Key Terms to Know When Selling a Home
There are many important home selling terms to know when the
time comes to put that sign in the yard. The real estate market
can be tricky, and costly if you make a selling mistake. There
is so much to know: legal/real estate terms, contracts, listing
agreements, disclosure statements, title documents, etc. Be sure
to get as much home selling advice as possible, as becoming an
intelligent seller homebuyer can help you avoid making costly
mistakes.
1031 Exchange
A 1031 Exchange is a tax aspect of the Internal Revenue Code to
allow a real estate investor who meets all the requirements to
sell their property and defer paying taxes on the gain. By
completing an exchange, the owner can dispose of their
investment property, use all of the equity to acquire
replacement investment property, defer the capital gain tax that
would ordinarily be paid, and leverage all of their equity into
the replacement property.
Breach of Contract
A breach of contract occurs when a party is in violation of a
direct obligation or failure to perform provisions in the
contract agreement. In the world of real estate, a contract
breach occurs most often in two ways:
(1) A failure to perform in the property listing agreement
between the broker and the seller.
(2) A violation of terms in the sales contract between the buyer
and the seller.
Contract Contingencies
Contingencies in real estate contracts are the specific clauses
in the contract that must be fulfilled by either the buyer and
seller, or provide a way to void the contract. For example, a
current home sales contingency is often used when a buyer is
making an offer on a home before selling the existing home. The
buyer may need to sell the present home before being qualify and
afford the purchase. Therefore, the offer is contingent upon the
sale of the existing home. Key standard contingencies include
home inspections, financing, and appraisal.
Due on Sale Clause
The alienation clause (Due-on-Sale Clause) is the specific
verbiage in a mortgage or deed which asserts the lender's option
to force that the balance of the secured debt becomes
immediately due and payable if the property is sold by the
borrower, thus preventing the homeowner/borrower from assigning
the debt without the lender's approval. Comes from the term
alienate, which means: to transfer or convey the title to a
property from one party to another.
Exclusive-Right-to-Sell
Exclusive-Right-to-Sell is a common type of real estate listing
agreement. A specific broker is given the exclusive right and
authorization to market the seller's property. A key to this
agreement is that if the property is sold while the listing is
in effect, the seller must pay the broker a commission
regardless of who sells the property. Therefore, this type of
listing agreement offers the best opportunity for brokers to
earn a commission. Also known as an exclusive agency listing.
Earnest Money
Earnest Money (escrow deposit) is the specific monetary funds
provided to bind an real estate sales agreement or some other
transaction requiring a deposit. The deposit acts as evidence of
good faith in purchasing real estate. The amount of earnest
money varies based on the type of property being purchased and
local market conditions, but is truly one mort part of the sales
contract that must be agreed to by both parties. The seller or
broker places the money in an escrow or trust account until
closing, when it becomes part of the funds applied to the
purchase price. Earnest money is forfeited by the buyer if they
fail to carry out the terms of the contract agreement. In the
event the property does not close, the sales agreement spells
out the conditions under which buyer would forfeit the earnest
money.
Lead Paint Disclosure
In March of 1996, the Environmental Protection Agency (EPA) and
the Department of Housing and Urban Development (HUD) published
a final rule, Lead; Requirements for Disclosure of Known
Lead-Based Paint and/or Lead-Based Paint Hazards in Housing, (61
FR9064-9088). This final rule requires persons selling or
leasing most residential housing built before 1978 to provide
purchasers and renters with a federally approved lead hazard
information pamphlet and to disclose known lead-based paint
and/or lead-based paint hazards.
Proration
Proration is the process to allocate between two or more
parties, the proportionate share of each. For example, the
prorated adjustments of interest, taxes, and insurance, etc. on
a pro rata basis as of a certain date between the buyer and
seller.
Sellers Disclosure
In the purchase and sale of an existing home, the sellers must
complete a seller's disclosure statement regarding the home.
Disclosures cover a variety of topics, including the condition
of title, the availability services, flood issues, easements,
zoning, and details regarding the history and the condition of
the house. Unless the buyer waives review of this statement, the
seller must deliver a completed statement to the buyer for
review prior to or within a certain time after the purchase and
sale agreement has been signed by both parties. The buyer then
may elect to terminate the transaction by giving timely and
appropriate notice to the seller. If the buyer does not object,
then the disclosures are deemed to be acceptable to the buyer.
Most state laws mandate that disclosures be on special forms the
seller must sign and date. Also note, that if there is a real
estate broker or agent involved in the transaction, and if they
have personal knowledge of any latent defects, the agent is
legally obligated to disclose those defects to the potential
purchaser, regardless of whether the seller discloses or
disclaims.