APPRAISAL / ESTIMATE OF VALUE: A process to establishing a market value of real estate. It is normally based upon a comparative market analysis in which similar properties that have recently sold are used to establish a value. Lenders use appraisers to value homes for loans. Real estate agents do estimates of value to determine pricing for sellers. Agents also analyze market conditions and competing properties. In our area where sales are limited and diverse the process can be subjective.

BANK OWNED PROPERTIES: As we all know, millions of properties have been foreclosed upon resulting in ownership by banks, the secondary mortgage market (FNMA & FHLMC), and other types of financial institutions. A significant number of these properties are normally available on the MLS and they sometimes provide opportunities to purchase at below market values. The financial institutions generally require agreement by buyers to complicated agreements that often require shorter than normal inspection and escrow periods, stiff financial penalties for delaying closing, and are mainly written to favor the seller.

BALLOON PAYMENT: If the loan is due and payable before the balance has been paid off the remainder is called a balloon payment. If a buyer is considering a loan with a balloon payment it is important to have a plan of how it will be paid off when due. Often borrowers plan to get a new loan to pay off the balloon. If property values are low and/or interest rates are high when the balloon payment is due it may not be possible to refinance.

CLOSE OF ESCROW: When the inspections are completed, financing (if any) is in place, the buyers funds have been deposited into escrow and cleared, the buyers and sellers documents have been signed, and all other conditions met the escrow is ready to close. The deed from the seller is recorded giving the buyer title. The buyer’s funds are released to the seller. The escrow is closed.

COMMISSION: The fee that the broker earns when the property is sold. The amount, normally a percentage of the selling price, is established in the Listing Agreement between the seller and broker. If the property is sold by another brokerage the commission is generally split between the two offices.

CONTINGENCY: Generally it is a condition that if not met gives the party the right to cancel or renegotiate the terms of the sale. As in: “This offer is contingent upon the buyer obtaining financing.” It could be contingent upon the seller finding a new home, buyer’s approval of inspections, the sale of the buyer’s home, etc.

DEED: The document that is signed by the seller granting ownership (transferring title) to the buyer. Upon recordation of the deed the buyer owns the property.

DEPOSIT: There is normally an earnest money deposit that the buyer provides with the offer. If the offer is accepted it is deposited into escrow. The purpose is to demonstrate to the seller that the buyer is serious since the accepted offer more or less takes their property off the market. The deposit is generally by check, made out to the escrow company, and provided either at the time of signing the offer or once it is accepted.
The deposit is applied to the purchase price if the sale goes through and is normally returned to the buyer if their purchase contingencies are not met. If the buyer withdraws from the purchase without good cause they could lose all or part of the deposit.

DISCLOSURE: Sellers and agents are generally required to disclose to the buyer material facts that they are aware of that could affect the buyer’s desire to purchase the property or the amount they are willing to pay for it. If it is a residence of 1-4 units the disclosure needs to be in a written form called the Transfer Disclosure Statement. Other required disclosures can include lead based paint, natural hazards, earthquake safety guides, smoke dectector compliance, water heater bracing compliance, etc. Proper disclosure is a key element in protecting sellers and agents from liability to buyers.

DUAL AGENT: The same real estate agent or agents from the same real estate brokerage are representing both the buyer and seller regarding the same property.

DUE ON SALE OR ACCELERATION CLAUSE: A term in a loan agreement that allows the lender to demand that the loan balance be paid in full when the title to the property is transferred (the property is sold). Almost all conventional loans have due on sale clauses. If it is not paid off the lender can foreclose.

ESCROW: A neutral party that prepares documents and handles funds. At close of escrow they distribute the buyer’s down payment and loan funds to the seller and record the deed from the buyer to the seller and documents securing the loan. They also distribute funds for taxes, paying off the seller’s loan, insurance, etc.

FORECLOSURE: If a property owner does not fulfill the terms of a loan secured on their property the lender can foreclose. Usually the owner has not made their payments but the problem can also be not paying property taxes, not maintaining insurance, or diminishing the security of the loan. In California the lender files for default. If the owner does not remedy the problem within approximately four months the property is auctioned. If there are no bidders the lender acquires the property.

GARBAGE/JUNK FEES: Lenders sometimes pile on extra loan fees to increase their profits.

INDEX: A published interest rate used to periodically determine the current interest rate of an adjustable mortgage. A commonly used index would be a 3 or 5 year Treasury Bill.

INSPECTIONS: For residences we normally recommend as a minimum a general home inspection and structural pest inspection. If there are wells and/or septic systems we also recommend these be inspected. Sometimes it is prudent to have specific inspections by roofing contractors, plumbers, electricians, engineers, environmental experts, surveyors, etc. For unimproved land without access to a sewer system we recommend obtaining approval from the County Health Inspector for a septic system. For all real estate it may be important to have a survey to verify boundaries and property size. Inspections should all be completed within the contingency period.

LISTING AGENT/BROKER: The real estate agent that represents the seller.

LISTINGS: A seller signs an agreement with a real estate broker giving them the right to market the seller’s property for sale. The property is called a listing.

LOAN FEES: Generally refers to the fees charged by the lender to fund a loan.

MULTIPLE LISTING SERVICE (MLS): An organization in which the various real estate offices pool their real estate listings so that any of the properties can be sold by any of the member offices.

NEGATIVE AMMORTIZATION: If the payment is not large enough to pay the accrued interest on a loan the unpaid amount of interest is added to the loan balance, increasing the size of the loan. This can occur with certain types of adjustable loans.

