Understanding most of
the real estate terms can make you very rich or poor!
What would you like to do?
What would you like to do?
Real estate terms are not very complicated but they can mean the difference to becoming wealthy or just average. When you learn about something new you should always learn the real definitions for the most commonly used terms so that you avoid misunderstanding the experts when they give you advice.
Real estate investing is
not only fun to get involved in but it has very basic terms that
require you to understand them before taking advantage of the industry.
Let’s start with
the most basic real estate terms;
Realestate broker: An
agent employed on behalf of the buyer to find listed properties on
their behalf.
Realtor or real estate
agent: An agent hired on behalf of the buyer by the seller to sell the
sellers property. Please note that although the agent’s
commission comes from the buyer the agent works for the seller
predominantly and will make sure the deal favors the seller.
Property lien: A legal
claim or ruling attached to the specific property that demands certain
actions from the current and future owners. It is a serious potential
pit-
fall for the enthusiastic
buyer who fails to do his homework
before closing their real estate deal. Always check public records for
unresolved land claims by certain population groups especially in Cape
Town South Africa.
Commercial real estate:
Property that is used for the purpose of providing a service to more
than one person or entity; such property must be properly rezoned and
registered
with the local municipal council. Banks frown on owning more
than 80% of such property because of the inherent risk associated with
the business sector.
Residential property: Is
property mainly used for the shelter of individuals and need not be
registered as a place for running a business. This type of real estate
sector is the most popular with junior property investors because banks
will finance up to 150% of the property in good economic environments.
Because of the high demand for shelter the risk involved is much less
than most of the other real estate investment types.
Lease agreement: An
agreement between the property owner and the current, past or future
tenant. This is the most powerful weapon any property investor can have
in his or her arsenal. There is no such thing as a “standard
lease agreement” and people who try to convince you of this
are
the most ignorant or are trying to hide something. You can put anything
in your agreement; the only snag is that it must comply 100% fully with
the local tenant laws of the country where the property is located or
you could be sued.
I always include what I
want the tenant to do when they occupy any of my properties and I am
very careful that I read the corrections that my tenants make on the
contract. The contract must be dated, initialed on each page and each
pen correction signed otherwise you open yourself up for loop holes.
Do not forget to make
copies of the original so that any changes can be proven to come before
or after signing.
Conveyance: The transfer
of the ownership of the newly bought or traded property from the old to
the new owner including all the attached rulings and rights linked with
the closed real estate deal. Conveyance of property can be rushed or
delayed by either the buyer or the seller to their convenience. Many
deals often collapse during the period of conveyance using the escape
clause.
Escrow: Is another term
used intermittently with conveyance in the American and European real
estate transfers. It is also the transition period where property
ownership is shifting to the new owner when the buyer’s
requests
and the seller’s demands are met.
Trust account: An
account set aside by the realtor’s lawyers or the escrow
agents
to hold the buyer’s deposit or cash when the ownership is
still
in escrow.
Offer to purchase: It is
a document that identifies the property that the buyer would like to
purchase and the price they are willing to pay for the acquisition of
that real estate. The seller can reject the offer if they do not wish
to sell or amend the document if they would only sell under specific
conditions. If the seller accepts the terms on the offer to purchase
then they can sign the offer at the appropriate place. The buyer or the
realtor now has to prepare the agreement of sale.
Agreement of sale: When
a buyer and seller agree on the offer to purchase an agreement of sale
is drafted with the seller and the buyer’s specific
requirements
listed clearly with dead-
lines printed for all to see.
The agreement of sale has clauses
that both parties must be aware of that will suspend the agreement. A
deposit must be placed into the trust account and the property must
undergo repairs, evaluation and escrow. The deal has been made and it
is legally binding but can be cancelled under certain and specific
conditions.
As a junior real estate
investor; the legal terms can often seem daunting and scary. The most
important thing I will emphasize is have the legal documents in a
language you have mastered very well (do not take chances relying on
other people to be considerate as the conditions in the binding
document can be anything under the sun).
So unless you want to
end up paying the seller or buyer for the rest of your life I suggest
you read everything before you sign even if your lawyer has given his
or her ok. You can cancel those clauses that you genuinely feel do not
apply or you simply do not agree to BEFORE you sign. After you sign you
any document you are then bound by everything in the contract even if
it violates your basic human rights!!
Not even the United
Nations can break such a contract. So make sure you know your real
estate terms very well.
