Florida Real Estate Glossary

Florida real estate has many of its own terms and abbreviations which differ from state to state.  The following list of Florida real estate terms and definitions is provided as a helpful tool when buying, selling, or leasing a property as it pertains to real estate. Please note, this glossary does not provide legal definitions. It is merely a guide to help you better understand real estate terms and abbreviations which are part of Florida real estate transactions. For legal guidance, contact an experienced Florida attorney.

Active

Properties placed into the Multiple Listing Service (MLS) are assigned a status. Active is a term used when the property is available for purchase. Depending on the state, other status’s may include pending, temporarily off the market, expired, or withdrawn. View Sarasota Active Properties | Just Listed Within the Past 24 Hours

Appraisal

An appraisal is the buyer’s assurance that they are not paying more for the property than the home is actually worth. An appraisal will determine how much a lender is willing to lend you to buy the home. An appraisal is performed by a licensed professional and is different than a CMA (Comparative Market Analysis) performed by a real estate agent. When an appraisal comes in lower than the accepted purchase price there are three options: (1) The seller can reduce the price of the home to meet the appraised value, (2) the buyer can pay cash for the difference between the appraised value and the purchase price, or (3) if neither party can agree on a solution, the buyer has the right to back out of the contract and have their escrow deposit returned to them.

As Is

As Is means you are buying the property as is it stands, in its current condition. You have the right to perform an inspection, but the seller is not obligated to do any repairs that arise within the inspection report. If the seller finds there are items of concern, they can back out of the contract and have their escrow deposit returned in full.  This is referenced in paragraph 12a of the Florida Realtors Florida Bar AS IS-5 contract,  which states, “If buyer determines, in buyer’s sole discretion, that the property is not acceptable to the buyer, buyer may terminate this contract by delivering written  notice of such election to seller prior to expiration of the inspection period. If buyer timely terminates this contract, the deposit shall be returned to the Buyer, thereupon, Buyer and Seller shall be released from further obligation under this contract.”

Assignability

The Florida real estate contracts provide an option to assign the contract. This simply means that the party of the existing contract (assignor) is assigning the contract to an assignee, who then becomes the responsible party for the contract. If your intentions are to assign the property to someone else, there are two contract options to select from. They are as follows: (1)”May assign and thereby be released from any further liability under this contract” or (2) “May assign and not be released from liability under this contract.”  There is also a third option which states, “May not assign this contract.”

Back Up Contract

Once an offer has been accepted, many sellers will consider back up offers. A backup contract is an offer that has not been accepted but can become the primary contract if the currently accepted offer was to become null and void for reasons such as financing problems, inspection contingencies, or simply by personal choice. At that time, the seller would be free to accept the best back up offer.

Binding Arbitration:

Binding arbitration is a means of two parties coming to a resolution without the use of a judge. When two parties disagree over a contract, the facts are submitted to an independent third party, typically a lawyer(s), referred to as the arbitrator.  The arbitrator works out a deal and each party agrees to accept the decision. The final decision cannot be disputed.

Buyer

A buyer, also referred to as the purchaser, is the individual who is in the process of buying a property.

Clear Title

Clear title protects the buyer. When you buy a home, the title company or attorney handling the transaction will perform a property record search to determine if there are any transfers, tax liens, mortgage liens, contractor liens, or municipal liens on the property. The results are compiled into a report referred to as the title search. The owner will be required to rectify any liens on the property. A clear title means there are no liens or encumbrances on the property.

Closing Costs:

In addition to a buyer’s down payment, there will be closing costs. There are a lot of items included in closing cost so be aware of what you are being charged. Closing costs items include loan origination points, discount points, lender document prep, attorney or title company settlement fee, appraisal, credit check, flood certification, title search, title insurance, recording fees, and escrows for prepaid items such as property homeowners insurance or property taxes. Closing costs are incurred by both the buyer and the seller. There is no set amount for closing cost but as a general rule of thumb, they can run anywhere between 1.5% – 3% of the purchase price. Your lender can provide you a good faith estimate for your loan, which breaks down what your estimated closing costs will be.

Closing Date:

This is the agreed upon date in which the property will transfer from one party to the next.  If it appears that the closing date will not occur on the specified contract date, an addendum to the contract is needed, which states both parties agree to the new and revised closing date.

Closing Disclosure:

This is the 5-page form used to itemize all the buyer and seller costs in a real estate transaction.  The lender is required to provide this to you for your review at least 3 days prior to closing. Double check all the information. If something looks incorrect, now is the time to address discrepancies. Use this helpful checklis to ensure all details itemized on your disclosure are correct.

