First Time Homebuyer’s Real Estate Word for Today is Short Sale

First Time Homebuyer Word of the Day Short Sale

As a Minnesota REALTOR®, I have received many calls in recent weeks from excited first time homebuyers and/or their parents as they assist their children looking for a first house. A lot has changed since dad and mom bought their first home a decade or so ago so are many questions.

A few days ago a call came from an excited first time homebuyer who has been scouring the internet for the perfect property at the ideal price. He calls and wants to set up some showings for the homes he has found. With a quick email, he forwards a list of a half dozen MLS listings and I bring up an array of his dream homes. With five of the six properties, there is an agent note that indicates the home is in short sale. When I pass on the information, I hear a puzzled silence and pause.

What exactly is a Short Sale?

Even after the abundant media coverage of the mortgage crisis over the past few years, many people still do not understand exactly what a short sale is....And more importantly, how it affects the home buying process. In a nutshell, a short sale is when the seller owes more on the home than it can be sold for in today’s market. In order to sell the home and avoid a possible foreclosure, the homeowner must ask the bank to take a loss on the sale by approving the purchase at the lower value. It is also know as a pre-foreclosure home and can be a way for a homeowner to avoid being foreclosed upon if they can no longer pay their mortgage.

Why should a homebuyer care if a home is in short sale? When a homebuyer writes and offer on a short sale home, the offer is submitted with earnest money to the property owner selling the home just as in any other real estate transaction. The sales price and terms are negotiated and agreed upon by the homeseller who then signs the purchase agreement. But the agreement is contingent upon the bank who holds their home mortgage agreeing to accept less money than is owed on the market to clear the title for sale. Some larger banks have hundreds, if not thousands, of these files waiting for short sale approval. It is normal to wait 12-16 weeks for an answer from the bank.  Adding to the problem, many sellers will have more than one mortgage on their home and therefore more than one bank will be involved in the approval process. In some cases, the purchase price might cover enough for the first bank to receive most of its money back so it will be willing to approve the sale. But the second bank, who is in a subordinate position, will get nothing and not approve the deal. It can be frustrating for a home buyer to wait for a closing to be scheduled when there is no guarantee as to  when the bank (or banks) will respond.

How does a short sale compare to a foreclosure? In a foreclosure, the bank has taken back the home from the owner. The seller is now the bank and homebuyers along with their agents, deal directly with the bank when an offer is written. A bank representative did not reside at the home so cannot fill out a disclosure with information about the condition of the home. While negotiations are easier and much faster, buyers must accept the risk and purchase the home in as-is condition. While it is always recommended to have a home inspected, it becomes extremely important to be diligent and inspect everything thoroughly when buying a bank owned property.

Copyright 2012 www.terieckholm.com

First Time Homebuyer’s Real Estate Word for Today is Fiduciary

A couple of weeks ago, a friend mentioned a new company had opened in the Minneapolis/St. Paul area. He later realized it was just Fair Isaac now going by the new name, FICO. I was taken aback by the confusion because most people living in the Twin Cities north metro are aware the business analytics company, Fair Isaac Corporation, has been located in Shoreview for decades. What surprised me is that few outside the real estate and mortgage industry may have made the connection that FICO is an acronym for the Fair Isaac Corporation.

Once again, I was a bit surprised that such a simple term I use everyday as a REALTOR® would be unknown to others. But then it got me thinking of all the times a glazed look came over a buyer’s eyes when I talked about escrow or earnest money. These can easily be confused with other real estate and mortgage terms like down payment or cash to close. It is totally understandable because most homebuyers do not buy houses everyday.There are so many terms that could possibly confuse a First Time Homebuyer that I thought an online glossary of real estate terms might be helpful. So over the next several weeks I am going to have a series of posts for the first time homebuyer with explanations of the most often used (and sometimes confusing) real estate terms. This way you can skip buying that big “how to buy a house” book or attending that First Time Homebuyer Class and have a quick resource at your fingertips. Today’s Real Estate Term is:

Fiduciary—A relationship of trust created when a buyer or seller signs a contract with a REALTOR®. After a contract is signed, a real estate agent has several fiduciary duties that protect their client not just through the transaction but beyond it as well. This means as a first time buyer, once you sign a contract with an agent, that agent cannot tell others anything that is private about you or your situation to anyone. In Minnesota, these duties require your agent to be loyal, confidential, and obedient with your instructions. They are accountable to you and must disclose any information they learn that would benefit you in the purchase of a home. Throughout the transaction and afterward, they must use reasonable care to protect you and your interests.

It is important for a first time buyer to understand this term because every seller that is listed with a real estate broker has a contract in place. This means when a buyer calls the listing agent for information or stop by at an open house, the friendly REALTOR® asking you about your ability to buy a home is under contract with and WORKING for the SELLER. This agent has a fiduciary duty to disclose everything you have said to the seller of the home. But it is not a two way street. The friendly agent cannot tell you anything about the seller that the seller doesn’t want you to know. Because of their contract, the agent cannot say why the seller is moving or if a price reduction is in the works.

As a home buyer, it is essential to interview potential agents to assist with the home search as soon as possible in the process. When good match is found, sign a contract with a REALTOR® so that your interests and information are protected. Then REALTOR® can make calls to other agents on homes, set up private showings and assist you through the homebuying process. The agent will work for YOU! The contract does not have to be a long term commitment. I often sign up new clients for a couple of weeks and extend the contract once we have formed a stronger relationship. Rest assured that even if you decide to part ways with your agent, the fiduciary duty to keep your information private continues forever.

