their respective agents are negotiating on their behalf and representing their interests.

If Dual Agency is legal and a practice in your state, you will want to tread carefully. Dual Agency, even if it is legal, does not serve anyone but the agent. Check out fellow real estate blogger, Bill Gassett‘s informative article, What is Dual Agency: Why Buyers & Sellers Should Avoid it, for a detailed look at the unfair practice.

With dual agency – when the agent represents both buyer and seller – the agent can’t push for what is best for you or the other client. The agent collects twice the commission but does almost none of the specific work of a seller’s agent or buyer’s agent. Dual agency only benefits the agent and should be avoided at all costs if you want a positive buying or selling experience.”

No More Presumptions!

As of October 1, 2016, in Maryland there is no more Presumption of Buyer’s Agency – what used to be the instance where there was no written agreement, but the agent could show houses to the buyer.  There was the presumption that the agent was working for the buyer. Yes, it was as confusing for most people as it sounds. During the course of working with the agent, the buyer would typically sign an agency agreement, certainly before making an offer on a house.

After October first, of that year, the Maryland Real Estate Commission did away with presumed agency. Now, as per law, the first time a buyer meets with a prospective buyer’s agent, they should sign a buyer agency agreement. The terms of the buyer agency agreement are entirely negotiable. A buyer can hire a buyer’s agent for a day, a week, a month, or a year, or any time period of their choosing.

Why A Buyer Should Have Representation

Why should you want buyer representation? A buyer’s agent offers a lot of value to today’s home buyers. In most cases, the buyer’s agent is earning their commission from the home sellers. Typically, the listing agent negotiates a fee from the seller, and has agreed to share the commission with a “cooperating agent”. So it is no cost to the buyer.

When you consider the many moving parts of a real estate negotiation, it is a big benefit to the buyer to have an agent to represent them, helping them find a home that meets their criteria, as well as a local lender who has the right loan product for their needs.  An experienced local buyer’s agent helps to determine a price and a negotiating strategy. A buyer’s agent will be able to do a comparative market analysis, CMA, that will help the buyer make a good offer.  As a buyer, you don’t want to overpay, but you also don’t want to lose in a competitive bidding scenario. You want to make sure that the home will appraise close to your offer price, if you are financing the house.

Should you use a buyer’s agent for a new construction home? When you visit the model home in a new neighborhood, you will talk with the builder’s sales representative (emphasis on that word). The sales agent is representing the builder. The truth is, just like any other type of real estate transaction, you need a buyer’s agent to look out for your interests. There are too many potential pitfalls and complications involved in the process of a new home purchase to guarantee a good result unless you have help. Find an agent who is experienced with new home construction and you will minimize a lot of that risk…and a lot of stress!

Realtors® Represent Every Day

Real estate agents are working in the local market every day. They see the inventory, know the values, and they are negotiating all the time. Most homeowners buy and sell every 7 or 8 years, and most people don’t experience negotiations as an everyday event. Even if they did, real estate negotiations are vastly different from other types of negotiation. Without an agent representing you, you are at a disadvantage. It’s great to have an advocate on your side.

So, I hope that makes it clearer. Sometimes it takes a conversation to really explain these things well. Be sure and ask your Realtor® to explain it, not just hand you a disclosure about Agency.


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eXp Realty
Frederick, Md 21701
301-401-5119/cell  888-860-7369/Broker

Rent Vs. Buy 2018 – Explaining Housing Affordability

Rent Vs. Buy 2018 – Explaining Housing Affordability

🏘Explaining Housing Affordability

RENT VS BUY. Is 2018 your year to buy a home? We’ve spend 25 years helping people in Central Maryland answer that question. Usually, the answer is based both on math and economics, and on your personal situation. First, lets talk about the math…affordability. What exactly does the term “Affordability” mean?

The National Association of Home Builders (NAHB) and Wells Fargo have been calculating the Housing Opportunity Index (HOI) for more than 30 years. The surveys are released quarterly and take into account two things, income and housing. The survey covers 237 metropolitan areas across the U.S. as well as the national averages. According to the latest HOI survey released on May 10th, rising wages have offset rising home values and interest rates, boosting housing affordability.

The latest HOI data show “61.6 percent of new and existing homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $71,900. This is up from the 59.6 percent of homes sold that were affordable to median-income earners in the fourth quarter of 2017.”

➗How is the HOI calculated?

The housing cost calculation takes into consideration the price of homes and the interest rate. Today’s low-4% rates have made a huge impact on housing affordability. “Average mortgage rates rose by nearly 30 basis points in the first quarter to 4.34 percent from 4.06 percent in the fourth quarter of 2017.” Remember,these rates are still low compared to historical rates, which average around 7 percent. To understand the impact of interest rates on affordability, read this handy chart: Interest Rates and Home Affordability.Rent VS Buying a Home - explaining housing affordability

For income, NAHB uses the annual median family income estimates published by the Department of Housing and Urban Development. They use the figure of 28% of gross income as an average amount home buyers can afford to spend on housing. Divide the 28% of average income by 12 to come up with a monthly amount allowable for a mortgage. Keep in mind that FHA limits are 31% for mortgage costs.

