Real Estate Terms for Pacifica Home Buyers and Home Sellers

Get familiar with some real estate terms

As soon as you start the home buying or selling process, you’ll hear new real estate terms and initialisms. I always tell my clients to ask me any question, even if they’ve asked it before.  There’s so much new information coming at you. Hang onto this list. It could be helpful.

Real Estate Terms – A

Addendum – Any time a change is made in the original purchase contract, the party that makes the change must submit an addendum to the other party for signature. Everything in real estate has to be in writing.

Some of the changes that would need to be in writing would include an extension of the closing date, additional time for the appraisal or a change in the purchase price.

Appraisal – The buyer’s bank or mortgage company will have the house appraised by a professional appraiser to determine its current market value. This verifies to the lender that the purchase price being paid is reasonable compared to other sales in the neighborhood.

Real Estate Terms – C

Closing costs – An umbrella term for the fees paid at closing. These include lender charges, the down payment, taxes, notary fees and others. Both buyers and sellers have closing costs.

Closing disclosure – A document that details the exact terms of a mortgage, provided by the lender, by law. The borrower is entitled to receive this form no later than three days before closing. It includes, among other items, the fees required to close (closing costs).  Since it was enacted by Dodd-Frank it’s really hampered transactions closing on time.

CMA (Comparative Market Analysis) – A CMA is the determination of the home’s value by a real estate agent and is used to determine a reasonable asking price. It’s designed to get a home seller the most money possible in the shortest amount of time.

Comps – Short for comparables.  It lists homes that have sold within the last three to six months, typically within one mile of the subject property. Real estate agents and appraisers study comps to determine a home’s current market value.

Contingency – A document in the purchase agreement that outlines certain conditions that must be met in the contract before the buyer is locked into the contract. The buyer’s agent will put these conditions into the contract for the buyer’s protection.

Common contingencies might be for the sale of the buyer’s home, the successful procurement of financing, the house appraising for the purchase price and the approval of home inspections.

Contingency Removal — When the contingency requirements are met, both parties to the transaction will be asked to sign a contingency removal form to acknowledge that the terms have been met.

Counteroffer – If a home seller is not in agreement with the price or terms of an offer, a seller may give the buyer a counteroffer to eliminate or change the parts of the offer they don’t agree with. Usually, counteroffers are used to increase the price or adjust the close of escrow date.

Real Estate Terms – D

Debt-to-income ratio – You may hear this referred to as your “DTI.” It’s the ratio of a borrower’s debts to his or her gross income.

Deed – A document used for the transfer of real property.

Disclosures – Full disclosure of everything they know about the property is the seller’s most important duty. Not only is it required by law, but it protects the seller from future lawsuits.

Down payment – The amount of funds a buyer puts towards the purchase of the house. Typically 3% is offered as an initial deposit at the time of writing the offer.  The balance is deposited with the escrow company just prior to the close of escrow.

Real Estate Terms – E

Earnest Money Deposit (EMD) – Usually 3% of the purchase price.  The earnest money deposit is to show a buyer’s good faith in following through on the purchase.  It’s put at risk if the buyer tries to exit the contract after the contingencies have been removed.

If a home buyer changes their mind during the contingency period the full deposit is returned.  However, no inspection fees or appraisal costs will be reimbursed.

The funds are held by the escrow company and applied to the purchase price.

Escrow – Escrow is a process that ensures the purchase funds are distributed to the seller and the deed of the house is transferred to the buyer. It is overseen by an escrow company, which is a neutral third party.

Escrow Impounds – Escrow impounds include prepaid taxes and insurance and are also considered closing costs. The impounded funds provide insurance to the lender that taxes and insurance payments are made.

Real Estate Terms – F

Final Walk-Through – The final walk-through is performed by the buyers. They have one last chance to view the house to ensure that it is in the same general condition as it was when they agreed to purchase it. The final walk-through takes place during the week leading up to the close of escrow.

Real Estate Terms – L

Loan estimate – The loan estimate is a document that the lender is required to send the home buyer within three days of applying for a mortgage.

It details the terms of the loan, estimated closing costs and an estimate of the monthly payment.

Consumers can use this document to compare lenders when shopping for a home mortgage.

Loan-to-value ratio (LTV) – A mortgage formula that helps lenders assess risk in lending to a particular borrower. It is realized by dividing the value of the home by the price.

The higher the Debt to Income Ratio (DTI), the riskier the borrower. In other words, the debt compared to the income might make it difficult for the borrower to make their mortgage payments.

The higher the DTI or risk for the lender, the higher the interest rate for the borrower.

Real Estate Terms – M

MIP – Abbreviation for “mortgage insurance premium,” it’s Federal Housing Administration’s (FHA) version of Private Mortgage Insurance (PMI).

Unlike PMI, MIP is payable for the life of the loan, in most cases.

MLS – Abbreviation for Multiple Listing Service. The MLS is a database of properties for sale, sold, pending sale, withdrawn from the market and expired listings.

Real Estate Terms – P

PITI – Abbreviation for Principal of the home mortgage, Interest, also of the home mortgage, Property Taxes and Homeowners Insurance; the four parts of your mortgage payment.

PMI – Abbreviation for “private mortgage insurance,” it describes the fee charged to homebuyers who pay less than 20 percent down on the home. The fee is a percentage of the annual loan amount, and it varies.

It’s a protection for the lender because a home buyer putting a down payment of less than 20% is considered a higher risk.

Real Estate Terms – T

Title Insurance – An insurance policy provided by the Title Company that protects against damages due to defects in the chain of title.

Liens are put on the title of a property to track the money loaned against the property. Mortgages, mechanic’s liens, easements and property taxes are all normal on title reports.

At the time of the sale, any liens are paid by the seller before the property transfers to the new owner. As an example, property taxes are prorated.  And home mortgages, lines of credit are all paid before closing.

Title report – The preliminary title report is an offer of title insurance to the home buyer. The title company does a title search to verify who owns the property, how they hold title, whether or not the property taxes have been paid, what liens, if any, are attached to the property. It will also show any easements and homeowners association associated with the property. There’s a map of the neighborhood or tract that displays the lot lines, utility easements that might run across the property.

Title search – A search of public records to determine who owns the title of a piece of real estate and if there are any encumbrances on it, such as liens. These are known as “defects” or “clouds” on the property’s title and must be cleared before the sale can close.

Transfer taxes – Fees imposed by the federal, state, county or municipal government whenever there is a transfer of title of real property.

Transfer tax in Pacifica is $1.10 per thousand dollars of the purchase price and is most frequently paid by the seller as part of their closing costs.

Images courtesy of Vadim Dym