ELIMINATING THE CONFUSION OF LISTING CONTRACTS

In addition to the obvious things in a listing contract such as seller name and property address, there are some other things you need to be aware of.

Terms of Sale and Price

When you determine the terms of a sale, you will of course be concerned with price. You will probably have a basic idea of what your home is worth by doing some research on what's going on with other sales in your area or talking to various real estate agents. However, in addition to price, you will need to disclose what personal property will go with the house when you sell it. Personal property is considered anything that is not attached such as washer, dryer, refrigerator, microwave, etc. You aren't required to include any of these items but if you do, you need to list what will be included.

Some items are called "real property", which includes anything attached to the house. This could include something like a chandelier that's actually a family heirloom. However, since this lighting fixture is attached to the house, it's considered "real property" and any reasonable buyer would expect it to stay with the house when you move. If you don't want that particular piece to stay, you need to very clearly state in the MLS that it will not stay when the house is sold.

It's important to know that there are several different types of listing contracts although few are used. The most common is the "Exclusive Right to Sell." Others include "Open Listing" and "One-time Show."

Open Listing
This listing contract is primarily used by people trying to do a For Sale by Owner but who are also willing to work with a licensed real estate agent. This contract allows the agent to show your home to potential buyers and should the buyer put a contract on your home, the agent earns a commission.

One-time Show
This listing contract is similar to an Open Listing but is most often used by real estate agents who are showing a For Sale by Owner home to one of their clients. In this case, the seller would sign the agreement identifying the potential buyer and it guarantees the agent a commission should the purchase go through. The purpose is that it prevents the buyer and seller from negotiating directly later as a way of avoiding the agent's commission.

Understanding the Real Estate Contract
Most contracts can make our head spin just by looking at them, much less trying to read and understand them.

Because contracts are very important when it comes to buying or selling a home, I thought I would list some of the most common legal words that you will come across on a real estate contract, or during a real estate transaction, including their definition. It might be a good idea to have a copy of this list with you and review it carefully before you sign a real estate contract.

Abstract
A summary; an abridgment. Before the use of photo static copying public records were kept by abstracts of recorded documents.

Abstract of Title
A compilation of the recorded documents relating to a parcel of land, from which an attorney may give an option as to the condition of title. Still in use in some states, but giving way to the use of title insurance.

Acre
 A measure, usually of land, equal to 160 sq. rods (43,560 sq. ft.) in any shape.

Action to Quiet Title
 A court action to establish ownership to real property. Although technically not an action to remove a cloud on a title, the two actions are usually referred to as "Quiet Title" actions.

Adjustable Rate Mortgage ARM)
A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. You may also see ARM's referred to as AML's or VRM's.

Agency
 An Agency relationship is one in which one person is empowered to act on behalf of another, subject to the control and consent of the person being represented.

Agent
The person who is acting on behalf of the principal or client.

Agreement of Sale
In some states it is synonymous with a purchase agreement (Purchase Agreement). In other states, it is synonymous with a land contract Land Contract).

Alienation Clause
A clause calling for a debt under a mortgage or deed of trust to be due in its entirety upon transfer of ownership of the secured property.

Amortize
To reduce a debt by regular payments of both principal and interest, as opposed to interest only payment.

Annual Percentage Rate (APR)
A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans.

Appraised Value
An option of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.

Arrears
Payment made after its due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance.

Assumability
When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to the new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. Assumability can help you attract buyers if you sell your home.

Assumption of Mortgage
Agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust.

Balloon Note
A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a "Balloon" is due at maturity.

Balloon Payment
The final payment of a mortgage which is larger than the regular payment; it usually extinguishes the debt.

Binder
A report issued by a title insurance company setting forth the condition of title and setting forth conditions, which, if satisfied, will cause a policy of title insurance to be issued.

Blanket Mortgage
A mortgage covering more than one property of the mortgage.

Bridge Financing
A form of interim loan, generally made between a short term loan and a long term loan, when the borrower needs to have more time before taking on long term financing.