Contingency:

A contingency means that there are terms or conditions in the contract still under negotiation. Examples of common contingencies clauses in a real estate contract include inspections, appraisals, and financing. The contract is not binding until the contingency items are met. If a contingency is not met, the contract becomes null and void without legal consequences. If the conditions are met, the contract becomes a binding contract, and neither party can void the contract without consequences. Examples of contract contingencies:

  • Buyer has 15 days to perform a home inspection.
  • Buyer has 30 days to secure a 30-year conventional loan at 75% of the purchase price with an interest rate no greater than 4.1%.
  • The home must appraise at the agreed upon purchase price or higher.

Cooperating Broker:

In a real estate transaction, there is a listing broker and a buyer’s broker, often referred to as the cooperating broker. The listing agent represents the seller. The buyer’s agent represents the buyers and their interests during the negotiations and the contract to close process. The listing agent often splits the commission percentage with the cooperating broker. For example, if the real estate commission is 6%, 3% goes to the listing agent’s broker and 3% goes to the buyer agent’s broker (the cooperating broker). Further reading:  Who Pays the Real Estate Commission, the Buyer or the Seller?

Counter-offer:

When an offer is submitted on a property, the selling party has the right to reject or respond to the offer. A response is referred to as the counter-offer. In essence, the counter-offer is a rejection of the original offer. When counter offering, the seller is putting the ball back in the buyer’s court. This leaves the buyer with the following options: (1) Accept the seller’s counter-offer, (2) counter the seller’s counter-offer, or (3) reject the counter-offer.

Deed:

A deed is a notarized legal document that transfers ownership from one party to another. The deed will contain the name of the grantee, the name of the grantor, the property’s legal description, and the manner in which title will be held. The deed must be filed with the county clerk or tax assessors office. Once recorded in the land records, it becomes public record.

Default:

A buyer or sellers failure to perform an action within the real estate contract.

Documentary Stamp Tax:

This is a tax which is paid upon the sale of real property. In Sarasota, it is customary that the seller pays the doc stamps. They are levied at a rate of .70 per $100.  For example, $150,000 purchase price divided by $100 = $1500 x .70 = $1050 doc stamp fee.

Earnest Money:

This is a good faith deposit and the seller’s assurance that a buyer is committed to the property. Without an earnest money deposit, a buyer could easily walk away from a transaction with no consequences. An earnest money deposit can range anywhere between 1-10% of the purchase price and is held in an escrow account by a title company or broker. At closing, the earnest money is applied to the down payment or closing costs. An earnest money is also referred to as an escrow deposit.

Effective Date:

The effective date is the date in which the last party has signed the contract and the document is delivered.  pink piggy bank surrounded by pennies.

Escrow Agent:

An attorney, escrow company, or title company which holds the funds in the transfer or real property.

Escrow Deposit:

This is also referred to as an earnest money deposit. An escrow deposit is your good faith deposit which assures the seller that you are committed to closing on the home.  An escrow deposit can range anywhere between 1-10% of the purchase price and is held in an escrow account by a title company or broker. At closing, the escrow deposit is applied to the down payment or closing costs.

Estoppel Letter:

If you are purchasing a home governed by a home owner’s association, the title company will request an estoppel letter from the association. This letter will outline the seller’s financial standings with the HOA, any unpaid payments, and if there are any upcoming special assessments.  The charge for an estoppel is approximately $150 and is typically a seller’s expense.

FHA Mortgage:

An FHA mortgage is insured by the Federal Housing Association and offers 3.5% down payment loans and less strict lending requirements, making it an attractive option for many home buyers.  Due to the low down payment, the borrower will be required to purchase mortgage insurance which protects the lender if the borrower were to default on the loan.

FHA 203K Rehab Loan:

FH203K Loan for Fixer UppersThis little-known government program is a great option for home buyers who want to renovate a home, but don’t have the cash to do so. The FHA 203K loan requires only 3.5% down, comes with lower income and credit restrictions, and allows the money for renovations and repairs to be rolled into the mortgage. Properties are purchased “as is” and the repairs are completed after closing by an approved 203K licensed contractor.  Click here for further information on the FHA 203 K Rehab Loan.

Financing contingency:

A financing contingency is a clause in the real estate contract that states the offer is contingent upon the buyer securing financing. If the buyer is unable to secure a loan, the contingency protects their escrow deposit. An example of how a contingency may be worded is as follows: This contract is contingent upon buyer obtaining approval for a conventional loan within in 30 days after effective date for a fixed rate in the loan amount at an interest rate not to exceed 4.5% and a term of 30 years.