OFFER OR PURCHASE AGREEMENT: A contract that is normally filled out by the buyer’s agent providing the seller with terms of a purchase. It includes the price, terms (i.e. cash, seller financing), deposit amount, escrow period, personal property included, inspection periods, a listing of who pays what costs, and more. It is usually presented to the seller by their agent. The seller has the option to accept the offer, reject it, or counter it. Once the parties come to termsand sign the agreement it becomes binding.

OLD CHINESE STORY: The farmer had a valuable horse. His neighbors told him how fortunate he was to own a horse. The farmer answered “perhaps”. One day the horse ran away. The neighbors said it was a terrible thing. The farmer answered “perhaps”. When the horse was found the neighbors said it was great luck. The farmer answered “perhaps”. Within days of the horse’s return the farmer’s son fell off of it and broke his leg. He was not able to work in the fields. The neighbors said it was terrible. The farmer answered “perhaps”. A week later the army came through and conscripted all the young men in the village. They did not take the farmer’s injured son. The neighbors told the farmer it was wonderful. The farmer answered “perhaps”.

POINTS: A financing term, short for “percentage points”. One point is 1% of the amount borrowed. There are two types of points. A discount Point is a onetime fee charged by the lender in exchange for a lower interest rate and paid at close of escrow. “Origination Points” are a fee charged by a mortgage broker to arrange financing.

PROFESSIONAL TRAINING AT COLDWELL BANKER MOUNTAIN GATE PROPERTIES: Warning! – this is promotional but not untrue. We place great importance on training our agents. Our Broker, Richard Paul Oreck, has been continually active in real estate since he was first licensed in 1975. Each agent goes through an intensive training program with Richard prior to starting at Coldwell Banker Mountain Gate Properties and the training continues throughout their career at our office.

REAL ESTATE BROKER / AGENT: A real estate agent/broker acts as an agent for either the buyer, the seller, or both. They have a fiduciary duty to act for the benefit of whomever they represent. If we are acting as agent for the buyer and the property is listed with another office we will represent the buyer exclusively. If the property is listed with our office and an offer comes through another office we will represent the seller exclusively. If the buyer and seller are represented by our office we will be dual agents, acting for both.

REAL ESTATE VALUE: The value of real estate is relative. If we could magically move a Mount Shasta home to a lower valued area the price might drop by half. If we took it to Marin County it could triple. Value is based upon what knowledgeable buyers are willing to pay. Pricing is normally determined by comparing the subject property to similar ones that have already sold. Since the number of sales in our area is limited and properties often vary considerably the valuation process tends to be somewhat subjective.

RECORDING THE DEED: Ownership (title) to the property is considered to have transferred at the point in time that the county recorder puts a date and time stamp on the deed and copies it into the permanent records. If there is a loan associated with the purchase it is recorded along with the deed.

SELLER FINANCING: The seller finances all or a portion of the purchase price of the property for the buyer. The loan is normally secured upon the property which permits the seller to foreclose the loan if the buyer does not meet his/her obligations. Generally the buyer pays part of the price in cash down payment. Most sellers want all cash and are not willing to provide financing.

SEPTIC SYSTEM: These are on site systems used when regular sewage disposal is not available. Most of the properties outside the towns use septic systems. The sewage from the house flows into a large (often 12-1500 gallon), two chambered, underground septic tank where bacteria action decomposes the solids. The liquids that remain flow from the tank into an underground leach field from which it soaks into the ground. Leach fields are often about 100’ long and are comprised of perforated piping and gravel. It is important to periodically have accumulated solids pumped out of the tank to protect the leach field from clogging. It is often recommended to pump it out every 5 years but this can vary depending on the volume of usage and the nature of the material that flows into the tank.

SHORT SALE: When the loan balance on a home exceeds the current value the seller requests that the lender consider a short sale. If the lender agrees the price of the house is generally reduced to an at or below the market value. The lender normally does not state what they will accept in advance. Once a buyer makes an offer the seller can accept it contingent upon the lender approving the price. Next, the seller’s agent formally submits the terms of the sale to the lender for their final approval. This part of the process can be long and frustrating though lenders have begun to expedite the process. If approved, the seller normally does not receive any proceeds and the buyer often buys a home at below current value.

TITLE OF PROPERTY: The evidence of ownership of real estate which is normally transferred with a deed.

TITLE INSURANCE: Insurance against defects in the title (ownership) of the real estate and unexpected claims affecting the property after close of escrow. In escrow the title company issues a preliminary title report or commitment that lists the claims against the property which could include easements, loans, unpaid taxes, etc. If after close of escrow problems with the title arise the insurer will assist in curing them and pay losses up to the insured amount (normally purchase price of the property).

TRANSFER DISCLOSURE STATEMENT (TDS): A written form required by California law to be filled out by the seller of 1-4 unit residences and presented to the buyer. This includes manufactured and mobile homes. It provides information and disclosures about the property. The real estate agents usually do their written disclosures in conjunction with the TDS. If it is delivered to the buyer after execution of the purchase agreement the buyer may terminate the agreement within 3 days (if mailed the time is 5 days from mailing).

The Transfer Disclosure Statement is considered beneficial for both the buyer and seller. The buyer of course receives info about the property. At the same time the seller has written proof of the information they disclosed.
Not all sellers are required to provide the TDS. Examples are sellers that acquired the property by foreclosure, probate sales, sales by a bankruptcy trustee, etc.

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