Things You Need To Know Before Sell By Owner This information on selling your home has been compiled over many years of being both a for sale by owner advocate and a licensed real estate agent. The information although sometimes slighted toward the advantages of selling your home through a licensed agent is fairly comprehensive. Remember your home is one of your largest investments and great care should be taken in pricing, marketing, negotiating and all legal aspects of its sell. Selling in the current housing environment is challenging to all owner sold properties whether they are being marketed by the owner or through a real estate agent. Presentation is your best possible defense against short sales and foreclosures which almost always have a pricing advantage. . I. Determine the value of the piece of real estate being sold. This is one of the most important steps. If you set the price of your home two low, it will cost you money. Too high, your property will not sell. II. Presentation The appearance and presentation of your home can be the deciding factor for potential buyers. Most analysis indicates that buyers make up their minds about properties within the first 5 minutes of viewing. III. Marketing The best home at the best price will not sell if no one knows about it. IV. Legal Aspects In almost all situations the legal documents required to complete the sale of your home will be handled by the mortgage company and the real estate attorneys. We discuss these topics here to give you a better understanding how the process works and who is responsible for paying what. Dictionary Here are some definitions to terms that you will come across when selling your house. I. DETERMINE VALUE What is your house worth? Value is a relative term. The sellers opinion of the home’s value is expressed through the asking price. Pricing your home correctly is critical to successfully marketing your home. The other topics covered in this material can be equally important, but no matter how effectively you advertise your property if your home is overpriced it will not sell. One of the biggest mistakes sellers make is pricing their home too high. If your home is priced 20% above market value no one will view your home, if you are priced 10% above market value no one will make an offer on your home. If your homes stays on the market too long, it will become tainted and you will have to drop the price below market value to attract a buyer. Try to see it from the buyers point of view. Two homes that from the outside appear similar, one cost 20 percent more than the other. The buyer is going to think that the sellers of the home that is more expensive will be difficult to deal with and more than likely they will never have the opportunity to view what makes it better. CMA Comparative Market Analysis.. Is normally performed by a licensed real estate agent. It takes into account multiple factors in comparing your home to others in your community: age, square footage, number of bedrooms, number of bathrooms, exterior construction, lot size and interior amenities to name a few. Trading Earth Real Estate the parent company of Zero Commission performs CMAs for free for individuals selling their home in the Birmingham Metro Area. Why does Trading Earth perform free CMAs? Many people while advertising their home for sale by owner decide they need additional help either with marketing or with legal issues that may have arise. Trading Earth wants to be your fist choice. Trading Earth’s Local Market Report is an automated program that will email your properties for sale and that have sold that are close to your in addition to how many days they have been on the market. Click here for free weekly reports on your subdivision... Comparative pricing can be done by the owner and still involves comparing the amenities of one property against another to establish a price range. Some of this information can be generated by knowing the neighborhood that you live in or speaking to neighbors. However be careful relying on second hand information, everyone loves to brag about how much their house sold for and how quickly it sold. Appraisals The role of the appraiser has changed dramatically due to federal legislation. Appraisals no longer answer to loan officers but are hired by disinterested 3rd party vendors known as AMC appraisal management company. Appraisers can face lawsuits from lenders if they cannot justify the price of your home so they typically err on the side of caution with lower values. Although an appraisal can be a very helpful tool when selling your home, there is no guarantee that having an appraisal in hand will guarantee the appraisal ordered by the lender through the AMC will be for an equal amount. If your home is being marketed for less than $272,500 there is a high likely hood that the person who buys your home will use FHA Federal Housing Authority loan to purchase. FHA appraisals attach to the property and are good for six months. If an FHA appraisal comes in low and you cannot convince the appraisal to change his opinion you will have to wait six months for a new appraisal to take precedence of the current low appraisal. You can contact the appraiser to make a case that your home is worth more than their estimate but it extremely important to be very polite and have current MLS data and court house records to support your opinion. Remember the appraiser no longer works for the lender and he