FIRPTA:

This is the Foreign Investment in Real Estate Property Tax Act, more commonly referred to as FIRPTA. This act states that in the case of a foreign seller, the buyer must hold 10% of the sales price from the seller. As of February 2016, if the home is over $1M then 15% must be held. This is assurance by the IRS that they will receive the taxes due to them from the foreign seller. The IRS payment is the responsibility of the buyer.

Foreclosure:

When a borrower fails to make mortgage payments, the bank takes back possession of the property. This legal process is referred to as a foreclosure.

Force Majeure:

Force Majeure is a French term which means Greater Force.  This clause in the real estate contract refers to an event which neither party can be held accountable for such as a tornado, hurricane, flood, earthquake, fire, or any other act of God. Neither the buyer or seller will be held liable in such event.  If force majeure were to occur, all time periods including the closing date would be extended 7 days and after 30 days beyond closing, either party can void the contract with written notice.

Homeowner’s Association (HOA):

Many communities have homeowner associations (HOA’s) which are responsible for making and enforcing the community rulesHOA Community Associaton. Membership is in the form of a fee paid monthly, quarterly or annually. The payment schedule is determined by the individual association. Homeowners associations help to maintain the community and stabilize or increase home values. Items included in the mandatory fees may include lawn maintenance, roof maintenance, water, sewer, trash, and cable.  Homeowner Associations may also have restrictive covenants such as no dangerous pet breeds, no basketball hoops, rental restrictions, or approval of paint colors.

Home Inspection:

As part of a real estate transaction, you have the option to perform a home inspection. This type of inspection will determine the present condition of the home and the major systems. If further evaluation by a licensed contractor is recommended, it will be stated in the report.  A home inspection will not determine future performance, life expectancy, or environmental problems. Simply, it is a visual inspection to uncover concealed defects in the home. Home Warranty: A home warranty policy provides protection against unforeseen repairs and generally covers items such as electrical, plumbing, AC, and kitchen appliances.  Unlike homeowners insurance, it is an optional policy. There are a variety of home warranty companies to choose from but typically policies range from $300 up to $1000 for a comprehensive plan. Generally, home warranties are not necessary for new homes with manufacturer warranties, but they can save a lot of unexpected out of pocket repair costs on older homes.

HUD Home:

The Department of Housing and Urban Development, more commonly referred to as HUD, is a government agency which helps low and mid level income individuals to acquire a loan. They are not a lending institution, but rather approves lenders. HUD homes are properties with mortgages that were insured by FHA (Federal Housing Authority). When you see a HUD home for sale, it is because the borrower defaulted on the loan, which resulted in a foreclosure, and possession went back to the government because FHA guaranteed the loan. When HUD lists a property, they first do an appraisal on the home to determine the market value and whether or not the home is eligible for FHA financing. Homes that are eligible are listed as “FHA Insurable”. These homes are only open to bids from owner occupants during the first 15 days.  Homes that do not meet FHA standards are listed as “Uninsurable” and are only open to bids from owner occupants for the first 5 days.  After the owner occupant periods expire, bids open up to investors. To place a bid on a HUD property, submission by a real estate agent is required.

HUD Settlement Statement:

This is the statement developed by the Department of Housing and Urban Development. It was used by the closing agent to itemize all the buyer and seller costs in the real estate transaction. After 2015, the HUD was replaced with a Closing Disclosure. The HUD is still used today for reverse mortgages.

Kick-out Clause:

A kick-out clause is an addendum to the contract which states the seller has the right to continue to show the property and accept a backup offer. These are typically used with contingencies when the buyer must sell their home. If the seller were to receive a backup offer, it is presented to the current buyer with the names of new buyers and offer price obliterated. The current buyer has 72 consecutive hours (not business days) from receipt of the backup contract to decide on one of two options. (1) Back out of the contract and have their escrow deposit returned in full, or (2) provide an additional deposit plus waive both the financing and the sale of their property contingencies. If the current buyer chooses to move forward with option 2, the initial deposit and second deposit will be credited to the buyer at closing.

Lead Paint Disclosure:

Homes built prior to 1978 require a lead paint disclosure from the seller. This addendum informs the buyer on either of the following options: (1) Seller has no reports or records pertaining to lead-based paint and/or lead-based paint hazards in the housing, or (2) Presence of lead-based paint and/or lead-based paint hazards. If there is prior documentation on lead-based paint or hazards, the seller must provide the purchaser with all available records and reports.

