It can be difficult to understand something if you don’t know technical terms and industry jargon. You may have picked up on some real estate terms and have some basic knowledge, or you may be buying a home for the first time. This real estate term dictionary is perfect for newbies and for those looking for a refresher.
Our real estate agents will be here to guide you through the process, but it will be beneficial if you have a basic understanding of common terms real estate agents and Brokers have in their real estate glossary. Purchasing a home or second home is one of the most important things you’ll do in your life and it’s important to understand the process. This blog will cover the following real estate terms:
1. Home Inspection
2. Wind Mitigation Inspection/Four-Point Inspection
4. Assessed Value vs. Appraised Value
5. Closing Costs
7. Title Insurance
9. Types of Contingencies
10. Community Development District (CDD)
The home inspection will give you an idea of what type of condition the home is in before you buy. A qualified home inspector will look at the home’s plumbing, HVAC system, structure, electrical system, interior components, roof covering, exterior components and site conditions that could affect the home’s structure. Home inspectors may not look into issues like the roof or mold. Please hire a roof inspector or a mold inspector to look into these issues. Time allowance for inspection is negotiated while placing a property under contract and is typically seven to 15 days. Longer, if required by extenuating circumstances.
Wind Mitigation Inspection/Four-Point Inspection
A wind mitigation inspection looks at the construction features of the home and how they stand up to wind damage from things like hurricanes and powerful storms. This type of inspection may help reduce the cost of homeowners’ insurance as building codes have changed over the years. Homes built to stricter building codes are built to withstand wind damage and may qualify for discounts on a homeowners’ insurance policy.
A four-point inspection is for the insurance company to determine whether a property is able to be insured. It covers plumbing, HVAC, electrical systems and the roof and it is prepared on an insurance company form.
Why not get a full inspection? When purchasing a property, a full home inspection is recommended. The inspectors must be a licensed general contractor and will do a more in-depth inspection. They will look at things from sink drains to whether or not the microwave works. However, the full inspection doesn’t conform to what the insurance company needs and that is why both are necessary.
A home appraisal is performed by a professional appraiser to give a third party opinion of how much a property is worth. An appraisal will be required by the lender if there is financing involved in the purchase. The appraisal is based on recent home sales in the area, market conditions, the appraiser’s judgment and an analysis of the property. The lender will look at the appraisal and the purchase price to ensure they are not allowing the purchaser to borrow more than the home is worth.
Assessed Value vs. Appraised Value
The assessed value of a home determines the value of the home for tax purposes. The assessed value takes into account location data and comparable home sales in the area. The assessed valuations provided each year help determine the homeowner’s annual property tax. There are exemptions and caps that will skew the assessed value of properties. Florida’s Save Our Homes Act limits assessed values from going up more than 3% in any year and offers discounts for members of the military, widows and permanent residents and their primary residence. This is why you may see discrepancies between assessed values of similar homes on the same street or in the same community. If values rise more than 3%, second home properties or investment properties will have a higher assessed value than other primary residences capped at 3%.
The appraised value looks at the home’s value based on a point in time. This is usually done by a professional during the mortgage process and is used as a condition for a mortgage loan.
These are the fees associated with purchasing your home and they are paid at the end of the process. Closing is when the title of the home is transferred from the seller to the buyer. Closing costs can be negotiated between the buyer and seller. Closing costs can vary from county to county.
This legal document gives the lender a lien on real estate which acts as a secure repayment of a loan. A loan runs an average of 10 to 30 years and once the term is completed, the mortgage loan is required to be paid off. A mortgage can be fixed or adjustable. People tend to go for the former so they don’t run into a surprise rate increase down the line.
When a home is bought, sold or financed, a record of that transaction is archived into public records. When you purchase title insurance for your home, a title company will look through records for several types of ownership issues. After the title company is done searching, they will give you a title insurance policy to help shield you from any issues they couldn’t find during their initial search.
During escrow, a third party holds funds or an asset before they are transferred from one party to another. Once everything is in order and conditions are agreed upon by both parties, the third party will release the funds to the parties involved in the transaction.
Types of Contingencies
Contingencies refer to the condition of the Agreement of Sale. A buyer can include a variety of contingencies into their contract. Some common types of contingencies include inspection, financial, title, appraisal and home sale. Inspection contingencies allow you to negotiate with the seller on any repairs that may not initially come up during the home inspection. A financing contingency gives you time to apply for and receive a loan. If for whatever reason your loan falls through, the contingency protects the buyer and gives them an out to the contract. A title contingency allows the buyer an out if there are issues that can’t be cured with the title. An appraisal contingency means you’ll be ok if the agreed upon purchase price is higher than the appraised fair market value. If a buyer has a home to sell, the home sale contingency allows for a certain amount of time for the buyer to find someone to purchase their current property. If a buyer is not found in the specified time frame, the buyer can cancel the contract.
Community Development District (CDD)
This is a local unit established by a developer to offer cost-effective ways of financing infrastructure and services to support new communities and their development. With CDDs, the cost of the infrastructure is included in home ownership within the community. This is usually used when growth is pushing builders into areas that are ahead of the local municipality’s infrastructure build out plan. At the end of the CDD period, things like roads, water, sewer and electric, that make up the infrastructure of the community, are then given to the local municipality to maintain.
Buy or Sell with Royal Shell
Let us know if you still have questions about these real estate terms. Any of our real estate agents will be happy to make sure you understand these terms and anything else about the real estate process you need to know.
We buy and sell homes throughout Southwest Florida, Ocala in Central Florida, in Western North Carolina, and beyond. Feel free to browse our homes for sale at your convenience and let us know if you see something you like. We offer virtual tours, videos, excellent photography and in-person open houses.