Commonly Used Terms:

Professionals Involved in Real Estate: KNOW WHO IS WHO

Listing Agent: Real Estate Agent representing the owner of a property. The Listing agents job can cover such aspects as pricing, marketing, negotiating and scheduling for the seller.

Buyer’s Agent: Real Estate Agent representing the interests of the potential buyer.

Mortgage Banker: Mortgage banker responsible for securing financing for the purchase.

Inspector: Licensed professional who inspects property condition. Usually contracted once buyers have an accepted offer. He will provide a report on the property condition. Not a required step in the purchasing process but always advisable when you consider that you will be making possibly the largest purchase of your life.

Appraisar: Usually hired by a bank, although not necessarily, an appraiser looks at comparable property sales within a certain mile radius of a property and within a certain timeframe to try and determine the value of a property. An appraisal is done by the bank to make sure that the loan amount they are giving is not more than the property is worth. They are also looking to make sure that you stay within the Loan to Value Ratio.

Investors: There are many different types of real estate investors in the industry. A couple sub-categories would be-

1. Buy and Hold Investors:  An investor that is primarily interested in buying properties to hold. These investors will look at any property where the numbers make sense. Every investor will have his/her own criteria that allows them to determine whether they will purchase a property.
2. Fix and Flippers:Quite a surprisingly large group, these investors are constantly looking for properties that can be purchased for below market value. Usually these properties are distressed, needing gut renovations. The investor will usually purchase with cash, and renovate to sell within 3-6 months.
3. Developers: Investors who are purchasing primarily land, and building up condominiums, co-ops and rental apartment. In NYC, most developers are building buildings and not homes, as there is not to much land left available for homes.

 

It is important to understand the different people involved in the RE industry. You need to identify who you are talking to so that you will be better able to know what information you should be sharing and what you should not be sharing.

 

Property Definitions:

Single Family: Primarily used as an owner occupied property.

Multi-Family:  2+ Units in a building. From 2-5 units you can purchase with a conventional loan. 6+ needs to be purchased with a commercial loan.

Co-ops: An apartment where ownership is of shares in the corporation. The corporation owns the building and your ownership of the shares allows you to live in a specific apartment.

Condos: Apartment where ownership is of the actual 4 walls of the apartment.

Mixed-Use: A residential and commercial property. Typically in NYC these are properties with a storefront or office space on the first floor and residential units on the upper floors.

Warehouse: A property used to store and sometime manufacture.

Industrial: Can refer to factories, office space and warehouse.

Contract Terms:

Once you have found the property that you are interested in purchasing, you will present an offer through your agent. Lets discuss the negotiating aspect a little bit later on. Right now, I want to write about the Contract process.

Order a Contract: Once all of the terms regarding the purchase of the property have been settled, the sellers attorney will put all the terms together into a contract of sale. This contract will be sent over to the your attorney to be reviewed. Once your attorney has reviewed the contract, there are 1 of 2 possibilities. Either your attorney will discuss with the sellers attorney details in the contract that need to be changed, or he will contact you to come in to sign the contract.

Earnest Money/Contract Deposit: When you come in to sign the contract, you will be legally binding yourself to purchase the property. There are different contingencies on a contract to protect both your interests and the sellers interests. As a show of good faith, the buyer places a sum of money into an escrow account with the sellers attorney. This amount can range from $5,000+. It really depends on the amount both attorney’s agree to. This sum will be drawn from your account and deposited into an escrow account usually the same day that the seller signs the contract.

Escrow Account:  Webster’s New World Dictionary defines it as, “A written agreement or something of value put in the care of a third party and not delivered until certain conditions are fulfilled.” In general, when you sign a  contract and give a earnest money deposit, that money is held in an escrow account by the sellers attorney. An escrow account is a bank account created specifically for the purpose of holding this money. It is illegal for any party, wether the seller, the seller’s attorney, the seller’s attorney’s secretary, to access this money. Any illegal usage of this money can come with severe consequences.

Earnest money will be drawn from the escrow account to be used towards the purchase of your property. In general, the EM deposit will be used towards your downpayment. If it is not the full amount that your downpayment will be, you will need to come up with the rest of the downpayment amount.

Fully Executed Contract: After both parties have signed the contract, you are now “In Contract”. At this point, it is your job, and by extension your attorney’s job, to do due diligence on the property while your bank works on underwriting the loan and getting ready for the closing date. Due diligence includes your attorney ordering a title company to run a title search, a survey and making sure that the property will be in the agreed upon condition for closing.

Contract Terms: Among contract terms that will be negotiated before contract ordered, these would be a few:

1. Purchase Price: What is the agreed upon purchase price
2. Closing Timeline: How long from the full execution of contract until buyer and seller must close the transaction
3. Condition: Repairs, Violations, And other agreed upon details regarding the physical condition of the property.
4. Representations: Different details regarding the property that may be disclosed prior to contract. For example, Seller may inform you that you have air-rights to additional buildable square footage. This is something that you should make sure is included in your contract to protect your interests.
5. Concessions: Sometimes, a seller/buyer may make some concessions like agreeing to pay for some of the buyer’s closings costs, allowing the seller to remain in the property post closing and other details.

TO be discussed in upcoming updates:

Title Search: Violations: Survey: Underwriting: Financing: Downpayment: Loan Types: Loan to Value Ration: Debt to Income Ration: Contingencies: Negotiating: 

Notice: I am not a licensed attorney and am not qualified to give you legal advice. All details on this page should be taken as educational from a licensed real estate salesperson and not from a legal representative. Shmuel “Sam” Harris, will not be responsible for actions taken based on this information.