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⚖Affordability in Frederick Md

When explaining housing affordability, remember that local markets are different. While the National Affordability Index is at 61.6%, the local markets vary.

Washington DC, NVA, MD HOI

Frederick is a sub market of Washington D.C., which has an affordability index of 70.6%. The median income for the D.C. area is $$112,792, the median home price is $560,000.

Frederick MD HOI

The median income for Frederick Md households is $65,967, according to Google, and the median home price in Frederick is $325,000. Incidentally, without an exact number, I’m willing to guess that the affordability index for Frederick is similar to Washington D.C., Rockville and Bethesda, primarily because of home values.

Hagerstown-Martinsburg MD-WV HOI is 84%. The median home price is $149,000; the household income is $55,862.

Incidentally, the MOST affordable area is Cumberland Maryland, where 98.5% of households can afford the median priced home of $80,000.

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🏡Should I Rent or Buy in Frederick Maryland?

Given the fact that Frederick County is very affordable, compared to metropolitan areas nearby, and given the fact that home values are on the rise, let’s establish that it is generally a good time to get into homeownership. The real questions you must answer are about your personal situation.

For some people, buying their home makes the most sense, and for others, renting is best. Here are six questions to help you determine if 2018 is the right time for YOU to buy:

Note:  Some of the answers might surprise you so read on…

💲1. Do you have savings?

Even though there are a number of zero down payment programs, you must plan for closing costs and many other one-time expenses as a homeowner. Insufficient savings may not prevent you from buying a home but it is a strong indication that you may not be prepared for the ongoing financial requirements of homeownership.

Rent VS Buying a Home - explaining housing affordabilityHow much should you have saved? It depends on what price range you are considering, as well as the loan you will be using. With an FHA financed loan, you will need to have 3.5% for a down payment. On a $325,000 home (average in Frederick) that is $11,375. You will have some other expenses, like the home inspection, typically $400 to $500. You may have some closing costs, like origination fees, and fees from the title company, typically 2% to 3% of the purchase price. Sometimes buyers can negotiate with the seller to pay closing costs, but its best to be prepared.

How much do you need for a downpayment on a home? For most first-time buyers, FHA loans are a great choice, with low-downpayment and common sense qualification criteria. But there are also conventional loans and VA loans to consider. The downpayments will vary with each loan and each lender.

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💳2. How much debt do you have?

A lender will calculate your debt-to-income ratio, which is different for each loan product. Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income.  A conservative number to shoot for is having a mortgage that is 28% of your income. This is called the front-end ratio. Most mortgages have a maximum back-end DTI ratio of 43%. The back-end ratio takes all your debt into account.

You can do a quick calculation and decide how you fare in the category of debt. To calculate your debt-to-income ratio, add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is the amount of money you have earned before your taxes and other deductions are taken out.

If you are thinking about a home purchase you’ll want to plan ahead to minimize your debt. You’ll want to consider foregoing a new car purchase. You’ll want to pay down your credit cards and pay off some debts.

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📊3. How is your credit score?

Your credit score is an important asset. Your lender will consider your score as an indication of your credit worthiness. Typically, the higher the score, the lower your interest rate. Additionally, your credit history is important. While you can always find a lender to lend you money, solid lenders are more skeptical if your credit history is not good.Credit Score

Minimum Scores. While FHA and Freddie and Fannie have minimum scores, (A minimum of 580 is necessary to make the minimum down payment of 3.5%.) many lenders have their own requirements. (FICO credit scores start at 300 and go up to 850.) Most lenders require a score of 620 to 640 to qualify. The higher your credit score, the lower risk you are. The lower risk you are, the lower your interest rate. Shoot for a high credit score, not a minimum score.

Related Article: How to Build A Credit Score Lenders will Love

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📈4. Is your employment situation steady?

While we can never predict the future, you probably have a sense of your job or business security. If you’re working for a start-up company, you probably want to wait for a secure situation. The last thing you want is to saddle up with a mortgage and then find yourself unemployed, or underemployed.

🕰5. Are you going to be around for a while?

Again, we can’t tell the future, but you’ll want to be sure that you can stay in your home for a minimum of five years. If you expect to get a job transfer within a few years, you may end up paying money in order to sell it. You’ll want to make sure your home value increases enough to cover the costs to sell your home.

The length of time that it will take to cover those costs depends on various economic factors in your area. Currently in Maryland we’re seeing an average of 3-5% appreciation per year. This is considered normal and healthy and will cover buying and selling costs in about five years. If the area you buy your home in experiences an economic up turn, the length of the time to cover these costs could be shortened, and in the unfortunate circumstance of an economic downturn, the opposite is also true.

How long will the home meet your needs? What features do you require in a home to satisfy your lifestyle now? Five years from now? Depending on how long you plan to stay in your home, you’ll want to make sure that the home has the amenities that you’ll need. For example, a two-bedroom home may be perfect for a young couple with no children. However, if they start a family, they could quickly outgrow the space. Therefore, they should consider a home with room to grow. Could the basement be turned into a den and extra bedrooms? Could the attic be turned into a master suite? Having an idea of what you’ll need will help you find a home that will satisfy you for years to come.

