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Too serious for confusion

by Kim Cooper
| December 12, 2010 8:00 PM

It is a pet peeve when people use industry vernacular in a discussion. Their acronyms and abbreviations don't mean a lot to people outside their profession and only serve to create confusion and misunderstanding. It is understandably an easy trap to fall into. The longer we do something, the more we assume that everyone understands what we do and therefore are familiar with the language. Wrong.

A colleague pointed out this week that it would be a public service to help you out with some terminology that is commonplace to us, but may be misunderstood by those of you who do not make real estate transactions a part of their daily lives. So, with that recommendation, let us clear the air.

With the current state of the market, some non-traditional opportunities have presented themselves. We in real estate have mostly accepted them as standard practice but you, as consumers may not completely understand the following:

Short sale: This is the purchase of real estate for less than is owed on it. It requires the cooperation of the debtor (seller) and the lender who owns the loan on the property. Both seller and lender must agree to sell for an amount that is less than is owed, thereby making the sales price "short." These sales are seen with frequency in our current market but require patience from all parties. It is not unusual for this process to take several months as negotiations drag on.

REO: Real Estate Owned. These are properties that have been foreclosed upon or that have been voluntarily surrendered to the lender. Commonly, these are referred to as foreclosures. A foreclosed property offers an opportunity to buyers since they are usually offered at a discount by the lender. The lenders' motivation is to generate immediate cash flow, not real estate assets that tie up cash, so they usually price these properties to sell fast.

Buyers should be a ware that often these lender owned properties are in disrepair so they may require some fixing to be inhabitable. Traditional loans will usually work for buying these properties, including those that allow you to borrow the amount needed to do the repairs.

Distressed Property: This includes both the types of properties listed above; REOs and short sales.

Earnest Money: This is a deposit toward the purchase of real estate. There is no set percentage that is acceptable as each transaction is unique. This money merely demonstrates to the seller that you are "earnest" in making your offer. Earnest money will be credited to your purchase at closing and is deducted from the agreed upon selling price.

Closing: When your Realtor discusses a "closing" date, they should be talking about when the property becomes yours or you become the owner of record. Often there is confusion because of document signing, usually at a title company. The agreement to terms demonstrated by signing all necessary documents precedes closing. Once the documents have been delivered to the courthouse in the county where the property is located, and is entered by the recorder, then the deed is transferred and the property is "closed."

We hope we have taken some of the mystery out of real estate transactions for those of you who wondered but were afraid to ask. Please, don't be afraid to ask about anything that is not crystal clear to you when discussing something as important as real estate. Darn us if we use vernacular you don't understand in the first place!

For a safe trip home, call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.

Kim Cooper is a real estate broker, Realtor and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of Realtors, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling (208) 667-0664 with your questions or commentary.

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