Over the years, I have noticed that many people have the same questions about the Real Estate Industry. I begin this list to help answer some of the more frequent and common terms from both buyers and sellers for Charlotte Real Estate. Your real estate investment is important to me and I want you to be as comfortable as possible prior to making a decision. Knowledge is power and I want to provide as much understanding as possible.
APR-APR is a secret formula the government created to "level the playing field". APR calculates the "real cost" of the loan including closing costs. Lenders are required to share this APR percentage rate along with their stated interest rate. The smaller the gap between the 2 numbers, the less you are paying for closing costs. What is the true cost? It depends how long you stay in the home.
As Is - When a home is sold in "As Is" condition it typically is owned by a bank. Banks willingly discount the property to compensate for the less than ideal condition. If a home owner is trying to sell the home "As Is" raises a caution flag. This is frequently a difficult seller who wants top dollar and refuses to work to make the home "market ready".
Bank Owned Homes - Bank Owned homes are foreclosures that the bank technically hold title. This means the home as already went through the state required foreclosure proceedings and the bank now markets the property. This is also known as REO properties (Real Estate Owned). After a bank takes possession of a property, they have a market assessment performed and then list the home for sale through a Realtor. These homes are sold "As Is"
Buyer Agent - This representation protects the buyer and provides a professional Realtor to assure the buyer is getting the best deal possible. The Buyer Agent's services are free for the buyer (free help)! The buyer agent has a fiduciary responsibility to the buyer. This means that all buyer information is confidential and the Buyer Agent has a duty to the buyer to find a home that meets the buyer needs, check for comparable homes to assure the buyer pays no more than market value. The buyer agent gets paid by the selling agency, via the seller, for finding the buyer for the home.
Buyer Closing Costs - When ever you purchase or sell a home there are closing costs. These are the expenses that the buyer and seller pay for the transaction. The buyer's highest cost are typically for the loan. There are many lender related fees. These include loan origination, points, documentation fees and application fees. The buyer also has a home inspection, termite inspection and attorney fees. Closing costs range from 3-5% of the loan.
Charlotte Property Assessed Value - Charlotte Homes and all North Carolina Real Estate is assessed every 4 to 8 years. The assessment is a "Mass Assessment" and current market value is considered. If you purchased your new Charlotte Home "under assessed value" you will pay property taxes on the assessed value until the new assessment.
Closing Attorney - North and South Carolina real estate transactions are completed by an attorney. We only have one attorney overseeing the transaction and the attorney technically works for the buyer (buyer pays for the attorney as part of your closing costs). The attorney costs are typically less than $1,000. The fees will include the title search, recording of deeds, pay off of liens (seller's mortgages), process the financial exchange for the new lender and assuring that the buyer is receiving legal title for the property.
Closing Costs - Closing costs is the money that the buyer or seller pay at closing to complete the home sale. Closing costs for the seller is primarily the marketing fees previously agreed to by the seller. The buyer closing costs range between 3 and 5% of the total loan value. The exact closing costs depend on your specific credit and which loan program you choose.
Commission - This is the means in which Realtors are paid. Commission is the money that the seller pays the Realtors to help market the home. There is no standard amount of commission established for listing a home. The commission is earned by finding the right buyer for the real estate listing for the greatest amount of money. The Buyers' Agent gets paid by finding the best property value for the buyer.
Distressed Neighborhood - A distressed neighborhood is a neighborhood that has a disproportional amount of foreclosures or perhaps crime.
Distressed Property - When the term Distressed Property is utilized in real estate it refers to a home that is a foreclosure, a short sale or a pre-foreclosure home.
Down Payment - The down payment is the money that the buyer provides as an offer is agreed upon to purchase a home. This is also called an Earnest Money Deposit. This money is placed in an escrow account which ultimately is placed on hold until closing. Upon Closing, the seller receives this money and it is deducted from the buyers total amount due.
Drain Field - A drain field is a term used to describe the portion of a septic system. The main components to a standard septic system are the septic tank and the drain field. As liquids accumulate to a certain level in the septic tank, the liquid flow through pipes to the drain field (also called a leach field) and is dispersed underground. The soil acts a a natural filter to help clean the liquids.
Earnest Money Deposit - See "Down Payment" above.
Earnest Money Dispute - An earnest money dispute can arise after a contract is agreed upon. If for a wide variety of reasons the buyer wants to break the contractual obligation, both parties must agree upon the disbursement of the Earnest money.