or she can simply refuse to cooperate . Appraisers can and often require repairs to be made to a home prior to the loan closing. Many Government mortgage products such as FHA require the home not to have any deferred maintenance. Deferred maintenance would include but not limited to chipped paint, cracked windows, loose steps, signs of rot or general disrepair. These items fall outside the bounds of the home inspection and must be completed or the home will not close. If any items are noted by appraiser, these items must be repaired and the appraiser must revisit the property and verify items have been repaired. Extras Neighborhood Your neighborhood generates the first emotions that a perspective buyer will have concerning your property, the schools your children will attend and who your neighbors will be. Make sure you have information readily available about your homeowners association, convents and dues. If there are walking trails or any other aspect of your subdivision that might not be readily noticeable to your perspective buyer make sure that you have that you mention that information in any advertising. Know the elementary, middle and high school your home is zoned for. Floor Plan The layout of a house really directs how people will live in it. Newer homes with larger closets and more open floor plans are typically worth more than older homes with a more dated design. (photo of new modern interior of home) Appealing Details The things that make you love your home will help someone else to fall in love it. Kitchens and bathrooms are huge selling points and something that you definitely want to show case. Always feature hardwood flooring, granite counters, custom-made items such as built-ins, draperies, or special appliances that you are willing to leave behind can add value to the house. Likewise, fine architectural elements such as hand crafted wood molding, aristocratically tall ceilings, and dramatic windows (preferably revealing a breathtaking view) definitely rank high on the tally sheet. Be sure to put your best foot forward and show off those positive attributes. Taxes City and county tax structures can have a significant effect on the value of a house and can effect a potential buyers ability to purchase your home. Know what your property taxes are and know if your home’s property taxes are homesteaded. Higher property taxes might cause your potential purchaser not to qualify for the loan and cause your sale to fall apart after everything else is done. Closing Cost Don’t be surprised if the offer to purchase your home comes with a request for you to pay $4,000 to $6,000 in purchasers closing cost and or pre paids. It is very common for the purchaser to need all his money to make the down payment leaving him with no other way of completing the transaction other than asking for closing cost from you the seller. It is not uncommon for sellers to raise their price or not drop their asking price to cover closing cost for the purchaser but it is always important to keep in mind that the house must appraise for the selling price regardless of what is promised to the seller Other Factors Housing is still a commodity that is subject to the laws of supply and demand. As the real estate market starts to stabilize and return to normal you will find some communities pricing will rebound faster than others. If yours is a growing community, with new jobs and thriving industries, you will see housing prices rise. On the other hand, if your area is growing slower or still has high numbers of foreclosures this will also affect your asking price. Above all, pricing is more of an art than a science. Ask yourself how motivated you are to sell, whether you can wait, or even if the selling price will leave you sufficient funds to pay necessary fees at closing in addition to covering your mortgage payoff. Be realistic whether you are elated with your asking price or not. Short Sales If your home will not sell for a sufficient amount to cover you cost and mortgage you should consult with a short sale specialist. Lenders will not typically work with individuals marketing their home by owner, they will insist that you list your property with a licensed agent and truly it is in your best interest to do so. Items such as how the short sale will be recorded on your credit, the date that the short sale will be recorded and deterring your tax consequences for the sale is all the responsibility of your listing agent. Think of a short sale as a negotiated surrender opposed to a foreclosure being an unorganized full scale retreat. . II. PRESENTATION Making Your Home Look Its Very Best If little things mean a lot in matters of the heart, they mean even more when you are trying to sell your house. The way you present your property to prospective buyers can make all the difference between success and failure. Intangibles often help a sale — the way the light reflects or a tranquil view from the bay window can be the determining factor for someone making an offer on your home. There are numerous things you can do to make your home shine just a little brighter without investing in expensive or time consuming renovations. Here are some easy-to-do suggestions. Curb Appeal This is the impression buyers get when they first drive up to your house and that first look is important. If prospective buyers do not find your house appealing from the outside, they will not be interested in seeing what is inside. BEFORE