British Thermal Unit (B.T.U.)
Unit of heat required to raise one pound of water one degree Fahrenheit.

Buy-down
With a buy-down, the seller pays an amount to the lender so that the lender can give you a lower rate and lower payments, usually for an early period of a loan. The seller may increase the sales price to cover the cost of the buy-down.

Cap
A limit on how much the interest rate or monthly payment of an ARM can change, either at each adjustment or during the life of the mortgage. Payment Cap's don't limit the amount of interest the lender is earning so they may cause negative amortization.

Certificate of Eligibility
A certificate obtained by a veteran from a Veteran's Administration office which states that the veteran is eligible for a V.A. insured loan.

Certified Copy
A true copy, attested to be true by the officer holding the original.

Cestui que trust
One having an equitable interest in property, legal title being vested in trustee.

Chain of Title
The chronological order of conveyance of a parcel of land, from the original owner to the present owner.

Chattel
Personal property.

Closing Statement
The statement which lists the financial settlement between buyer and seller, and also the costs each must pay. A separate statement for buyer and seller is sometimes prepared.

Cloud on Title
An invalid encumbrance on real property, which if valid, would affect the rights of the owner.

Co-Maker
Equally responsible for repayment as the borrower.

Commitment A written promise to make or insure a loan for a specified amount and on specified items.

Comparables
Properties used as comparisons to determine the value of a specified property.

Condominium
A structure of two or more units, the interior space of which are individually owned.

Construction Loan
Short term financing of real estate construction. Generally followed by the long term financing called a "take out" loan, issued upon completion of improvements.

Contingency
The dependence upon a stated event which must occur before a contract is binding.

Contract of Sale
Depending on area of country it may be a Land Contract or a Purchase Agreement.

Closing Cost
Expenses incurred in the closing of a real estate or mortgage transaction.

Conventional Mortgage
A loan neither insured by the FHA nor guaranteed by the VA.

Conversion Clause
A provision in some ARMs that allows you to change the ARM to a fixed-rate loan at some point during the term. Usually the conversion is allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed-rate mortgages. The conversion feature maybe available at extra cost.

Cost Plus Contract
A building contract setting the builder's profit at a set percentage of actual cost of labor and materials.

Contract Sales Price
The full purchase price as stated in the contract.

County
A division within a state, usually encompassing one or more cities or towns.

Certificate of Reasonable Value (CRV)
An appraisal of property for the purpose of insurance by the Veteran's Administration.

Declaration of Restrictions
A set of restrictions filed by a sub-divider to cover an entire tractor subdivision.

Defective Title
Title to a negotiable instrument obtained by fraud. Title to real property which lacks some of the elements necessary to transfer a good title.

Depreciation
Decrease in value to real property improvements caused by deterioration or obsolescence.

Devise
Real estate left by will.

Devisee
One to whom real estate is given by will.

Devisor
A testator who leaves real estate.

Direct Reduction Mortgage
An amortized mortgage. One on which principal and interest being computed on the remaining balance.

Disbursements
Payments made during the course of an escrow or at closing.

Discount
Is an ARM with an initial discount, the lender gives up a number of percentage points of interest to give you a lower rate and lower payments for part of the mortgage term. After the discount period, the ARM rate will probably go up depending on the index rate.

Documentary Tax Stamps
Stamps, affixed to a deed, showing the amount of transfer tax.

Dragnet Clause
A clause in a mortgage or deed or trust which places the real estate as security for existing debts between the parties.

Easement
A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another.

Eminent Domain
A Government right to acquire private property for public use by condemnation, and the payment of just compensation.

Encroachment
Construction onto the property of another, wall, fence, etc.

Encumbrance
A claim, line charge, attached to and binding real property.

Equity
The difference between the market value of the property and the homeowners mortgage debt.

Escrow
Delivery of a deed by a grantor to a third party for delivery to the grantee upon the happening of a contingent event.

