Glossary of Terms

Agent: The real estate agent must be licensed by the state to provide real estate services on behalf of the broker where the subject property is located. The agent acts as a representative of either the buyer or seller (the principles) of real property. The agent's obligations and duties are to vigorously represent his client, and to provide fair dealing to the other parties to the transaction. The agent's duties of full representation are toward the client only, and the agent can represent only one principle in any given transaction.

Broker: The broker is party licensed by each state to provide real estate services to the public. The broker employs real estate agents under traditional laws of agency to act on its behalf as a representative of a buyer or seller. The broker may (and often does) represent both parties to a transaction by designating an agent on each side of the transaction, either as a Designated Representative (in DC) or Dual Agent (VA). The top 7 real estate brokers in the DC Metropolitan area in 2004 were, in order of sales volume: Long & Foster, Coldwell Banker, Remax, Washington Fine Properties, WC & AN Miller, Weichert, and Tutt Taylor & Rankin.

Escrow - An account held by a third party until satisfaction of certain conditions. Upon ratification of a sales contract, purchasers are generally required by the seller to submit an earnest money deposit in case the purchaser breaches the contract. This money is held "in escrow" by the title company or broker until the sale, when the party holding the escrow releases it, and the purchaser can apply it toward the purchase. After the purchase, the lender may hold an escrow account for the borrower in order to pay insurance and taxes, assuring the property is never worthless or seized. Purchasers contribute to the escrow account monthly through their mortgage, and the lender disburses that money to insurers and the government periodically, though it is the owner's liability if payments are not made. Lenders generally require escrow accounts for their own protection, federal laws limit the amount that can be held in escrow. Some lenders will waive the escrow requirement for a fee.

Home Warranty: Ask your agent about whether or not you should get a home warranty. The warranty requires that the insurer replace or repair appliances and defects in the event of breakage in the first year you own the home. There are different types of policies, so choose carefully.

Home Inspection. A home inspection is often sought by the purchaser prior to the purchase of the home to verify the integrity of the home and systems. Inspectors must be licensed in the jurisdiction of the home, and should provide a thorough overview of the electrical, structural and mechanical aspects of the property, though they are generally not engineers and will not give conclusions about major structural work. The inspection is traditionally obtained by the purchaser after ratification of a contract, though a home inspection contingency in a competitive market like this one may doom offer to purchase, so purchasers often hire a home inspector prior to writing an offer. A good inspector will not only inform you of any existing problems, but will give you an education about the property and how to trouble-shoot problems tol save money in the future.

HUD-1: This document, also called the closing statement, is prescribed by federal law under RESPA, its purpose is to delineate all costs associated with the real property transaction. The statement will include any fees charged by the broker, agent, lender, title company (attorney), buyer, seller, and municipality. The document must be signed by the principles at settlement.

Mortgage: Purchasers are entitled to use any lender, but are well-advised to take recommendations or use banks that enjoy a good reputation. Most loans today finance more than the traditional 80% by using a "2nd trust". I.e., Borrower takes out a first loan (likely 80% of the purchase price), then a 2nd loan for 10-20% of the purchase price. Because the first loan does not exceed 80%, Borrower avoids paying PMI (insurance).
Other factors to consider:
- service (you will be dealing with this company for years),
- loan origination fees,
- closing costs,
- prepayment penalties,
- insurance requirements.

Borrower cannot "lock-in" until they have a ratified contract for purchase of real property. The "lock-in" saves the rate for an initial period, usually 60 days.

Settlement: Settlement, or closing, will be arranged in advance by your real estate agent. The buyer has the legal right to choose any settlement ( title) company to provide this service, unless that right is forfeited in the contract for sale. The settlement company is headed by an attorney and represents the transaction, not any of the individual parties to the transaction. The title company will research title to the property to make sure the seller has clear title to the property, and will record the title transfer with the municipal authority. RESPA requires that the settlement figures are disclosed in the HUD-1 (settlement sheet) 48 hours prior to closing. Any party owing money must have a certified check for the balance.

Title Insurance: There are 2 types of title insurance, lender's insurance and purchaser's insurance. Both are issued by the title company and provide protection to the insured in the event that a claim is made with regard to title to (ownership of) the subject property, and protect against claims from both past transfers and future transfers. The lender's insurance is generally required by the lender to protect its investment, while the purchaser's policy is generally optional. Both policies are paid by the purchaser at closing. Claims against the title are rare, since the title company, before issuing insurance, searches past transfers to the title to ensure there are no errors in or potential claims to ("clouds to") the title.