AFTER How can you turn that initial impression into love at first sight? Trimmed shrubbery and mowed lawns are as important as well as windows so clean they sparkle. If your house could use a paint job and you do not have the time or money, sometimes repainting the trim and or shutters will update the entire facade. Or, try painting just the side that can be seen from the street. Make sure that your entry is fresh with perhaps a new coat of paint on the front door, elegant wreath, a new decorative door mat and perhaps potted flowers or ivy can make a doorway look welcoming to prospective buyers. Tidy Up Everyone knows, of course, that neatness counts, both inside and out. Gardening equipment and tools should be put away and hoses neatly coiled. It is also helpful to park your cars in your garage or somewhere down the street rather than leaving them in the driveway. Remember, buyers are going to be looking closely at your front door, so it should to be clean, freshly painted and oiled so it swings smoothly. Brass or metal doorknobs should be polished until they shine bright. Make sure that the key mechanism works easily, it’s hard to overcome not being able to open the front door. Inside, everything should be spotless. If you can afford it, this is the time to hire someone to do what used to be called spring cleaning — a heavy-duty overhaul of all the nooks and crannies. Make sure they clean the baseboards as well as the windowsills potential buyers will notice and equate a clean home with one that has been kept up and cared for more so than one which is grimy and unkempt. Then go through every room using “less is more” as your guidelines. You want to make every room look as spacious as possible, and with that end in mind, remove as much furniture as you can — that extra rocker, footstool, or table. Clutter and personal photos and other items should also be removed. You want perspective buyers to imagine themselves living in your home not wondering where you had that vacation pic taken. If you have an awkward door that complicates movement from one room to the next, take it off its hinges and store it in the garage for the duration Check each room in the house for hazards. Make sure all extension cords Too much furniture for the size of the room. are out of sight and remove any potentially slippery throw rugs. Incidentally, it never helps to put a rug over a spot in the carpet; all that does is call attention to the problem. Better yet, replace the stained carpet with a new inexpensive one that will make a room look like a million bucks. Also, now is the time to pack away a lot of the bric-a-brac that seems to accumulate, to sort through your magazines and get rid of those you don’t want to keep, to throw out those old throw pillows that have gotten a little tired. Take a good look at your kitchen counters, and weed out everything you absolutely don’t have to use every day. Everything else should go into the cupboard. Be sure to edit and clean your cabinets to give the appearance of more space. Mini-blinds are not only inexpensive, but they’re a terrific solution to all kinds of window decorating problems. If your curtains are a little worn or faded, replace them with mini-blinds. They not only give a room a fresh, modern look, but if you buy them in a color that matches the walls, the room will seem much larger. Kitchen and Bath Appeal Buyers react most strongly to kitchens, closets, and bathrooms. It pays to concentrate your efforts in these areas. BEFORE AFTER If you feel your kitchen cabinets are not as up to date as they need to be, you can switch knobs and door handles and create a dramatic improvement. Painting cabinet doors can completely change the feel of a kitchen. Smells can create strong reactions in people The smell of fresh baked cookies or rolls can propel a potential buyer back to wonderful child hood memories and make your house seem like their new home. It is hard dealing with hectic schedules to make time to cook before a potential showing however, there are several companies which make scented oil plug ins with BEFORE AFTER scents that include Cinnamon, brown sugar and vanilla, to make your kitchen a treasure trove of delectable scents. Use scents sparingly, too much will make potential buyers believe you are trying to cover something up. New shower curtains for every bathroom in the house are a must before you start to show it. Tired, streaky shower curtains are a real turnoff. If you can afford it, buy a set of coordinating towels for each bath as well. Keep this new set for show only and tuck them away the minute prospective buyers leave. In your bath try to give as much of a spa appeal as possible. Neatly placed spa towels, candles and scented soaps as well as plants or well placed silk floral can give your bath a lush and lavish image. Make sure to keep your counters clear of clutter and to clean out cabinets and drawers to better show how much storage space is available in a neat and tidy way. Empty closets of all but the barest essentials. The less that is in a closet the larger it looks. Matching hangers and tidy boxes or baskets can give your closet added appeal. Little Details Plants and flowers are as effective indoors as they are outside. Plan on using them as much as possible to dress up your home. If you are conducting an open house, you might want to invest in a festive floral arrangement for the occasion, but avoid that kind of formality