Easement - An Easement is when someone else has the legal right to use a portion of your land. Two common examples of easements are the electric company to run power lines through your property or a neighbor to have access to their driveway. These are documented on the survey (legal and recorded). They are binding. Easements can have a negative impact on your property value.
Equity - Many people want to purchase a home with equity but do not have a firm understanding of the term equity. Equity is the difference between what you owe on your home compared to the current market value. When you purchase your home, it is purchased at market value. If it is a distressed sale (like a foreclosure) it will likely not devalue the remainder of the surrounding homes. If there are several foreclosures in the immediate area, the foreclosures will impact the current market value. Ultimately, you are not really getting "equity" with your new Charlotte Home.
Eviction Procedures-Each state varies with respects to eviction procedures. It is best to pay person to leave than to risk the damage of an angry ex-home owner.
FHA Loan - The FHA loan is becoming very popular once again. It is currently the only loan program available requiring a minimal down-payment (3.5%). The next best option is a standard loan with at least 10% down but this is approved on a case by case basis. The FHA Loan is a Government backed loan so it has additional costs associated with the loan (the Government calls this "job creation"). Expect a longer time period to close the loan (average of about 45 days) and additional expense for both the buyer and seller.
First Lien Holder - The first lien holder is your first mortgage. The first lien holder is not necessarily the company you pay your monthly payment. The company that you send the check is often "sold" your mortgage to another company. The first lien holder typically has the most to lose when a home goes to foreclosure and gets paid first after taxes and legal fees. Typically, the first lien holder buys the home back at auction and then tries to minimizes loses on resale.
For Sale By Owner - Also known as FSBO Homes (pronounced fisbo). For Sale by Owner is when a home owner wants to market their property without a Realtor. I have found great deals, some homes simply way over priced and others trying to take advantage of a buyer.
Foreclosure - A foreclosure is the legal process in which a lien holder (mortgage company) attempts to collect on an unpaid debt. Each state varies in their procedures but typically the debtor (home owner) must be in default for several months (not made payments). Legal papers are filed at the courthouse as "Lis Pendens" (lawsuit pending). The time period between "Lis Pendens" and the auction date is the "pre foreclosure period". Anyone can purchase the home at the auction. There are several risks in purchasing a home at the auction. Ultimately, the buyer is "buying" the home "as is" and responsible for all senior liens (obligated for additional debt above and beyond the sale price). There is also frequently a redemption period or eviction procedures.
General Warranty Deed - The general Warranty Deed is the typical deed that you receive when purchasing a home (not a foreclosure). This deed is free and clear of encumbrances and title disputes. The current owner conveys this title to you when selling/buying a home. This is the highest quality of deed. This is compared to the Special Warranty Deed.
HOA or Home Owners Association - HOA fees are fees charged by subdivision to help maintain the development. This can include the minimums as landscaping for the entrance way and overseeing basic community rule enforcement. The HOA fees may also cover maintenance of the pool, pay the life guard, various community landscaping, lawn maintenance, an insurance policy for the common areas, the clubhouse and more. The larger the responsibility of the HOA the higher the fees.
HUD Homes - HUD homes are actually foreclosures from loans guaranteed by HUD. After foreclosures, the lender will return homes to HUD if HUD in fact guaranteed the mortgage. Charlotte HUD Foreclosures are very popular and can be a great deal. These are sold by HUD Brokers (I am one) and you need to hire experience. I am here to help!
Land Value - Land value is basically 1/5 of the value of the home on the land. This is the value of a graded and prepared lot. Raw land has a lower value but the local market dictates that value. Let's look at examples. An acre lot that is only permitted one home and the neighboring homes are selling for $200,000 then the land is worth about $40,000 for the prepared lot. The raw land will be closer to $30,000. If this lot was surrounded by million dollar homes and the million dollar homes were on .5 acre lots then the prepared "2" lots will be values closer to $400,000. There are other contributing factors but this provides a fair baseline of value.
Lease Purchase - A Lease Purchase Agreement is actually both a Lease and an Offer to Purchase Contract. The Buyer assumes all rights and responsibilities as a home owner but does not need to close until a later unspecified time.
Lease Option Agreement - A home is leased for a specified period and after that period expires, the renter has an "Option" to purchase the home. The renter naturally pays above market value for the rent for the privilege of the Lease Option.