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👷‍♂️6. Are you ready for the responsibility?

Rent VS Buying a Home - explaining housing affordabilityThere are costs and responsibilities with homeownership that most renters are not accustomed to, things the landlord took care of. Home insurance, home maintenance and repair, appliance replacement, and home maintenance and repairs are all important considerations. Most experts suggest you save 1% of your home’s value every year. Saving for long-term projects, like replacing the roof or the HVAC system, will save you the emergency of the cost of replacement when there is a sudden breakdown of a major system, or the inevitable replacement because of age.

Your home is probably the most expensive purchase you will make in your lifetime. It is a place to build your nest, both figuratively and literally…your financial nest egg. You will want to take care of the maintenance of your home regularly to maintain its best value throughout the years you own it.

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😀Is This the Right Time to Buy a Home in Central Maryland?

Once you have crunched all the numbers, considered your financials and future employment, the decision is really about lifestyle. For most Americans home ownership is the most likely method to build wealth. It is also the way to create a lifestyle that best suits you and your family. Those intrinsic desires are best accomplished in your home…paint the walls the way you want, plant a garden, get a swing set, and enjoy the freedom to build a nest, both financially and metaphorically. Rent vs buy – explaining housing affordability, we hope it helps with your plans!

If 2018 is your year, give us a call and we’ll help you find your nest.

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Chris Highland, Broker eXp Realty Maryland
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What is the Difference Between FHA and Conventional Loans?

What is the Difference Between FHA and Conventional Loans?

What is the Difference Between FHA and Conventional Financing?

For first time home buyers the terminology of loans can be confusing, and sometimes the answers are misunderstood when explained in real estate jargon. The three basic categories of financing are either FHA, VA, or Conventional. Here’s a brief rundown:

1. FHA – Insured Financing. 

FHA stands for Federal Housing Administration and was created in 1934. The Federal Housing Administration doesn’t actually lend FHA Loansmoney to home buyers. Rather, it insures the loans that are given to qualified home buyers, by FHA-approved lenders. FHA loans are a type of government assistance and have lending standards that are less stringent than other types of loans.

The minimum credit score of 580 is a bit lower than that required by lenders of conventional loans. [And 580 is just the FHA’s guideline – individual banks and mortgage lenders still need to agree to offer such loans. So there’s a very good chance you’ll need an even higher credit score.]

Also, the credit score isn’t the only aspect of the buyer’s credit-worthiness; FHA takes into consideration the buyer’s payment history, and what they refer to as common sense lending standards. If you have had credit problems in the past, the FHA recommends a Consumer Credit Counseling program to avoid being denied an FHA loan.

The downpayment required on an FHA loan is 3.5%, this is less than conventional loans. The maximum seller contribution allowed is 6%.

Historically, FHA-insured loans have made it possible for lower income Americans to purchase a home that they otherwise wouldn’t have been able to afford. FHA loans are the most popular choice of first-time home buyers, mainly because they often don’t have the money for a higher downpayment. They also don’t have the mortgage history which so often helps in building a higher credit score.

In today’s real estate market, with historically low interests rates that are poised to go up as the economy recovers, many first time buyers are opting for FHA loans with lower down-payments. Rather than waiting to save enough for a 20% downpayment that is necessary for many conventional loans, taking advantage of an FHA loan at today’s interest rates is a smart move. In the time that it would take to save that amount, interest rates will very likely rise and mitigate against the monthly savings from a higher down-payment.

FHA loans require private mortgage insurance to protect lenders from possible default. Every month, a mortgage insurance premium, MIP is added to the monthly payment. This mortgage insurance was just lowered in 2015  from 1.35% of the premium amount, to .85%. This will save an average of $900 a year.

The other change that just took place is that the MIP is now a permanent part of the loan. Previously, the MIP was dropped from the monthly payment when the loan was paid down to the point where the buyer owed less than 78% of the original loan. The UPMIP (upfront MIP) is currently at 1.75% of the base loan amount.

FHA has loan limits, which are different, based on local markets. In Maryland: in Montgomery and Frederick Counties, the limits is $625,500, while in Howard and Carroll Counties, the limit is $517,500, and in Washington County the limit is $271,050, for a single dwelling.

More information: FHA Connection

2. VA Loans – Loans for Veterans.

Since 1944, introduced in the GI Bill of Rights, the Housing Administration has been providing VA guaranteed loans for our Veterans. Like FHA loans, VA loans are made through approved private lenders. The guaranty to lenders means thatFHA or VA or Conventional loans in both VA and FHA loans, the lenders are protected against loss in case of the default of the buyer.

VA loans are the only loans today which offer a no-down payment loan, no MIP, and often have a lower interest rate. VA loans require no private mortgage insurance, and allow financing up to 103.3% of the value of the home.

