7 terms you need to know before buying a home
by J.R. Whaley
ou’re tired of renting and realize the money you’re spending on rent each month could go towards owning your dream home. But the thought of going through the home-buying process scares you. You don’t know where to start, what you should know, or who you should talk to. You’re not alone. In fact, 35 percent of all home purchases were by first-time homebuyers. Edu- cating yourself on the home-buying process in advance will help you make the right decisions and prevent buyers’ remorse. Knowing these seven terms will help protect your interests when buying a home.
The Buy/Sell Agreement is a binding contract detailing the relationship between the buyers, sellers, and their respective agents representing them throughout the real estate transaction. It is very important that the duties of brokers and agents are well defined in order to prevent confusion. Items included in this document varies by state but usually include the following:
» Property description: Describing the property to be sold in great detail so there is no question what a buyer will receive when the deal is finalized.
» Price: This one is obvious. The sale price the parties agree to is an essential part of the transaction. The sale price or method for determining the sale price should be clearly stated in the buy/sell agreement.
» Act of sale: Parties will agree to the date of the act of sale when money will change hands, and all the legal documents will be signed. At this point the new owner can finally move into their home. When setting this date, also known as the “closing,” buyer and seller should allow enough time for the attorney or title examiner to examine the title for any issues.
» Cash or finance: We would all love to have $100,000 dollars to pay for a house in cash, and some people do. However, financing your new home is also a popular option. The agreement will indicate whether the transaction is a cash sale or financed sale. This is important because financing a home will make the transaction contingent upon the buyer obtaining financing.
These are provisions in a contract that require certain acts to occur before the contract becomes binding. One of the most common exam- ples is “Contingent upon Financing.” In this case, the buyer must be approved for a home loan in order to complete the sale. An inspection contingency allows the buyer to renegotiate or withdraw from the transaction if the inspection reveals problems. Parties will either nego- tiate who should cover the costs, or back out of the deal altogether. A title contingency protects the buyer from any claims of ownership that have not been resolved. A person who is buying a home contingent on them selling their current home will benefit from a home sale contingency clause.
No one wants to buy a home with termite damage and a leaky roof. Buyer and seller will agree on a specified amount of time in which the buyer may examine the property for any issues. Take advantage of this opportunity especially if you are buying an older home. Protect yourself by getting a full inspection done on your future home.
Know the difference between a deposit and earnest money. A deposit is an amount of money paid towards the purchase price of a home usually to show that the buyer is committed to the transaction. Parties will stipulate that a seller will not sell the home to another buyer once a deposit is put down.
Earnest money is a bit different. When a buyer and seller agree that the amount given is in earnest, this money is regarded as the amount of damages a party will receive if the other party backs out of the sale. If a buyer puts down earnest money instead of a de- posit, and later decides that he no longer wants to buy the home, he forfeits the earnest money to the seller and everyone goes their separate ways. The same goes for a seller who backs out of the deal. He must return the earnest money to the buyer. Earnest mon- ey is held by the title company and distributed when necessary.
Your agent will be your best friend throughout this process. An agent is a person who has the power to act for another person. A buyer’s agent will assist a buyer with finding the right property, negotiating the offer, finding lenders for financing, a real estate attorney, home inspectors, and more. A seller’s agent will help a client set a competitive price for the home, give guidance on how to present the house when prospective buyers come to view it, develop a marketing plan including dates for showings, organize and rank offers, and represent the seller in negotiations.
This is the agent’s piece of the pie, their fee for their services in completing the deal. The commission is usually a percentage of the sales price at the time the home is listed for sale and paid by the seller. The average fee is around 6 percent split between the agents for the buyer and seller. Sellers usually pay the commission.
Finally, the most rewarding phase of the home-buying process is the long-awaited closing meeting. Before you take the keys to your new home, a few things must occur to complete the trans- action. Closing is an event where promises made in a purchase agreement are fulfilled and funds are distributed to the seller. A few days prior to closing, buyer will receive important documents such as the closing disclosure which has the terms of the home loan. The date agreed upon may change due to unforeseen delays. Buyer and seller must agree on postponing the closing.
On the day of closing, a buyer will sign legal documents regarding the transfer of ownership from seller to buyer, and regard- ing the contract between a buyer and lender if the home is being financed. A buyer will pay closing costs and escrow items such as mortgage insurance and real estate taxes. The mortgage or deed to the property will be provided to the buyer. This document gives the lender a right to seize the home. The mortgage note provided contains the buyer’s promise to repay the mortgage according to set terms and consequences for failure to pay. The certificate of occupancy has is provided if the home is newly constructed and certified that the home has passed all required inspections by the state where the home is located.