when you are seeing one prospective buyer at a time. Instead, put a few casual bouquets around the house- a simple vase of daisies or tulips in a bathroom, for example, or a bowl of lilacs in a bedroom. You do not have to spend a lot on flowers; one bright geranium will go a long way to spark up a room. To get some pointers on decorating successfully with flowers, study the home decorating magazines. Almost every room will have an artfully placed bouquet or two. Show And Tell Turn all the lights on when your house is shown, even if it is a sunny day. If the weather is cold or rainy and you have a fireplace, have a fire burning steadily. As you go through the house, you may want to point out certain details, i.e., the carved mantel, or wood floors. DO NOT not try to sell the home by listing improvements you think would make it look even better, you wait for the buyer to come up with ideas of his own, that’s a good indication he’s beginning to feel possessive and is seriously considering making an offer. Additional selling points can be showcased by placing printed cards next to items that may be of importance. Indicating that there is an entire house generator, central vacuums or underground sprinkler systems, it always helps to point out positives which may be overlooked. It is also a good idea to have info sheets in easily accessible location with a list of all the repairs and attributes of your home, like if the HVAC unit has been serviced regularly, if you have a new roof, and when any remodeling or updating was done. In order to sell your home you must let people know it is for sale. Classified advertising in news papers is now responsible for less than 5% of all homes sold. Concentrate your efforts on free for sale by owner sites such as ZeroCommissionRealEstate.com, Craig’s list, create a face book page, post a video featuring your home to youtube, and never under estimate an attractive for sale sign prominently displayed in your yard. If you do not feel up to the task, make sure the person you hire is. Open Houses: Creating a buyer “event” like an open house can stir interest in your property, however open houses are hard to publicize and often attract smaller groups of perspective buyers than we hope. MLS Multiple Listing Service Our local MLS is a data base operated and maintained by 3,000 plus licensed real estate agents in the Birmingham Metro Area. There are normally 10,000 plus properties for sale on the MLS at any one time making it by far the largest single resource for finding properties. The MLS is not only the first resource for licensed agents looking for properties for their clients but all the homes listed on the MLS are pushed out to 100s of individual real estate sites. (TradingEarth.com, RealtySouth.com, RE/max.com to name a few... Properties listed on the MLS get lots of exposure. The MLS is responsible for almost 90% of all home sales yet many multi time home buyers and sellers do not understand how listing agents and buyer agents are paid and or who they represent. A listing agents contracts with the owner of the property to market their home for a percentage of the final sales price. Information and photos of the home are placed on the MLS along with information only accessible to other agents concerning how much the owner and listing agent have agreed to pay a buyer’s agent from bringing a purchaser to the transaction. Listing agent exclusively represents the seller and are not required to share any information other that health or safety issues with the perspective buyer. If a buyer contacts the listing agent directly, the listing agent now becomes a transaction broker only working for the sale and no longer works for either party. The buyer’s agent works exclusively with the purchaser and is paid by the listing agent. Buyers agent exclusively represents the buyer and are required to share any information they become aware of concerning the property or sellers with the purchaser. Services and pricing vary dramatically between listing companies, however if you do intend to utilize the MLS to market your property, we highly recommend that you pay the buyer’s agent 3% The two most popular types of listing companies are: Flat fee- This service is very popular with for sale by owner listings... They extremely limited service typically consisting of placing the property on MLS. With no service beyond the contract. Cost $495 to $995 paid at the time the property is put on the market for sale. These listings are avoided by buyer’s agents whenever possible. The buyer’s agents is required to contact the owner to set up showings and if a contract should be accepted the buyer’s agent must do the job of the listing agent as well as their own with no additional compensation. Dave Ramsey’s syndicated radio host... “research has shown that between basic . mistakes, pricing errors and lack of negotiation skills, you’ll cost yourself more than the agent’s commission by trying to sell it yourself” Traditional real estate companies provide a wide variety of services including electronic media, for sale signs and lock boxes; they schedule showings, negotiate contracts, hold earnest money in escrow accounts and make sure everything possible is done to ensure a timely closing You tube video used for search engine rankings and virtual tours.. Birmingham MLS Electornic Lock Box Financial Incentives: Find a mortgage company or lender that you feel comfortable working