Copyright 2010 Teri Eckholm 

First Time Homebuyer’s Real Estate Word for Today is Equity

Last week a friend mentioned a new company had opened in the Minneapolis/St. Paul area but later realized it was just Fair Isaac had changed its name to FICO. Most people living in the Twin Cities north metro are aware the business analytics company, Fair Isaac Corporation, has been located in Shoreview for decades. But I hadn't realized that few outside the real estate and mortgage industry have made the leap that FICO is an acronym for the Fair Isaac Corporation. Once again, I was a bit surprised that such a simple term I use everyday as a REALTOR® would be unknown to others. But then it got me thinking of all the times a glazed look came over a buyer’s eyes when I talked about escrow or earnest money. These can easily be confused with other real estate and mortgage terms like down payment or cash to close. It is totally understandable because most homebuyers do not buy houses everyday.
There are so many terms that could possibly confuse a First Time Homebuyer that I thought an online glossary of real estate terms might be helpful. So over the next few weeks I am going to have a series of posts for the first time homebuyer with explanations of the most often used (and sometimes confusing) real estate terms. This way you can skip buying that big “how to buy a house” book or attending that First Time Homebuyer Class and have a quick resource at your fingertips. Today’s Real Estate Term is:

EQUITY—The amount of ownership one has in a property is the equity. This means if a home is appraised at $200,000 and the homeowner owes the bank $150,000, he would have $50,000 in equity.

An FHA buyer initially has very little equity because of the very low down payment required for the loan (usually 3.5%). Whereas a conventional buyer, who puts down 20% or more on the home, will have a greater percentage of equity.

It is important for a first time buyer to understand this term because it can be used in property descriptions. A home that is in a “negative equity" position is a short sale. This means the homeowner owes more to the bank than the home is worth in the current real estate market.
Other real estate ads will describe homes as an “equity builder”. This is where a buyer can build equity in the home faster by making improvements like finishing a basement so the home increases in value more quickly than if nothing is done on the home.

Another term used by REALTORS® in advertisements is “sweat equity”. This is similar to an equity builder but often describes a home that could need significant work to bring the property to its full value.



Copyright 2010 Teri Eckholm http://www.terieckholm.com/

First Time Homebuyer’s Real Estate Word for Today is Escrow

In a recent episode of the Emmy award winning television show, Cash Cab, several people with stumped by the acronym, FSBO. This is a often term often used in the real estate world to describe a person selling their home by owner (For Sale By Owner). As a REALTOR® I was a bit surprised that such a simple term I use everyday would be unknown to so many. But then it got me thinking of all the times a glazed look came over a buyer’s eyes when I talked about escrow or earnest money. These can easily be confused with other real estate and mortgage terms like down payment or cash to close. It is totally understandable because most homebuyers do not buy houses everyday.

There are so many terms that could possibly confuse a First Time Homebuyer that I thought an online glossary of real estate terms might be helpful. So over the next few weeks I am going to have a series of posts for the first time homebuyer with explanations of the most often used (and sometimes confusing) real estate terms. This way you can skip buying that big “how to buy a house” book or attending that First Time Homebuyer Class and have a quick resource at your fingertips. Today’s Real Estate Term is:

Escrow This term can be confusing as it is used a few different ways. In some states, going into escrow is defined as the period of time after the purchase agreement is signed but prior to closing. In Minnesota we call that time period, pending, not escrow.

In Minnesota, the term escrow means funds held by a third party for a future payment. The most common time a first time buyer hear the term used is in regard to the required funds held in escrow by their mortgage company on a monthly basis to cover the taxes and property insurance for the home. This amount will be added to the monthly payment and the mortgage company will be then responsible for making the payments directly to the insurance company and the county for taxes. Putting funds into escrow is not required for all buyers. If a significant down payment is made at the time of purchase, a lender will not require funds to be placed in escrow for taxes and insurance. A buyer can then pay their insurance company and county directly.

There is another time when funds may be placed in escrow. There are some instances where essential repairs cannot be made prior to closing. In this instance, a mortgage company may allow funds to be place into the title company's escrow account on the date of closing and held there until the repairs are made. It is now rare that a mortgage company will allow this; usually only in the case of off season weather where it would be impossible to make the repair such as installation of a septic system or cement driveway in the winter.



Copyright 2010 Teri Eckholm http://www.terieckholm.com/

First Time Homebuyer’s Real Estate Word for Today is Earnest Money

In a recent episode of the Emmy award winning television show, Cash Cab, several people with stumped by the acronym, FSBO. This is a often term often used in the real estate world to describe a person selling their home by owner (For Sale By Owner). As a REALTOR® I was a bit surprised that such a simple term I use everyday would be unknown to so many. But then it got me thinking of all the times a glazed look came over a buyer’s eyes when I talked about escrow or earnest money. These can easily be confused with other real estate and mortgage terms like down payment or cash to close. It is totally understandable because most homebuyers do not buy houses everyday.

There are so many terms that could possibly confuse a First Time Homebuyer that I thought an online glossary of real estate terms might be helpful. So over the next few weeks I am going to have a series of posts for the first time homebuyer with explanations of the most often used (and sometimes confusing) real estate terms. This way you can skip buying that big “how to buy a house” book or attending that First Time Homebuyer Class and have a quick resource at your fingertips. Today’s Real Estate Term is:

Earnest money The funds that a buyer submits with their offer or purchase agreement to demonstrate to the seller their seriousness about buying the property. It should be an amount sufficient enough to indicate to the seller that the buyer will not walk away from the deal without good reason. It is not the same as a down payment. If your offer on the home is accepted, the earnest money check will be cashed and placed into a broker’s trust account. The funds will go toward the purchase price of the home.

Copyright 2010 terieckholm.com