During a Real Estate Transaction you will be required to sign contracts that might use a bit of industry jargon. Ideally you will consult with your Real Estate Attorney to make sure the contract you're signing is in your best interest. At the minimum you should become familiar with the following terms so you can be more confident with understating and signing at settlement.
Appraisal: Process in which a 3rd party called an appraiser, comes in and estimates the value of the property, making sure a lenders money (or your money) isn't going towards a lemon. Appraisals are only optional if the buyer is paying cash for the property, however still recommended.
Title Search: The title search or survey confirms that the property is owned by the seller who has full right to sell it to the buyer. It is always recommended to buy title insurance in case issues like long lost heirs or contractors that never got paid attempt to put a lien on the property. Title insurance is a one time premium paid to obtain legal protection and resolve these issues or otherwise compensate the affected parties insured.
Kick out clause: This clause often goes in place if the seller is accepting an offer that is contingent upon the buyer selling his/her own house. It allows the seller to establish a limit of time that the buyer has to remove the contingency while still showing the house to other buyers and reviewing new offers. If the original buyer doesn't sell his/her own house within the period that was determined, the seller then has the right to "kick out" that buyer and go with an new offer.
Closing: This is the final step of the real estate transaction in which the parties involved ( lawyers, notary, real estate agents, buyer, seller) come together at the closing table for settlement. The buyer provides the remaining funds, and the keys are provided to the new home owner.
Contingencies: When there are requirements that must be met before a real estate deal can close it is said there are contingencies. The most common are: Property appraisal, Financing, Home Inspection, Seller disclosures, HOA Disclosures, Title report, and the sale of a buyers home. These contingencies help protect the buyer when placing an offer.
Due Diligence: The contingencies mentioned above provide a buyer with a limited time period to to conduct what is called "due Diligence" which essentially means taking care of each item like a "to do " list to remove the contingencies. During this time, if the buyer discovers negative information he/she can cancel the escrow and receive a refund of his Earnest Money.
Earnest Money: A sum of money put up by the buyer generally known as "good-faith money" which is held in an Escrow or trust account to show the buyer is serious about purchasing the home. The amount provided is usually between 1-2% but there isn't a set amount required by law. When the purchase is complete that money is applied towards closing costs. If the transaction doesn't go through guidelines vary by state that determine which party will be awarded the escrow deposit.
Effective date: Date that the last party ( buyer or seller) signed or initialed any terms and/or changes in the sales contract. This is usually the date that starts the timer on the contracts various deadlines.
Time is of the essence: This is a phrase in a Real Estate Contract that establishes that failure to act within the time required constitutes a breach of the contract. Basically the performance of one party, at or within the period specified in the contract, is necessary to enable that party to require performance by the other party.
The definitions listed above are for informational purposes only and are not intended to provide legal advice. When engaging in Real Estate transactions and in need to modify, better understand, and/or create contracts it is always advisable to obtain advice from a Real Estate Attorney.
