Appraisal
An appraisal is an unbiased estimate of a home’s worth. When buying a home, the lender requires an appraisal by a third party (the appraiser) to support the requested loan amount. If the home’s appraised value is below what the buyer has offered on a property, the lender or the seller may ask the buyer to pay the difference in cost.
Appraisal Gap/Shortfall
A lender will only provide a mortgage up to the value of the home as decided by the appraisal. If that amount is lower than the purchase contract, it is called an appraisal gap or shortfall. For example, if a buyer offers $175,000 and the home appraises for $165,000, the appraisal gap or shortfall is $10,000.
Appraisal Guarantee or Gap Coverage
Appraisal gap coverage guarantees the seller that the buyer will cover the difference between the appraised value and the contract price. Offering an appraisal guarantee helps buyers compete with cash offers and helps buyers win in a multiple-offer situation. If you offer gap coverage up to a specified amount or a total appraisal guarantee, be prepared to bring this money to close in addition to your down payment and closing costs.
Buyer Agency Agreement
A Buyer’s agency agreement is a contract that establishes the terms of the relationship between a real estate agent and their client. This agreement outlines the services to be performed by the agent, the length of the agreement, and any fees/compensation associated with the arrangement. Both the length of the agreement and fees are negotiable.
Comps
Comparable sales are used to establish how much a home is worth based on what other similar homes in the area have recently sold for.
EMD – Earnest Money Deposit
An Earnest Money Deposit is a good faith deposit that shows a buyer’s level of commitment; it is typically 2%-3% of the offer price and collected after a satisfactory inspection. Earnest money deposits are applied to a buyer’s down payment and funds to close. Earnest money is refundable as long as the terms of the purchase agreement are not broken.
Escalation Clause
An escalation clause is language written into an offer that automatically increases your offer price by a certain amount above competing offers until the offer reaches the maximum price you are willing to pay. An escalation clause only goes into effect when there are competing offers. Example: The purchaser shall pay $2000 over the highest non-contingent offer, with proof of offer, and the price should not exceed $999,999 (the absolute highest the buyer is willing to pay)
Escrow
Escrow is a legal arrangement in which a third party temporarily holds money or property until a particular condition has been met – such as the fulfillment of a purchase agreement.
Fiduciary Duty
Fiduciary duties are legal obligations that require an individual or entity to act in the best interests of another party. In real estate, agents have a fiduciary duty to their clients, which means that they must act in the best interests of their clients and not their own interests
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