Real Estate terms can often be confusing or sometimes misleading to consumers. It’s terminology that isn’t commonly used and oftentimes has very specific definitions when in real estate contracts. Here are 5 words (and their meanings) that are used regularly when buying or selling a home:
Buyer: When making an offer you are asked to put down Earnest Money. That money is a good faith offer that if you decide to walk away from the deal, also called default, (for a reason not protected in a contingency) then the seller will have the right to retain that money.
Seller: After receiving an offer there will be an amount of money listed for Earnest Money. It is important to make sure that this amount will cover any time off market, etc. if the buyer defaults on the contract. This money is only retained if the buyer defaults. If they walk from the contract because of a contingency, say inspection contingency, then that money is refunded to the buyer.
Once the lender sends all the documents to the Escrow company (also know as the Closer or Closing company) the escrow officer will prepare the documents and call the buyer and seller to schedule a time to sign all the paperwork. Buyer and seller sign at separate times and most often the buyer will bring a cashier’s check or wire funds for down payment at this appointment. KEYS are NOT given at this point, as the home has not officially transferred from Seller to Buyer.
Once the papers are signed the escrow officer sends them back to the lender for approval. Then the lender wires funds to the escrow company. Once paperwork is approved and funds are all wired from lender and buyer the escrow company will take the deed to the courthouse for recording of the new Buyer as the owner of the property. After these steps are completed Closing occurs! Once the house is closed (and depending on the terms of the contract) keys are transferred from Seller to Buyer!
In Real Estate contingencies are put in place as a protection, often for the buyer. For example, an inspection contingency is an addendum that allows the buyer to perform an inspection and gives them the option of exiting the contract with no consequences if the inspection fails to meet their standards. There are a variety of contingencies available that allow the buyer to get more information to make sure it meets their needs before moving forward and closing on a home. Each contingency has a set amount of time in which the buyer can void the contract. After that time frame has passed the buyer will be in default if they leave the contract.
Buyer: Standard closing costs consist of ½ of the title and escrow fees for the transaction as well as your lender fees, prorated utilities, taxes and insurance. Sometimes these can be wrapped into your loan and other times you pay cash.
Seller: Also pay ½ of the title and escrow fees for the transaction. However, the other fees are completely different from buyer closing costs. Sellers fees are Excise tax (which is a county sales tax and is paid on any transfer of real property) and Realtor fees.