The VA does not have a minimum credit score used for pre-qualifying for a mortgage loan, however, most Lenders require a minimum credit score of at least 620.


The maximum amount of a VA home loan is typically $417,000, although it can be higher in certain “high-cost” counties. In Hawaii and Alaska, for instance, the limit is $625,500.

Both VA and FHA have their own guidelines which describe all allowable loan traits, as well as the going terms of an Federal Housing Administration-backed loan. The rules can differ regarding closing cost help, property condition, and type of property that can be financed, as well as other items.

3. Conventional Loans.

Conventional loan products are not guaranteed by the VA or insured by the FHA. A non-GSE loan, non-government sponsored entity. Private, conventional loans are secured by investors. Thus, the requirements are often more stringent than FHA or VA loans.

Unlike FHA loans, conventional loans can be used for second homes and investment properties. The minimum credit score is typically 620.

historic mortgage ratesConventional loans have various terms and loan-to-value ratios. Loan-to-value ratio (LTV) means  how much you are borrowing compared to the overall value of the home. The more you put down, the lower the LTV. The higher the LTV, the more risk the lender is taking, and the more costly the loan for the buyer, in terms of interest rate.

The down-payment required on a conventional loan can vary. The Conventional 97 program only requires 3% down, and is available to U.S. homebuyers through Fannie Mae and Freddie Mac. Conventional loans can cover much higher loan amounts than FHA, called Jumbo loans, and offer more types of loans.

If the LTV is lower than 80%, the lender often requires that borrowers pay for private mortgage insurance, or PMI. The PMI is only a single premium, whereas with FHA, there are both upfront and monthly premiums, and the PMI with FHA loans never drops off. The term of the loan can be longer or shorter, 15 years, or 30 years or even 20 or 40. With each there are different interest rates.

Ask Your Lender

Your lender can help you determine which loan product is best for your needs. Your loan officer will be able to tell if you qualify for both types of loans, and determine which will cost less both short and long-term.  Ask for a side-by-side cost analysis.

Contact us for our list of preferred lenders in Central Maryland.

Glossary Of Real Estate Terms

Glossary Of Real Estate Terms

Glossary of Real Estate Terms

Sometimes agents throw around real estate jargon like its common knowledge to all, when in fact, a lot of buyers and sellers don’t always know what we’re talking about.  I thought I’d write a series of blogs to define some of these terms, at least the ones I think are important. These are specific to the Maryland Real Estate Contract.glossary of real estate terms

Addendum-There are several possible addenda that can be attached to a contract, depending on the issues added to the basic offer.  Paragraph 17 of the contract lists 22 of the addenda that can be attached. If the buyer wants any inspections, there are inspection addenda. There is an Inclusion/Exclusion addenda, to make sure what the buyer thinks is in the house actually comes with the house, HOA addendum, Local and County Addenda, Third-party Approval addendum are just a few.

Agency- Agency is simply a relationship between a client and an agent such that the agent is authorized to represent the client in certain transactions.  Years ago, there used to be only one type of agency, agents all worked for the seller.  Because of the efforts of consumer activists, other types of agency have come into use:  Buyers agency, Sellers agency, Dual Agency, Cooperating Agent, and Presumed Buyer agency.  In Buyer agency, the agent represents the buyer, with a written agreement, in a Presumed Buyer agency, there is not yet a written agreement. A Cooperating agent works for a real estate company different from the company the seller’s agent works for, and can assist a buyer but has duty to the seller. Dual Agency happens when the buyers agent and sellers agent both work for the same broker. Upon the first meaningful interaction with an agent, the buyer or seller should receive a written Disclosure explaining Agency. It’s called “Understanding Whom the Agent Represents”.

Appraisal- A report giving the opinion of a non-biased professional as to the fair market value of a property. It is usually an 8-part detailed report using specific guidelines in the USPAP,Uniform Standards of Professional Appraisal Practice.  Lenders require a professional appraisal to ensure that the house is actually worth the amount they are lending.

Association of Realtors- The self-policing Board that Realtors® belong to (and pay dues to). There is a local board, like FCAR, Frederick County Association of Realtors, and GCAAR, Greater Capital Area Association of Realtors. Then there is a state Board, MAR, Maryland Association of Realtors. And finally, a national Board, NAR, National Association of Realtors. Associations provide a code of ethics and standards, oversight, and many services to Realtors®. They are active politically, lobbying for the best interests of home owners.

Buyer Agency Agreement– A written agreement (contract) between buyer(s) and their Real Estate Agent and Broker, wherein the fiduciary responsibilities of the agent are listed. The buyer(s) agree to work exclusively with the agent for an agreed-upon period of time. This is a legal relationship in which the agent works for the buyer, with their best interests in mind.

Closing or Settlement – The closing, or settlement takes place when the moneys are actually paid, ownership transferred, and the deed signed. Not to be confused when the “sold” sign is placed on the house. The house is sold when a “meeting of the minds” has taken place and the contract has been agreed upon by all parties. In Maryland there are no “dry settlements”, when moneys are exchanged some time later, or in escrow. In Maryland we have “wet settlements”, meaning the transaction is funded the day of settlement.