with! Your mortgage person can make sugestions on different loan programs, pre qualify potential buyers or help to overcome a problem that your potential buyer may have. These problems can include but not limited to lack of down payment or reducing monthly payment. At the end of the day your house is not sold unless your buyer has funds at the closing table to complete the purchase. You need someone looking out for your interest. Providing options for your buyer may make or break a sale. Talk to your mortgage company Accepting an Offer One day, (often when you least expect it,) someone is going to decide your property is just right and make an offer you cannot—or can—refuse. You have three choices you may accept the offer, counter the offer or reject the offer entirely. Make sure that you look very closely at the contract there may be hidden costs written into the contract and having a real estate professional close at hand to help you go over the contract can save you thousands. So let’s say you accept the contract...Now What? The sale of real property is a legal transaction that at some point will involve a real estate attorney. The seller by tradition in Birmingham chooses the closing attorney. If you are not employing a real estate agent get your attorney involved early. You will find that involving your attorney early will provide peace of mind as well as being infinitely helpful dealing with the sales contract. What You Can Expect From Your Attorney (1) Review you rsales contract (2) Project settlement cost incurred at closing (3) Hold earnest money (4) Write the warranty deed (5) Arrange, coordinate and attend closing The sales contract is a legal document. It can be as simple or as complicated as you wish. Birmigham Board of Realtors has an approved contract that all licesed agents use. Contingencies (1) Financing Contingency- Most buyers will insist that some provision for cancellation without penalties be included to protect them if they’re unable to get a mortgage. (2) Home Inspection ContingencyTypically a home inspection takes place between 5 and 10 days of when the contract has been accepted by all parties. The home inspection is paid for by the buyer. The buyer will present the seller with a list of items they wish to have repaired prior to closing. The seller can agree to fix all, some or none of the items on the buyers inspection report. It is not uncommon for a cash settlement (normally a reduction in asking price) to be offered in lieu of making repairs. The home inspection although often a formality does give either the buyer or seller the right to cancel the contract without penalty 3) Purchase contingent upon the sale of another property If the prospect is only hoping to sell the house and has no firm commitment from a buyer, you’d be foolish to link your home’s sale to his. What you are essentially giving the buyer is a no-cost option to buy your home that sounds something like this: “If I sell mine, I’ll buy yours.” However if the buyer has his home under contract, you might be willing to consider that clause in your contract, however it is essential that you keep your house on the market. Insert a clause into the contract that gives you the opportunity to accept a new offer and terminate this contingency or the contract altogether. 4) Final Walk Thru Buyers are entitled to make a last-minute inspection, generally a day or two before the closing. They simply want to make sure that everything is there and in good shape or if agreed upon repairs have been made If the buyer doesn’t contact you about this inspection or final walk through, set it up yourself. This protection is as important for you, the seller, as it is for the buyer. One final word of advice. With lending guide lines still in a constant state of flux, appraisers running scared remember all contracts do not close. Do not put yourself in a situation that you cannot recover from if your buyer backs out of the contract or is turned down for their financing. If you are living in the home at the time of the sell make sure that your move out date is several days after the closing. Nothing is worse than coming home to an empty house after a closing that did not happen Closing Cost Who Pays For What The determination of who will pay for what closing cost is always determined by the sales contract. If no mention of closing cost are mentioned in sales contract the burden will fall entirely on the purchaser. However.... • • • it customary to split the cost of the closing attorney and title insurance seller normally pays for the cost of transferring termite fee taxes are normally prorated by the closing attorney. You need to discuss closing cost with your purchaser even if they do not bring it up. If your buyer does not have the necessary funds to close the deal, they will not be able to purchase your home. Contracts cannot typically be changed once the lender has viewed them. The amount of money that can be supplied by the seller varies on the loan product and the amount of money being put down by the buyer. Closing What Happens Before Closing The closing attorney does not represent the seller or the buyer, the closing attorney represents the lender during the transaction. 1. The closing attorney will order title research to make sure there are no liens against the property that are not being settled at the closing table. The attorney will also order title insurance to insure against anything that might have been missed during the title search. All lenders require title insurance. 