GLOSSARY OF REAL ESTATE TERMS
An estimate or opinion of the value of a home based on a variety of economic, environmental, physical, and social factors. A certified appraiser works independently on a fee-for-service basis.
In the majority of real estate transactions, if there is a mortgage involved the lender will order the appraisal. This is because when financing a home purchase, the buyer offers the home as collateral for the loan. The bank wants assurance that the price of the home is worth the loan in case the buyer defaults and the bank takes ownership and has to sell the property (see foreclosure). In this situation, the cost of the appraisal is typically added to the closing costs.
Other reasons to get an appraisal include changing property taxes, estate valuation after a death, court proceedings, and government seizure of property due to eminent domain.
closing costs[kloh-zing kawsts]
Many people assume purchasing a home only involves getting a mortgage. Sadly, there are costs above and beyond that. Closing costs are fees or expenses that are paid by the purchaser and seller at the completion of the sale that are on top of the purchase price of a property. These fees are paid to title companies, appraisers, banks, etc. for services that involve real estate transactions such as a title searches, transfers of title, appraisals, loan origination fees, etc.
NOTE: Real estate agents' commissions are included in the price of the home and are NOT considered closing costs.
For a buyer these fees can be in upwards of 4%* the cost of the home. Sometimes these costs can be rolled into the loan amount so speak to your Realtor and lending specialist regarding your options.
While the buyer pays the lion's share, sellers do not escape closing costs completely. For a seller, fees may be 1%* and up to 3% in extreme cases.
*Thing to consider -- who pays closing costs can always be negotiated between the buyer and seller.
A document that serves two purposes. First, it allows the transfer of title (ownership) of a property from one person to another. Second, it serves as proof of current ownership. In other words, if you have the most recent document that says a property was transferred to you, you are the current owner.
Because of the importance of establishing and proving ownership of property, all states require the transfer of title be in writing. A deed, at a minimum, tells you the following:
A right or interest in a piece of real estate by someone other than the owner that encumbers or burdens what can be done with the property. There are two categories of encumbrances; those that are financial (also known as a lien) and those that limit use (such as easements, encorachments, & restrictions).
Encumbrances can interfere with the buying or selling of real estate. If you are participating in a real estate transaction (especially the purchase of a foreclosure) it's a good idea to have a title company run an Ownership & Encumbrance (O&E) report up front to determine if there are any encumbrances on the property. Click HERE for a list of trusted Title companies who can generate an O&E report.
In its pure accounting form equity is simply Assets minus Liabilities (Equity= Assets-Liabilities). For a homeowner this means the difference between the Current Market Value of a Home (Asset) and the Amount of Liens Against that Home (Liability). A mortgage is considered a lien. So for example if a home is worth $250,000 today and there is $200,000 remaining on the mortgage, the owner is said to have $50,000 in equity.
The are ways to leverage equity in a home (see HELOC & Home Equity Loan) so you can tackle that long awaited renovation, maybe putting a large amount of cash down for an investment property, or consolidating debt. One thing to keep in mind is that equity is constantly changing. Every mortgage payment paid and every fluctuation in the housing market changes the amount of equity in a home.
The person or entity receiving title (ownership) of a property in a real estate transaction. As a rule of thumb, any entity that ends in "ee" is the receiver of the action (e.g. grantee, mortgagee).
The person or entity giving away title (ownership) of a property in a real estate transaction. As a rule of thumb, any entity that ends in "or" is the giver of the action (e.g. grantor, mortgagor).
HELOC (Home Equity Line of Credit)If you have equity in your home, you may be able to leverage it to make a purchase that requires are large amount of cash. A HELOC works similar to a credit card where your credit limit is based on the amount of equity you have in your home. Unlike a traditional loan, the debt is revolving. Meaning as you pay off the principal, your credit "revolves" and you can use it again. Of course each payment you make will also include interest.
Example: You open a $10,000 HELOC to finally renovate your terrible bathroom. Each month you pay back $1,100 ($1,000 goes to principal & $100 goes to interest). After 3 months, you will have paid $3,000 in principal. You can then re-borrow that $3,000 because you had an accident and need to repair your car.
Many banks have this product, all with varying time frames and interest rates. Speak to one of the qualified lending specialist on my Trusted Vendors page for better details and current rates.
lien[leen, lee-uh n]
Also known as a financial encumbrance, a lien is a financial claim agasint a property made by someone other than the property owner. They can be either voluntary or involuntary. As the names imply, a lien can be placed on a property whether the owner is willing or not. A mortgage is an example of a voluntary lien. An involuntary lien can be placed on a property if the owner neglects to pay a debt. For example, if you didn't pay the local Handyman for rebuilding your deck after last week's snowstorm he can file a lien against your property. In this case you may be unable to sell your home until the Handyman is paid.
If you are participating in a real estate transaction (buying or selling) it's a good idea to have a title company run an Ownership & Encumbrance (O&E) report to determine if there are any liens placed against the property. Click HERE for a list of trusted Title companies who can generate an O&E report.
O&E (Ownership and Encumbrance) ReportA high-level, simplistic title report given for informational purposes only to aid in the buying and selling of real estate. The report is a limited search of public records and discloses the following:
- legal description
- current owner of the property
- how the property was conveyed to the current owner
- open mortgages
- liens and judgments
- tax information
In real estate, title is another word for ownership. When ownership of a property switches from one person to another, it is usually considered "conveyed" or "transferred". The document that is proof of title is known as a deed.