Closing Procedure – A closing involves the finalizing of two basic issues: 1. The promises made in the real estate sales contract are fulfilled, and the buyer’s loan is finalized, 2. The mortgage lender disburses the loan funds.  Attending the settlement will be the buyer, seller, their respective agents, and the closing agent or lawyer. Sometimes the lender shows up. If all the work is done properly between the date the contract is ratified and the date of the settlement, the settlement should only take 1 to 1 1/2 hours.

The buyer’s Issues:  The title evidence, The seller’s deed, Any documents demonstrating the removal of undesired liens and encumbrances, The survey, The results of any inspections, Any leases if there are tenants.

The seller’s Issues:  Receiving payment, Compliance with contract requirements.

Both Buyer and Seller will want to inspect the closing statement (HUD 1 Statement) to make sure that all the charges are correct. By law, they should get a copy of the HUD statement within 48 hours of settlement.

Closing Statement – The Buyer and Seller should have gotten a closing statement (HUD 1) prior to the settlement so that they know all the charges that they will be responsible for.  The statement is arranged in 2 columns, one for the buyer, one for the seller, each showing the debits and credits for both.

Closing Fees – There are generally 7 categories of fees:
1.  Broker’s commission:  paid by seller.
2.  Attorney’s fees.
3.  Recording expenses:  Fees are pain by whomever benefits from the particular service.
4.  Transfer Tax:  Split 50/50, unless otherwise negotiated.  (In Maryland, the first-time homebuyer’s half is waived).
5.  Title expenses:  In Maryland its customary for the buyer to order a title search and a binder for title insurance, and is charged for it.
6.  Loan Fees:  The loan origination fee is typically 1 to 2 % of the loan, paid by the buyer.  They may also have discount points to buy down the interest rate.  There are other document fees, survey fees, and appraisal fees.
7. Tax Reserves and Insurance Reserves:  Most lenders require buyers to provide reserve funds or escrow accounts to pay for future real estate taxes and insurance.

Other possible fees are Prorations:  Accrued items like water bills.  Prepaid items such as fuel in a tank.

Default – If either party in a contract does not perform, they are in default. If the buyer is in default, their deposit can be in jeopardy.  If the seller is in default, they risk legal action.  There are legitimate “outs” in a contract due to contingencies, like financing and inspections, for example.

Disclosure/Disclaimer – In Maryland we have a 4-page notice disclosing the condition of the property, including 18 questions regarding the systems of the property. Sellers can choose to disclose all of the information, or to disclaim, or say nothing.  Whatever their choice, sellers are still liable for any latent defects that may be found in the house. A latent defect is a structural defect that could not be discovered by ordinary inspection and that threatens the property’s soundness or safety of those who live there.  Most sellers choose to disclose, so that buyers don’t feel they’re “hiding something”.

Some parties are exempt from disclosing: banks or lenders who own the property, trusts or estates, or a sheriff’s sale or tax sale.  It stands to reason that these groups have not lived in the property and cannot attest to its condition.

Earnest Deposit- The buyer must put a deposit with the contract, or in Maryland, there is no contract.  The amount can be negotiated.  Costs due from the buyer, if any, at settlement are taken out of the deposit.  The deposit serves to act as leverage to keep the buyer from defaulting.

Easement- A right to use the land of another for a specific purpose.  Examples: right-of-way, or utilities.  An easement is recorded with the property.

Encroachment – A building or some part of it, like a deck or fence, which extends beyond the owners boundary and illegally intrudes on another property, or road.

Escrow – Moneys set aside at settlement to take care of any unsettled issues.

Fair Housing Laws – Prohibit discrimination in housing based on race, color, religion, sex, disability, familial status, and national origin. Maryland has added marital status and sexual orientation to these 7 categories.  Howard and Prince George’s Counties have added occupation and personal appearance, and Montgomery County has added ancestry and source of income.  Maryland Realtors® are required to take classes of continuing education in Fair Housing every 2 years to stay abreast of current issues and legislation.

equal housing logoWhen you see this symbol it means that the professionals adhere to equal housing laws.

Fiduciary Relationship – One of trust and confidence in which the broker owes the client certain duties, under the common-law, there are 6: care, obedience, loyalty, disclosure, accounting, and confidentiality. In real words, the agent’s fiduciary responsibility to their client means, your goals and interests are what we work for. This is a legal relationship, with legal requirements spelled out in our Realtor Code of Ethics.

Fixture – or what conveys? – Anything that is permanently affixed to the property.  If its in question, the seller should itemize it on the Inclusions/Exclusions form with the disclosures.  Better yet, if the seller wants to keep it, ie. the heirloom chandelier, they should remove it before putting the house on the market.  That will save some headaches!
If it comes down to a legal definition, it falls to intention.  But its just better not to go there in the first place.

Listing Agreement – A listing agreement is an employment contract between a seller and a real estate agent, (actually the broker, who is represented by the agent.)  They agree on many issues like length of listing, commission, whether and how the listing agent will share that commission, how the agent will advertise.  The agent has an agency relationship with the seller, and therefore represents the seller and their interests.