2. The attorney will take all fees provided by the lender, tax information, home owners insurance cost and enter all this data into a document called a HUD 1. Who pays for what on the HUD is determined by the real estate contract. Once all numbers have been entered into the HUD1 in accordance with the sales contract, the HUD1 is sent to the lender for final approval. If the contract has the seller paying for something not allowed or an amount that exceeds lender guide lines the lender will require the closing attorney to re arrange the cost of the HUD accordingly. What the Seller Needs to Provide to the Closing Attorney Prior to Closing A. Deed B. Lender info and Mortgage Payoff Information C. Most recent property tax Assessment D. Copy of Sales Contract E. Evidence that any outstanding contingencies have been met F. Any other loan documents and or property inspection report What Happens At Closing 1.The closing attorney will prepare a “warranty deed” for the seller to sign. This document contains a legal description of the property being sold and transfers the property to the buyer. 2. The attorney will have all the paperwork from the lender for the buyer and you the seller to sign and will orchestrate the signing of these documents. 3. The closing attorney will cut checks to any outside vendors not being compensated by the lender. What You Need to Bring to Closing 1. Valid Driver’s license 2. Certified funds payable to the closing attorney for any monies required to complete the transaction. If it seems like selling your home is allot like herding cats it is... our suggestion, get a professional cat herder... Dictionary Add-On-Rate--a type of loan repayment schedule that breaks the principal into equal installments. The interest payment is added on to the principal. Total monthly payments are high in the beginning but, over time, the interest payment is reduced as the principal balance is reduced. Adjustable Rate Mortgage (ARM)--interest rates on this type of mortgage are periodically adjusted up or down, depending on a specified financial index. Agent--acts on behalf of another, representing that person’s interests and serving as an intermediary. Amortization--a method of equalizing the monthly mortgage payments over the life of the loan, even though the proportion of principal to interest changes over time. In the early part of the loan, principal repayment is very small and interest repayment very high; at the end of the loan, that relationship is reversed. Annual Percentage Rage (APR)--the actual finance charge for a loan, including points and loan fees, in addition to the stated interest rate. Appraisal--an expert opinion of the value or worth of a property. ARM--see “Adjustable Rate Mortgage”. Assumption of Mortgage--buyer assumes liability for an existing mortgage note held by the seller. This is usually subject to approval by the lender, who must be willing to approve the buyer and release the seller. Assessed Value--the value placed on property by a municipality for purposes of levying taxes. It may differ widely from appraised or market value. Balloon Payment--a large principal payment due all at once at the end of some loan terms. Binder--small, but serious, amount of money ($100-$1,000) accompanying an offer to buy, along with a brief written agreement to go to contract for the sale of property. Broker--a real estate professional who has a higher level of training than an agent. Generally, this is one who is the legal representative or proprietor of the office. Buyer's agent assist buyers by helping them purchase property for the lowest possible price under the best terms Cap--limit on how much the interest rate can change in an ARM. Certificate of Title--document, signed by a title examiner, stating that a seller has an insurable title to the property. Chinese drywall refers to an environmental health issue involving drywall manufactured in China and imported to the United States starting in 2001. The emissions have the odor similar to rotten eggs, worsen and can cause copper surfaces to turn black and powdery. Homeowners have reported a variety of symptoms, including respiratory problems such as asthma attacks, chronic coughing and difficulty breathing, as well as chronic headaches and sinus issues.. Closing--”closing the deal,” the meeting where the deed to property is legally transferred from seller to buyer. Closing Date- This is the date you wish to close on your loan and formally take ownership of the property Closing Costs--see “Settlement”. CMA--see “Comparative Market Analysis”. Commission-fee (usually a percentage of total transaction) paid to an agent or broker for services performed. Comparative Market Analysis (CMA)- an estimate of the home's value compared with others.This differs from an appraisal in that property currently for sale may be taken into consideration (competition for the subject property). Condominium (Condo)--type of real estate ownership where the owner has title to a specific unit and shared interest in common areas . Contingency--a condition in a contract that must be met for the contract to be binding. Contract--binding legal agreement between two or more parties that outlines the conditions for the exchange of value (for example: money exchanged for title to property). Conversion Clause--a provision that allows converting an ARM to a fixed-rate loan