Legal Description:

The legal description of a property is the method of pinpointing exactly where a property is located. This differs from, and is more detailed, than a physical street address.  Some legal descriptions may be short and involve a lot and block in a subdivision, while others are more complex. For information on how to locate a legal description, click here.

Listing Broker:

A listing is initiated with a listing broker. A licensed real estate agent who works under the designated broker contractually secures the right to sell the property for the property owner indicated on the deed of record. A listing broker is also referred to as the listing agent, which is different from the selling broker or buyer’s agent (referred to as the cooperating broker). In cases when the listing broker procures the buyer as well, they also become the cooperating broker.

Municipal Lien Search:

When purchasing a property, it is highly advisable that you conduct a municipal lien search. This search will determine if there are any code violations, open permits, unrecorded liens, and unpaid taxes or utilities associated with the property. The fee for a title search in Sarasota is approximately $200. This is a very small fee to pay for your personal protection. If you choose to waive the lien search, and vital problems surface, these undiscovered issues are no longer the responsibility of the former owner.  They become your financial responsibility.

Owner Financing:

Common mistakes when buying a houseTo increase marketability, many property owners will offer owner financing, also referred to as seller financing. In essence, the property owner becomes the mortgage holder. With owner financing, be prepared for interest rates in the 9-12% range, although there are circumstances in which you may find lower. Typically, owner financed deals require the purchaser to pay in full or refinance at the end of an agreed upon term, for example, 2, 5 or 10 years. Although this type of financing is a viable option for those with temporary poor credit, if you have consistent credit problems, and risk the chance of not being able to obtain a loan from a lender, then this may not be a safe option for you. It is also important to note that when you purchase a home using owner financing, any problems that occur while in the home are your financial responsibility.  This is not a rental situation, you own the home, so t is advisable you weigh out your options.

Owners Policy:

This part of the title policy protects the buyer in the case that anything was missed during the title search, such as, but not limited to, code violations, liens, or open permits. The owner’s policy protects the purchaser from losses.

Pending:

This is the status of a property when a contract has been accepted. A true pending home is one in which all contingencies have been met. At one time in the Sarasota, FL market, there was a status referred to as  “active with contract”, which indicated that contingencies still had to be met. This option is no longer available.  With the current pending status, an agent can indicate if the seller is willing to accept backup offers. Homes accepting backup offers may be worth pursuing.

Personal Property:

Personal property differs from real property. Understanding the difference is important when it comes to selling a home. Real property are items that are attached to the structure or in the ground. For example, wall hung televisions, chandeliers, curtain rods and drapes. Per the contract, these stay with the home unless stated otherwise. Personal property are items such as doormats, artwork, and furniture.  These do not convey with the home unless stated in the contract. When you are listing your home for sale, be sure to advise the listing agent of all items that do not convey with the sale. When receiving an offer, double check that the exclusions are listed in the contract.

Post-closing Occupancy:

A post-closing occupancy is when the buyer agrees to let the seller lease out the property after closing. In a post-occupancy situation, a lease should be prepared to indicate the rent amount and term The following are additional lease terms you may want to consider. (1) Until vacated, the seller is responsible for all utility payments and for insurance on the contents. (2) The seller agrees to reimburse the buyer for any damage or destruction.

Pre-closing Occupancy:

A pre-closing occupancy is when the buyer is allowed to reside in the home prior to closing.  In a pre-closing occupancy situation, a lease should be written up indicating the lease rate and terms. It should also include verbiage which states the following: (1) Seller is no longer responsible for property maintenance, property inspection, or property repairs. (2) It is the buyer’s sole obligation to maintain the property.

Real Estate Agent:

A real estate agent is a licensed individual in the business of selling property and land.  A real estate agent must work under a who pays a realtorbroker. Their duties go beyond just showing a home. Being a real estate agent is a lot of work, requiring long days and a driven personality. Successful realtors adapt good time management skills plus handle the stress of the business well. Learn more about what your real estate agent should be doing for you.

Real Property:

Personal property differs from real property. Understanding the difference is important when it comes to selling a home. Real property are items that are attached to the structure or in the ground. For example, wall hung televisions, chandeliers, curtain rods and drapes. Per the contract, these stay with the home unless stated otherwise. Personal property are items such as doormats, artwork, and furniture.  These do not convey with the home unless stated in the contract. When you are listing your home for sale, be sure to advise the listing agent of all items that do not convey with the sale. When receiving an offer, double check that the exclusions are listed in the contract.