Ratified– When an offer is presented and possibly there is a counteroffer, it is ratified when both parties come to a “meeting of the minds” and agree on all terms.  The ratification date is when the last initials are put on the contract.  The ratification date is important because the clock on all of the contingency time-lines starts ticking.  The very first paragraph of the contract, “time is of the essence”, refers to this fact.  All of the contingencies must be met in the agreed-upon time-frame, starting from the ratification date.  “Sold” is when the contract is ratified, “closed” is when the keys are handed over in exchange for the moneys.

Real Estate Agent – Real Estate Broker – The broker of the real estate company is the one who actually has the listings and is legally responsible, even though the real estate agent will perform most or all of the services.  The real estate agent’s authority to provide brokerage services originates with his or her broker.  In most states only a broker can act as agent to list, sell, or rent another person’s property; a salesperson who performs these acts does so only in the name and under the supervision of the broker.  (It seems like a fine point to most buyers and sellers, but is the focal point of our business.)

Realtor – Licensee – A REALTOR® is a licensee who has joined a real estate board.  A fee is paid for membership, which in turn provides services and oversight.  Realtors take 15 hours of continuing education every two years. A licensee still has to take the 15 hours of continuing education every 2 years, but has not joined a board.    This symbol is for a Realtor®, a member of a board.Realtor

RESPA – the Real Estate Settlement Procedures Act – was enacted to protect consumers from abusive lending practices, and assures that they are provided with accurate information about the actual costs of closing a transaction.  The “truth-in-lending” form is due to RESPA.  The regulations are aimed primarily at lenders, but apply to agents and brokers when they refer consumers to particular lenders, title companies, attorneys, or other settlement services.

Reverse Mortgage – “A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you.”

Short Sale – When a homeowner is not able to make their monthly mortgage payment, due to a variety of reasons which must be due to hardship, they can negotiate with their lender to allow them to try to sell the home for an amount which is “short” of what they owe.  The banks usually agree to it because the losses they incur are less than with a foreclosure.  With a short sale, there is a definite time-frame, and if it doesn’t sell, it will go into foreclosure.  There is much negative press surrounding short sales. The problem is 2-sided.  Banks have overwhelmed and understaffed to deal with the enormous numbers of distressed properties they have, although that is changing as short sales are decreasing. And, many Realtors® are not trained in the strategies and paperwork required in a short sale.  Chris Highland is a trained Certified Distressed Property Expert.  See our Short Sale website for more details.

Types of Loans – There are 3 basic types of loans, FHA, VA, and Conventional. An FHA loan is insured by the Federal Housing Administration and is made by an approved lender in accordance to FHA regulations.  A VA loan is given to a veteran by an authorized lender and guaranteed by the Department of Veterans Affairs.  A conventional requires no insurance or guarantee.  There are a myriad of conventional loan programs, as many lenders have their own unique offerings.  It’s a good idea to ask your Realtor for a referral to 3 lenders for rates and fees if you are going conventional.  (I recently read a statistic that said that people spend on average 15 hours shopping for a car, but only 5 hours shopping for a home loan.)

Title Insurance– Don’t ever let anyone tell you you don’t need it!  Title Insurance is a policy protecting the owner from losses arising from defects in the title. It’s a little different than most types of insurance in that it protects the insured from an event that occurred before the policy was issued, not after.  So if long-lost cousin Pookie shows up and claims his great-grandfather gave him your land in his will, you’re protected.

Truth-In-Lending – The Truth In Lending Act, or the Consumer Credit Protection Act, exists to protect consumers from unfair practices of lenders.  It basically states that consumers must have all fees and costs of a loan disclosed to them prior to entering in to a loan agreement.

Thanks for reading my glossary, I hope some of this is informative.

Related Articles:

The Home Buyer’s Road Map

Selling Your Frederick Home 

What is Home Builder’s Confidence – HMI?

What is Home Builder’s Confidence – HMI?

What is “Home Builder Confidence”?

“Homebuilder confidence held steady in April, according to the National Association of Home Builders.”  We hear this term in many financial reports, but what does it mean?  (It’s not Bob the Builder grinning in the mirror as he recites his morning affirmations:)
What is Home Builder Confidence?


The NAHB, National Association of Home Builders, has conducted a monthly survey for 30 years, the NAHB/Wells Fargo Housing Market Index, HMI.  The HMI rates builder perceptions of current single-family home sales and the expectations of sales for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Both components are then used to calculate a seasonally adjusted score, or index in which any number over 50 indicates that more builders view conditions as good, rather than poor.

Scores are reported for regional markets and nationally.  The news that home builder confidence held steady sounds nice… maybe until you see that the score was 16 for the 3rd straight month, for instance.

The real news in Spring 2014 is that it is steady… a steady 47. It has been steady for three months. (up slightly from 46 in March). Basically, this is a “no news…but at least it’s not bad news” report.

