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.
When 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.
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.
The Home Buyer’s Road Map
Selling Your Frederick Home