As with most other industries and businesses, real estate and housing is full of processes and jargon that many outside of the industry are not familiar with, at least in the context in which they are used in the industry. Here are several terms you should definitely know going into your purchase.
Defining something as real estate is typically pretty simple. When it comes to a real estate transaction, however, there are some specific parameters. For example, a mobile home that still has wheels on it is not real estate. The land it sits on may be, but the mobile home itself is technically a motor vehicle. It would not be classified as real estate and is not eligible for a mortgage. Remove the wheels and place it on a foundation and it becomes real estate.
Generally speaking, real estate is land and anything that a reasonable person would deem permanent. This means a home and any outbuildings, trees, fences, and so on would be considered real estate. Even items in the home would be considered real estate, for the purposes of a transaction, if they are permanently attached to the home and should remain unless explicitly stated otherwise in the contract. Carpeting, light fixtures, and cabinets, for example.
Important note: Local markets differ in what is customary when it comes to appliances and ceiling fans. In some markets these items will typically convey with the home but in other markets it may be customary for the seller to take some or all of them when they move out. It is always recommended that you review the listing and purchase contract closely to see what is and is not included and, if you are not sure, ask your Realtor.
Again, this would seem a very simple word with a straightforward meaning and, for the most part, it is. But it is important to recognize that when you submit an offer to purchase real estate, you are providing a signed, legally-binding contract. It is not a hypothetical or just a conversation. If the seller signs your offer as it is, meaning they do not send it back with a counteroffer, you are legally required to meet the terms outlined in that contract. If you do not, the seller may be able to keep your Earnest Money Deposit or worse.
Earnest Money Deposit
Earnest Money is a deposit that the buyer makes when they submit the offer to the seller. The seller does not receive the deposit at that time, but it is noted in the contract. It is typically held by the brokerage that your real estate agent works for. The typical amount of an Earnest Money Deposit varies based on a number of factors such as local customs, the sales price of the home, and other things.
There are several purposes to the deposit. Symbolically, the deposit serves as your commitment to the seller that you intend to honor the agreement and not waste their time. Legally, if you do not honor the terms of the contract, the seller may be entitled to your deposit as compensation for their time and expenses. You should be absolutely clear on the contingencies in the contract that protect your deposit and prevent you from liability in the event that the transaction is not completed.
Speaking of contingencies, these are clauses within the contract that define situations in which you may back out of the deal without losing your deposit or being held liable for any damages. For example, there are usually financing contingencies that provide your ability to cancel the contract if you cannot get approved for favorable mortgage terms (“favorable” is often specifically defined by mortgage type, term, and maximum interest rate.) Other potential contingencies that can protect you might include appraisal, home inspection, and home-sale contingencies.
It is important to note that none of these contingencies are standardized or automatic. Make sure you communicate with your Realtor regarding all the contingencies in your purchase offer.
If you are interested in, or even just beginning to think about, buying a home, do not hesitate to contact me at your convenience. I can help you gather the information you need to make informed decisions and achieve your goals.