The Details:

“The HMI index gauging current sales conditions in April held steady at 51 while the component gauging traffic of prospective buyers was also unchanged at 32. The component measuring expectations for future sales rose four points to 57.”

The other score that is interesting is the prospective buyers traffic:  the score is 32, which has been steady (or flat, which paints a different light, doesn’t it?) The good news, more potential buyers are wandering through model homes than last year, when the number was 25.

And the survey reports that fewer people are moving this year. The HMI three-month moving average was down in all four regions of the country:

  • The West – Down nine points to 51
  • The Midwest – Down four points to 49
  • The Northeast – Down 2 points to 33
  • The South – Down 2 points to 47

NAHB Chief Economist David Crowe: “Job growth is proceeding at a solid pace, mortgage interest rates remain historically low and home prices are affordable”. Builders report that they can’t find enough workers or lots to build on. Many home buyers are facing tight lending standards and have difficulty getting a mortgage.

What Does the Home Builders Confidence Index Mean?

As the name implies, HMI is a measure of confidence in the economy from those in the home building industry. According to the NAHB, each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue.

Housing Market SqueezeAs we continue to see a real estate recovery, you can see that the new-home sector of the industry is important to the overall economy. It would seem to me that this is the point of the change of direction as the accordion plays, the “squeeze” is over, and as the industry tries to expand, it faces some problems, like not enough workers, but limited ability to hire new workers.

Tight lending standards are often blamed during these “recovery, but not quite recovered” economic times. Many believe that as long as interest rates stay low, buying power will be strong and attract more home buyers to the table.

The spring market will be an indicator of the state of the industry, and time will tell how quickly the recovery will march on.

But at least builders feel mildly optimistic…we’ll return with updates in 2015.


Related Article:  New Home Construction Returns to Frederick

Photo Credit: Hakan Dahlstrom on Flickr

Real Estate Terminology – DOM – Average Days on Market

Real Estate Terminology – DOM – Average Days on Market

Real Estate Terminology: DOM – Days on Market

Sometimes the terminology we use in the real estate industry can be so clear to agents, but not so meaningful to buyers and sellers. Let’s explain some real estate terminology, and why it is important to understand:  Days on Market, or DOM, for instance.

When a home sells, there are several statistics that are recorded, like the number of days that the home was on the market before it sold, or DOM. These numbers are all kept by the Multiple List Service (MLS) and we can see the average days that it took to sell a home in any number of categories, by neighborhood, by zip code or by city or county.

The real value comes in comparing these averages over time and over neighborhoods and areas. This average tells us how the market is doing in general. If it is taking 6 months to sell a home compared to 4 months at the same time a year ago, we can tell that the market has slowed down. If it takes 3 months to sell a home in one zip code or neighborhood, and it takes 6 months on average in the entire county, then we know that that neighborhood is in demand.

Knowing DOM Helps A Buyer

new homes frederick mdAs an example, If you see a particular home that has been on the market for 180 days, and the average DOM for the neighborhood is 88 days, that tells you that something is wrong… either the house is priced too high, or there is something wrong with the condition, or both. If you look closer and see that the home has not had a price reduction since being on the market, you might deduce (with some accuracy) that the seller is not realistic in their pricing. Likewise, when you see a home that has been on the market for 60 days and has had 3 price reductions, you can accurately guess that the seller is motivated. A motivated seller is much more likely to appreciate a fair offer than an unmotivated seller. The negotiation will stand a better chance, given there are no other surprises or issues.

As far as real estate terminology, days on market is a useful statistic. If correctly used, it can give you insight into the seller’s mindset, and help you develop your negotiation strategy. Or, it can clue you into the fact that you might just want to move on.

Knowing DOM Helps A Seller

You can see how a seller will be better able to have a good pricing strategy by knowing the average Days on Market in their neighborhood and in their price range. When a home sits on the market longer than the average number of days for comparative homes, it can hurt the marketing of the home. The home can become stagnate and develop a “stigma” in the eyes of potential buyers.

Buyers start to wonder, “what’s wrong with the house?” when they see that it has been on the market significantly longer than other comparable homes. Then they start to look for the problems.

As a seller, it behooves you to keep an eye on the average days on market of your comparables. These are markers of how your home is doing in a competitive framework.

Whether buying or selling a home, choose an experienced agent who knows the statistics and trends for your neighborhood and market. A real estate agent should be a trusted adviser, willing and patient to teach about real estate terminology: DOM – Days on Market, and to give expert advice about your strategy.

Interpreting Online Real Estate Information

Interpreting Online Real Estate Information


Many of us turn to the internet to search for information when are making a purchase… sometimes for something as mundane as a toaster, sometimes as important as a return on investment for a major expense. Certainly, real estate is a well searched topic on the web. Information is there en mass. There are 700 million blogs and counting on the world wide web. How do you find information you can trust? As far as real estate, there are some basic guidelines:

1. All real estate is local.

Don’t be confused by major headlines: “Experts Forecast New Wave of Foreclosures”….etc. The real estate market in Nevada and Michigan, as well as a few other states, have experienced record foreclosures. Not so in Maryland. Even in Maryland, some counties have been relatively untouched by foreclosures, while some have been severely glutted, like Prince Georges County. Even within a single county, there are pockets with varied markets. If you want the scoop, consult a local real estate professional.

