Agency Disclosure:
In California, there is a mandatory Disclosure of Real Estate Agency
Relationship. This document is to help consumers understand the type of
agency relationship that exists between the Buyer or Seller and their
respective agents. California State law requires all real estate licensees who
are acting as agents of buyers or sellers of property to advise their potential
buyers or sellers of the nature of their agency relationship and the rights
and obligations it creates.
A listing agreement is an employment contract for personal service between
the Principal Broker, represented by the agent, and a Principal. This
agreement establishes a Fiduciary relationship. Because of this relationship,
the agent of the seller may not tell the buyer certain facts about the seller.
For example, if the seller is insolvent, this may not be revealed unless the
seller gives written notice to do so. However the agent must inform the
buyer of any material facts that might affect the value of the property. For
example, if the property backs up to a school or freeway or has easements.
A listing may be given for any length of time. It is effective the date the
listing is signed unless otherwise specified. To be legal, exclusive listings
must have a definite, final termination date.
Appraisal:
This is a written estimate of the value of the property performed by a certified
appraiser. It is not much different from a Comparative Market Analysis, or Brokers
Professional Opinion which establishes the Fair Market Value of a property.
Appraisers can be asked to testify in court. Lenders will require an appraisal to
assure the value of the home is no less than what the buyer has agreed to pay.
They may base the amount of the loan on this appraisal.
Buyers’ Agent:
A licensed real estate agent who has a fiduciary duty to the buyer.
Buyers Inspection Advisory:
A CAR approved form advising the Buyer to conduct property inspections by
professionals. It explains that the physical condition of the property is not
guaranteed by either the Seller or the Agent.
Contingencies:
Any condition of sale. The most common contingencies are mortgage, home
inspections, and clear title. However a buyer may put any contingency in an offer.
Keep in mind that a contingency offer is a weak offer, since it gives the buyer the
right to nullify the contract if the contingency is not fulfilled.
Contract:
A legal and binding document setting forth the exact terms and conditions of sale. It
is legally enforceable and gives both parties rights and obligations. In Orange
County it is usually drawn by an attorney for the seller and then reviewed by the
attorney for the buyer. After contracts have been signed by both parties, the
property can no longer be shown for sale.
Counter Offer:
A subsequent offer that replaces the original offer with changes in terms. This allows
changes to some of the terms of the original deposit receipt and allows the
remaining terms and conditions to remain. A contract negotiation may require
multiple counter offers.
Close of Escrow:
The completion of all the provisions of the contract by a third party, the escrow
company. The escrow is complete or perfect when all funds are deposited and
dispersed. Real estate taxes or prepaid items are prorated and adjusted on a per
Diem basis. Real estate commissions are also paid. The buyer must have a binder
for Hazard or Homeowners’ Insurance. All monies due should be a cashier's check
or bank checks.
Deposit Receipt:
Also known as the Contract or Residential Purchase Agreement. A deposit of money
or items of value must accompany a deposit receipt for it to be valid. It is an offer to
purchase a specific property under certain terms and conditions. It becomes a
binding contract on both the buyer and seller when acceptance is communicated.
Environmental Hazards:
Homeowner Guide to Earthquake Safety must be provided to all buyers of one to
four unit dwellings built before 1960. A disclosure form must be filled out by the
Seller. The law also requires the Seller to certify that the water heaters are strapped
and secured as per Uniform Plumbing Code.
Escrow:
A neutral third party used to process the paperwork and money involved in a sale or
other real estate transaction. The purpose is to meet the terms of the contract and
assure that all the agreed to conditions have been performed.
Exclusive Right to Sell:
An agreement given by the Seller under which an exclusive right is given to list for
sale for a specified period of time is granted to the Broker. The Broker may offer
compensation to other Brokers, on a co-broke basis, as authorized by the seller. If a
sale or lease is made by the owner or any other broker during the term of the
agreement, the Broker holding the Exclusive Right to Sell is entitled to
compensation.
Exclusive Agency:
An agreement given by the Seller to a Broker under which an exclusive right to sell
is given to the exclusion of other brokers. However if the owner obtains a buyer on
his/or her own, there is no commission due. If the sale is made by any cooperating
broker during the term of the listing, the broker holding the exclusive agency is
entitled to a commissions which is then split with the other broker.
Financing Options for Buyers:
Conventional loans offer the best rates and longest pay back periods for buyers
with good credit. They have terms of 15, 20 or 30 years. Less in demand are the
Adjustable Rate Mortgages, which change rates according to a predetermined
adjustment period. These loans generally offer very attractive introductory interest
rates. There are now ARM’s with 3 or 5 year first time adjustments which are very
interesting for buyers who know they will not be in one location very long. ARMS
offer an opportunity to purchase a house with a low introductory rate, thereby raising
the amount the buyer can qualify for and possibly raising the loan amount. Both of
these types of loans can be processed directly through a bank at the retail lending
rate. Mortgage brokers work in the wholesale market and can place loans with
hundreds of banks. They will “shop” the loan out to many different lenders in an
attempt to get the best loan for their customer. They get a fee, which is paid by the
bank, for their services. The consumer is quoted a rate that includes all charges and
is usually on par with the regular retail rate. Sometimes there are additional points to
pay. Increasingly popular are the Internet lenders (e-Brokers), who qualify and
process all loans on the Web. The advantage is usually a lower rate but the big
disadvantage is the lack of personal contact and help with the loan application
process.