Market Ready - Market Ready refers to the condition of your home when you place the "For Sale" sign in the yard. The home should be clean and all upkeep completed. This includes fresh paint and landscaping. You only have one chance to make a first impression.
Market Value-Your home's market value is established by the recent sales in the immediate area within the past 3 months. Real Estate investments are similar to any other "investment". Home values can increase or decrease. Fortunately, Real Estate has historically increased over time and remains a very secure information.
Mortgage - A Mortgage is effectively a loan for a house. Where does the money come from? It comes from you and I. Lenders loan out investment money to acquire interest and profit. When a home owner is not paying the "mortgage company", he is actually not paying us back. There are statistics that assess the risk probability of non payment. Your person "risk factor" dictates the terms of your loan.
Mortgage Costs - many people are frustrated by closing costs for their loans. Your closing costs are dictated by your lender and your credit risk. In NC closing costs typically range between 2-3% of the loan.
MLS-Multi Listing System - First and foremost, this is a marketing program. Realtors invested in a computer system to help them more efficiently and effectively market properties. Public has access to some of the data but not all. Many buyers and sellers would love to have complete access to a comprehensive computer program. Reality is that a free program, with free information and people living in free houses and having free time to donate is a wonderful concept. Unfortunately, this is not possible or reasonable. Every program is a marketing tool and people provide data to help support their families. First, a program is only as good as the data. The integrity of the system requires diligence and accuracy. This must be controlled. Certain data is confidential and also must be limited. The hardest concept for many to understand is that the program is owned by Realtors for their business. Just like Microsoft, US Airways, Ford or United Way have their private computer programs, so do Realtors. It is not to be unfair; it is simply a means to make a living. If there were a way for everyone to work for free.
Points - The term "Points" is just a fancy way of saying %. Many lenders will charge you a "point" fro a reduced interest rate. 1 Point is equivalent to 1% of the loan. If you are borrowing $200,000, 1 point means you are paying $2,000 extra at closing. A point typically reduces you interest rate slightly. Is this cost effective? It depends. It will ultimately take several years before you "break even" since you are paying money today to save money for the next 30 years. If you are likely to move within the next 5 years, it is not worth paying for the "point" at closing.
Property Disclosure - The Property Disclosure is a form that the current owner completes prior to selling the home. The seller is legally obligated to answer statements relating to the condition of the home. Since this is in writing it is legally enforceable. This helps protect the buyer and keeps the process honest.
Property Value - Property value is typically about 20% of the value of the home built on the land. This is typically the value based on the land being prepared for a home (utilities already in place). The value of raw land is less expensive since the Utilities are not in place and there are unknown limitations (more risk means less expensive). Do not make the mistake of paying too much for raw land because land that is already developed with amenities (such as a subdivision with a pool, tennis court, etc.) is not an actual comparable property for value.
Property Taxes - Property taxes are one of the few regular expenses that are controllable before you purchase a home but uncontrollable after you make your purchase. North Carolina and South Carolina has a different philosophy for property taxes. South Carolina offers a deep discount (almost 50%) off of your property taxes if it is your primary residence. Each state has various tax benefits to consider if the location is best for you.
Real Estate Agency - Real Estate Agency has evolved over time. At one time, Real Estate Agents protected the interest of the seller. The injustice to the buyer has evolved the process. Now Real Estate Agency has evolved to have protection for both the buyer and seller.
Real Estate Agent - A Real Estate Agent is licensed by individual states. Real Estate Agent licensing requirements varying based on the individual state. Real Estate Agency focuses on the basics of Homes, loans and being fair to all people. Demographic trends, economic drivers of the housing market and other factors that impact your real estate investment are not taught at Real Estate school. This knowledge is gained with business classes and experience.
Realtor - A Realtor is another association that further governs the actions of Real Estate Agents. The Realtor Association assures the Realtor further adheres to a stricter codes of Ethics. This means of earning a living can not be taken lightly. The happiness of a family is involved in every transaction and the assistance of the Realtor can make or break a family. A great Realtor is worth his weight in gold.
Redemption Period-After a homed is auctioned at foreclosure, State law will dictate if and the time period for redemption. The previous home owner has the legal right to "redeem" himself and buy the home back. This is often a challenge because a person not paying the mortgage typically can not get another person/mortgage company willing to risk another loan.