All real estate is local

2. Real Estate information must be current.

At this time last year, we had more homes on the market, and it took longer to sell a home. This makes for an entirely different set of market dynamics. Interest rates can be different; demand can be different. When using the internet for research, always pay attention to the date that the article was written. Again, consult a local real estate agent for the most up to date information.

3. Take time to research.

Get to know the sources, test their veracity. There are a plethora of sites with information these days, but not all information is useful or even correct. Again, local real estate agents who know the area are the best sources for up-to-date accurate information.

A Tip: Do an internet search for "X-neighborhood real estate blog" or X-city real estate blog". You'll find local real estate agents who are writing informative, engaging content and you'll probably find the local expertise you're looking for.

Try our tools to get information on Communities and Real Estate Statistics in Frederick County: Search for Homes For Sale

The Underwriting Process

The Underwriting Process

After you’ve contracted on a home, made a loan application and are working through all of the contingencies, the last step in the process is Underwriting. What is underwriting? Let me explain with some definitions I’ve collected over the years:

  •  Underwriting is the process a lender uses to determine if the risk of offering a mortgage to a specific borrower under certain guidelines is acceptable.
  • Most of the risks considered by the underwriter fall into 3 categories:
    • Credit – not only your credit score, but your credit history
    • Capacity – How much you are able to borrow responsibly
    • Collateral – The merit of the home you’re buying
  • Many mortgage lenders have made underwriting guidelines that reduce the threat of a future buyback, in case of a default. The result today is that much more is required of a buyer in the way of documentation…what many would call “over-documentation”.
    • Don’t be surprised or take it personally when your lender calls for more documentation during the process.
    • Each page of information is a potential problem ruled out in the eyes of the underwriter.
  • Think of the lender as the person who “packages” your application to present you in your best possible light, and
  •  Think of the underwriter as the person who inspects the package to make sure you fit all of the guidelines as the perfect loan candidate. Remember the Yin and Yang of the lending process.
  • Finally, don’t get impatient, but Remember the Golden Rule of lending – “He who has the gold makes the rules.”

The underwriting process is usually the last step in the home buying process, once all documentation has been collected, all contingencies have been met, and the appraisal has been done. Once the underwriter proclaims “clear to close”, the magic words, we all go to settlement.

Contact us for our list of preferred Frederick Md Lenders.


Chris Highland
eXp Realty
Frederick Maryland
Contact Us


Real Estate Terminology – What Are Contingencies?

Real Estate Terminology – What Are Contingencies?

What Are Contingencies?

When writing an offer on a home purchase, the buyer will write in contingencies, or conditions of the offer. A contingency is a provision in a real estate contract that specifies the contract would cease to exist upon the occurrence of a certain event.

Contingencies protect the buyer in case theycontingencies to a contract cannot perform or choose not to perform on the offer to buy the home. Some contingencies also protect the seller. There are several contingencies that are common.


  • Financing Contingency:  Unless the buyer is paying cash for a home, the financing contingency will insure that if the buyer gets turned down for any reason, they will be released from the contract.
  • Appraisal Contingency:  If the home appraises for less than the contracted price, then the lender will not agree to lend that amount for the home. They have to be assured that if the buyer ever defaults on the loan, they will be able to re-sell the home for the amount loaned on it. In this case, the buyer and seller can renegotiate and work out an agreement to handle the difference. Appraisals can be challenged, if buyers and sellers are patient.If the appraisal on the home is higher than the purchase price, this can be good for the buyer. The loan is not in jeopardy. But not always so good for the seller.
  • Home to Sell Contingency:  If a buyer still has to settle or sell their previous home, they can write in a home-to-sell contingency, or home-to-settle contingency. In a competitive buyers’ market, it is not to the buyer’s advantage to have a home to sell. In a market with high inventory and fewer buyers, it is more feasible.
  • Home Inspection Contingency:  It is always the buyers right and choice to have a home inspection, and it’s highly recommended. If they discover a major flaw in the home that they just can’t live with, they can void the contract. If they find issues that fall under paragraph 21 of the MAR contract, the seller must fix them. (more on paragraph 21 later)
  • Other Inspection Contingencies:  Septic, well, termite or pest inspection, radon, lead paint, and various other inspections can be done, depending on the type of home.
  • HOA Contingency:  The buyer has the right to inspect the HOA documents or condominium documents, and can void after a certain number of days (negotiated in the contract). The buyer can usually void the contract unconditionally, or for any reason if they don’t like what they read in the HOA rules.

Any time that inspections uncover issues, the buyer and seller can renegotiate. Contingencies are a part of real estate contracts and so are renegotiations — but only in limited areas and according to the contract. Some buyers and sellers never fully read the contract — be sure to read yours. Be sure to ask your real estate agent any questions you come up with… that’s what they’re here for.

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