Flood Insurance Certification:
It is usually required to obtain a flood zone certification in order to obtain clear title.
This will show whether or not the property is in a flood zone and whether it requires
flood insurance. Since the flood maps have all been redone, it is entirely possible
that a house that has never required flood insurance in the past, may show up in a
flood zone and therefore be required by the bank to carry this extra insurance.
Home Inspections:
Ordered and paid for by the Buyer, these general inspections are performed by
licensed or unlicensed specialists skilled in evaluating a home. Who pays for repairs
indicated as a result of inspections? It is usually negotiable. Some listings are “AS
IS” meaning that the Seller will not pay for any repairs. The Buyer should obtain a
Real Estate Transfer Disclosure Statement before making a written offer. In most
cases the Seller and the Buyer are able to come to terms. The Buyer and Seller may
decide to compromise, with both sharing the costs of repairs, or the Seller may pay
for any repairs. Or the Buyer may decide that the issue is not important enough to
risk losing the home. A good way to protect against major repairs on the first year is
to purchase a Home Warranty.
Mortgage:
An instrument in writing, duly executed and delivered, that creates a lien upon real
estate as security for the payment of a specified debt. The Mortgagee, usually a
bank or lending institution, is the party who lends the money and takes a mortgage
to secure payment. The Mortgagor, usually the Buyer, is the person who borrows
money and gives a mortgage on the property as security for the repayment of the
loan. Mortgages are not usual or customary in southern California.
Multiple Offers:
In a sellers’ market, when there are more buyers who want to buy than there are
sellers who want to sell, the problem of multiple offers arises. A listing Agent is
obbligated to present any offers to the Seller at any time until close of escrow. It is
then the Sellers’ decision to entertain several offers at one time or to only negotiate
one at a time. Most sellers deal with one offer.
Private Mortgage Insurance (PMI):
Insurance required by lenders to insure any amount of the mortgage that represents
more than 80% of the appraised value. This insurance is a second lien on the
property and has an additional monthly premium which is generally at a higher rate
than the 1st mortgage. It must be paid off in full before the bank will release the lien.
Many borrowers have found it difficult to get the PMI removed.
Real Estate Transfer Disclosure Statement:
The law requires sellers of residential property (one to four units) to provide this form
to prospective buyers. It identifies items of value attached to the property and states
whether these are operational. It is also where problems of any kind that might
adversely affect the value of the property are to be disclosed. This statement must
be prepared by the seller and delivered by the agent to the prospective buyer.
Seller’s Agent:
The listing agent always represents The Seller.
Survey:
A drawing showing the boundaries of the property and the placement of the houses
and any structures. Banks require a survey of the property. This protects and
informs them and the Buyer of any easements or encroachments that would effect
home's value. Although it is sometimes possible to use the existing survey, if
provided by the Seller, the Buyer must pay for either an update or an entire new
survey, depending on the Lender. It may also be required to obtain a flood zone
certification. This will show whether or not the property is in a flood zone and
whether it requires flood insurance.
Title Insurance:
A policy of insurance which indemnifies the holder for any loss sustained by reason
of defects in the title. Title insurance insures that the Seller transferred the property
free of any liens or encumbrances. In order to verify clear title, a Title Search is
ordered. In Orange County, the cost of the title insurance policy is a cost to the
Buyer. The lender may require their interest to be insured as well. Any additional title
insurance for the lender is also a cost to the Buyer.
Title Search:
An examination of the public records to determine the ownership and encumbrances
affecting real property. The Chain of Title will show the history of all conveyances
and incumbrances affecting the title as far back as records are available. The Title
Search is ordered by the Buyers’ attorney, usually after a commitment for a loan has
been obtained. This search will show any easements or encroachments that would
effect home's value. A Title Search will also include a municipal certifications check.
This should verify that a Certificate of Occupancy has been obtained for all
structures and a Flood Plain Certification.
Trust Deeds:
Trust Deeds are used in California as the customary financing instrument. This
Deed of Trust is a security device that makes the real property collateral for the
promissory note. A Trust Deed needs a Note for security. This Note is a negotiable
instrument but the Trust Deed is not.
Trustee:
A neutral third party who receives the Trust Deed. One who holds property
in trust for another to secure the performance of an obligation. In the event of a
default, the Trustee can sell the property and transfer the money obtained at the
sale to the Beneficiary (the Lender) as payment of the debt.
Trustor:
One who deeds his property to a Trustee as security until the obligation
under the terms of the deed of trust have been met. The person borrowing the
money, usually the Buyer. An owner of property becomes the Trustor when
refinancing a home.