Seller:

The individual selling his or her property in return for payment.

Seller’s Disclosure:

When listing a home, your real estate agent will request that you fill out a document called a seller’s disclosure. Basically, it is a list of questions to answer about your home. This document will be shared with potential buyers. It provides them known information on structures, systems, appliances, termites, water intrusion, plumbing, pools, sinkholes, homeowner association restrictions, environmental hazards, and claims and litigations.  A seller’s disclosure should not take the place of a home inspection. If you are purchasing a bank owned home, there will be no seller’s disclosure available. Banks are not required to provide details about the home for the reason that they never lived in the home.

Seller Financing:

To increase marketability, many property owners will offer seller financing, also referred to as owner financing. In essence, the property owner becomes the mortgage holder. With seller financing, be prepared for interest rates in the 9-12% range, although there are circumstances in which you may find lower. Typically, seller financed deals require the purchaser to pay in full or refinance at the end of an agreed upon term, for example, 2, 5 or 10 years. Although this type of financing is a viable option for those with temporary poor credit, if you have consistent credit problems, and risk the chance of not being able to obtain a loan from a lender, then this may not be a safe option for you. It is also important to note that when you purchase a home using seller financing, any problems that occur while in the home are your financial responsibility.  This is not a rental situation, you own the home, so t is advisable you weigh out your options.

Short Sale:

If you are selling your home, and accept an offer which is lower than what you owe on the home, this is considered a short sale. In a short sale, the lender must agree to accept less than what is owed. Before approving a short sale, banks will require the submission of requested paperwork and a letter of hardship stating why you can no longer make your mortgage payments. In addition, the lender will have your home appraised to determine its market value. If it is in line with the offer, they may approve the short sale

Special Assessments:

There are two types of special assessments. (1) Homeowners Association Special Assessments are fees charged to owners by the Homeowner’s Association for necessary repairs that exceed the amount in the current budget. (2) Local government special assessments are fees charged to homeowners for utilities, road maintenance or other services.

Survey:

To determine if structures or improvements are actually located on the property, a survey is performed.  A survey will determine the property boundaries and the location of easements or encroachments from adjacent properties. When financing a home purchase, this is information both the mortgage and title company will need to know before issuing the new title policy.

Time is of the essence:

clock with a red rim, white face and black letters displaying the time 2:53This is a provision in the Florida real estate contract which means time requirements are important, therefore the specific dates in the contract must be met in order to close by the specified closing date agreed upon in the contract.

Title Search:

A title search is performed when transferring ownership to determine if the person selling the property actually has the right to sell it. It ensures the buyer that there are no existing liens on the property such as unpaid taxes, mortgages or assessments. These flaws must be dealt with before the property can close.

Title Insurance

A title search is done on the property to protect the buyer and ensure that there are no existing liens on the property.  When financing a property, title insurance is a requirement. It covers any potential errors or fraud with the title of the property that was missed in the title search. Title insurance is not required for cash buyers but recommended.

Transfer Tax:

When a property is transferred from one person to the next, there is a sales tax on the sale of the home. In the Sarasota, Florida area, this tax is referred to as the documentary stamp tax and is the responsibility of the seller. The Documentary Stamp Tax is levied at a rate of .70 per $100.  For example, $150,000 purchase price divided by $100 = $1500 x .70 = $1050 doc stamp fee.

Under Contract:

When a home is under contract, it means that an offer has been accepted but contingencies such as an inspection or an appraisal, have not yet been met. Once the home closes, the under contract status will change to sold.

VA Mortgage:

VA loans are government back loans for active service members and veterans of the US Armed Forces.  Their advantages include 100% financing with no down payment, no monthly mortgage insurance, and competitive interest rates.

Walk Through

A walk through protects the buyer. It is typically done within 24 hours of the closing, so either the day before closing or the day of closing. It is the buyer’s assurance that the home is in the same condition as it was the day the home went under contract. If you find an issue, have your agent contact the seller’s real estate agent immediately and try to get it resolved, but take into consideration costs involved in delaying a closing. In some instances, if it is an item such as a burned out light bulb in the refrigerator, then it may be wise just to replace it on your own.

Summary
Real Estate Terms and Definitons
Article Name
Real Estate Terms and Definitons
Description
A glossary of real estate terms and definitions provided as a helpful tool when buying, selling, or leasing a property as it pertains to real estate.
Author
Publisher Name
Gina Ursini Real Estate Agent
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