Relocation Homes - A Relocation home is actually a term used to describe a home owned by a relocation company. These homes are typically in great shape and the relocation company typically sells the home at a discounted price.
REO - Real Estate Owned - This term is used when referring to a bank or corporate entity that now owns the property. It is "owned by the bank". The property has already gone through the foreclosure process and the bank is now selling the home.
Seller Agent-The seller agent has a fiduciary responsibility for the seller. The Seller's Agent will research the value of the seller's homes, provide comparable recent sales to the seller, help establish the list price and help negotiate the best deal possible for the seller's interest.
Septic System - A septic system is basically a self contained sewage plant. This means the raw sewage from your home is naturally treated and disposed of under ground. These systems cost more to install than a typical sewer tap but many remote areas so not have available sewage. It is actually a very simple system.
Short Sales - A short sale is technically when the net precedes from the "sale" of your home are less than what is actually owed. The difference is the money owed to the bank. The "shortage" is still the obligation of the seller. The bank is technically not obligated to pay for a poor investment. Consider your stocks or your 401k retirement plan. If you decide to place your money in a given fund and it loses money, who pays? The responsibility is yours. Mortgages are similar. The difference with a mortgage is the bank allowed you to spend their money based upon your credit.
Special Warranty Deed - The Special Warranty Deed is the deed offered by the bank on a foreclosed home. This deed is legally a good deed (clear of liens and encumbrances) but there are potential unknowns with the home/deed since the bank never resided in the home. When you purchase any home you purchase title insurance. This assures you that if a dispute arises in the future that your claim on the deed is insured. When you, the owner of the purchased foreclosed home sells the home, the title you transfer is a general warranty deed.
Strategic Foreclosure - A Strategic Foreclosure is a modern result of the housing turmoil. The current owner can not sell the home for what is owned so intentionally manipulates the foreclosure. The owner carefully establishes himself as well as possible and gets the most out of the negative predicament. The lender and ultimately the tax payer suffers as a result.
Sub-Prime Loans-This is another term for "high risk" loans. These were created to enable more Americans to obtain mortgage loans and increase home ownership. The theory behind this was that home owners have more pride in "ownership" as opposed to "renting" and this would increase the integrity of neighborhoods. The unintended consequences were that the "high risk" was higher than the government anticipated. The net result will be foreclosures and short sales.
Tax Value - This is one of the most confusing aspects of when considering the actual value of the home. Tax value is assessed every four to eight years in North Carolina and every five years in South Carolina. In North Carolina, the individual counties decide when to conduct the appraisals. The appraisals are done county wide and are done on a mass assessment. This means that each home is not weighed out individually but value is based primarily on how much a home sold for "per square foot of heated living area" plus the garage. Your Assessed Tax Value will remain the same until the next assessment and does not change when a home sells.
Terms of your loan-This describes the overall loan package that you receive. This includes the maximum allowed, the down payment required, the closing costs and the points.
Title Insurance - Title Insurance is an expense required by the buyer as part of your closing costs. The attorney does a title search on the home to assure there are no outstanding liens (to assure the home is really yours when it is sold). There have been cases when a missed lien arises many years after the fact. The title insurance policy pays off the dispute and your home is still yours. The title insurance policy is required by lenders for the loan. It protects both you and the lender if an old dispute (such as a land claim form the 1800's) arises.
Title Search - A title search is conducted by the closing attorney to confirm the presence of any liens against the property. This includes mortgages, mechanic liens, property tax liens, federal tax liens, local tax liens, HOA liens, utility liens or any outstanding illegal judgments. This protects the buyer and the lender to assure that no one else supersedes their protected interest. This is also required by the lender.
Transfer Due to Loan Default - This is the current terminology used for bank owned homes (or homes owned by HUD, Fannie Mae or Freddie Mac). A foreclosure is technically the legal process that the lender follows when a home owner stops paying the mortgage. After the foreclosure, the vast majority of the homes are purchased back by the bank. HUD, Fannie Mae and Freddie Mac insured many of these loans and did not want to be known for owning "foreclosed homes" and the terminology has evolved.
USDA Mortgages - USDA Mortgage programs are intended to help rural development by providing 100% financing on homes. There are actually homes on the west side of Charlotte NC that qualify for 100% financing in addition to many of our Charlotte suburbs. Various Charlotte Real Estate lenders that are proficient at USDA loans and can help.
Authored by Rick Waite
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