after a specified interval. Cooperative (Co-op)--type of real estate ownership where all shareholders own the whole property, but each has proprietary occupancy rights for specified units. Deed--legal document that formally conveys ownership of property from seller to buyer. Down Payment--percentage of the purchase price that the buyer must pay in cash and may not borrow from the lender. Earnest Money-- This is the money given by the buyer to ensure that he performs as required by the contract. The earnest money should never be held by the seller. Real Estate agents and closing attorneys keep accounts specifically for this purpose. Equity--the value of the property actually owned by the homeowner: purchase price, plus appreciation, plus improvements, less mortgages and liens. Escrow--a fund or account held by a third-party custodian until conditions of a contract are met. Federal National Mortgage Association (FNMA, called “Fannie Mae”)--privately owned corporation created by Congress that buys mortgage notes from local lenders and is responsible for the guidelines a majority of lenders use to obtain credit. Finance Charge--the total cost, including all fees, points and interest payments a borrower pays to obtain credit. Fixed Rate Mortgage--interest rates on this type of mortgage remain the same over the life of the loan term. Compare to “Adjustable Rate Mortgage.” Fixture--a recognizable entity (such as a toilet bowl, kitchen cabinet, or light unit) that is permanently attached to property and belongs to the property when it is sold. Foreclosure- is a process where the bank takes back ownership of a property for lack of performance (payment) from the previous owner. Foreclosure sale - property being marketed by the bank. Graduated Payment Mortgage--monthly payments start low and increase at a predetermined rate. Compare to “ARM.” Hazard Insurance--compensates for property damage from specified hazards such as fire and wind. More complete coverage is given by all-risk homeowner’s insurance. Home Inspection Report--prepared by a qualified inspector, it evaluates a property’s structure and mechanical systems. Homestead Exemption- exempts a portion of a properties assessed value from property taxes. For example, if a home is assessed at $300,000 and the homestead exemption is $150,000, then that would only allow $150,000 to be used as the assessed value for property tax purposes. This essentially reduces the tax burden on the average Alabama property owner by half. Interest--the cost of borrowing money, usually expressed as a percentage over time. Lien--a security claim on property until a debt is satisfied. Listing agent- assist sellers in marketing their property and selling it for the highest possible price under the best terms. Listing Contract--agreement whereby an owner engages a real estate company for a specified period to sell property, for which upon sale the agent receives a commission. Market Value--the price that is established by present economic conditions, location, and general trends. Market Price--the actual price at which a property sold. Mortgage--security claim by a lender against property until the debt is paid. Multiple Listing Service (MLS)--a system that provides to its members detailed information about properties for sale. Negative Amortization--when monthly payments aren’t enough to cover interest costs, they are added to the principal balance, and you may end up owing more than when you started. This is most likely to occur with ARMs that have payment caps. Occupancy Date This is the day you can start moving into the property. This date is the same as closing on vacant properties but may be extended several days for individuals living in the property being sold Origination Fee--application fee(s) for processing a proposed mortgage loan. PITI--principal, interest, taxes, and insurance, forming the basis for monthly mortgage payments. Point--one percent of the loan principal. It’s charged in addition to interest and fees. Prepayment Penalty--a fee paid by a borrower who pays off the loan before it is due. Prequalification--informal estimate of how much financing a potential borrower might expect to obtain. Done before paying substantial loan application fees. Principal--one of the parties to a contract; or the amount of money borrowed, for which interest is charged. Prorate--divide or assess proportionally. Realtor--a member of the National Association of Realtors. RESPA Statement--(Real Estate Settlement Procedures Act), a precise breakdown of closing costs for both sellers and buyers. Right of Redemption- period of time given by law to a home owner to repay his debts and retake possession of a property after a foreclosure. In the state of Alabama an homeowner has one year Selling Agent- See Buyer's Agent Short Sale- A sale type where the owner of the property has made an agreement with the mortgage company to sell property for less than is owed and still provide clear title to the purchaser. In a short sale the owner give up his right of redemption. Settlement--all financial transactions required to make the contract final. Title--document that indicates ownership of a specific property. Title Insurance--protects against loss from legal defects in the title. Title Search--detailed examination of the entire document history of a property title to make sure there no outstanding leans on the property.
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