Escrow Payment
That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes mortgage insurance, hazard insurance, lease payments, and other items as they become due, also know as "impounds" in some states.

Escrow Reimbursement
An assumptions or wrap loan transactions, the buyer reimburses the seller for the current balance of his escrow (or impounded) funds.

Federal Home Board
The board which charters and regulates federal savings and loan associations, as well as controlling the system of Federal Home Loan Banks.

Federal Tax Lien
A lien attached to property for nonpayment of a federal tax.

Fee Simple
An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited.

Federal Home Loan Board
The board which charters and forbids discrimination in the sale.

Federal Housing Administration
A federal Agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.

Freddie Mac (FHLMC)
Federal Home Loan Mortgage Corporation. A federal Agency purchasing first mortgages, both conventional and federally insured, from members of the Federal Reserve System, and the Federal Home Loan Bank System.

Foreclosure
A proceeding in or out of court, to extinguish all rights, title, and interest, of the owner(s) of property in order to sell the property to satisfy a lien against it.

Full Disclosure
Revealing all the known facts which may affect the decision of a buyer or tenant.

General Lien
A lien such as a tax lien or judgment lien which attaches to all property of the debtor rather than the lien of, for example, a trust deed, which attaches only to a specific property.

Ginnie Mac (GNMA)
Government National Mortgage Association. A federal association working with FHA which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.

Grandfather Clause
The clause in a law permitting the continuation of a use, business, etc., which, when was permissible but, because of a change in the law is now not permissible.

Ground Rent
Rent paid for vacant land. If the property is improved, ground rent is the portion attributable to the land only.

Heir and Assigns
Words usually found in a deed, showing the interest the grantee is receiving.

Home Owner Association
An association of people who own homes in a given area for the purpose of improving or maintaining the quality of the area.

Impound Account
Account held by a lender for payment of taxes, insurance, or other

Index
The index if the measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.

Independent Contractor
The term is most important as used to describe the relationship of broker and salesperson, employee or independent contractor. If employee, the broker must withhold income tax and pay social security, provide workmen's compensation, and may be liable for some negligent acts of the salesperson while on the job. All of this is avoided by the broker if salesperson is an independent contractor.

Installment Sale
A tax term used to describe a sale which is usually accomplished by use of a land contract.

Insured Mortgage
A mortgage insured against loss to the mortgagee in the event of default and failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure.

Interest Rate
The percentage of an amount of money which is paid for its use for a specified time.

Joint and Several
A liability which allows the creditor to sue any one of the debtors or sue altogether.

Joint Tenancy
An undivided interest in property, taken by two or more joint tenants. The interests must equal, accruing under the same conveyance, and beginning at the same time. Upon death of a joint tenant the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

Judgment
The decision of a court of law. Money judgments, when recorded, become a lien on real property of the defendant.

Late Charge
A penalty for failure to pay an installment on time.

Legal Description
A description by which property can be definitely located by reference to surveys or recorded maps. Sometimes referred to simply as the legal.

Lease with Option to Purchase
A lease under which the lessee has the right to purchase the property. The option may run for the length of the lease or only for a portion of the lease period.

Lender
A general term encompassing all mortgages, and beneficiaries under deeds of trust.

Letter of Intent
A formal method of stating that a prospective developer, buyer or lessee, is interested in property.

Liber

A Latin word for book.

Lien
An encumbrance against property for money, either voluntary or involuntary.

Life Estate
An estate in real property for the life of a living person. The estate then reverts back to the grantor or on to a third party.

Limited Partnership
A partnership consisting of one or more general partners who conduct the business and are responsible for losses, and one or more special partners, contributing capital and liable only to the amount contributed.

Lis Pendens
A legal notice recorded to show pending litigation relating to real property and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation.

Loan Package
The information given to the lender regarding the borrower and the property necessary to decide to give or not to give the loan.

Loan Ratio
The amount of a loan to the value or selling price of real property.

Loan-to-Value Ratio
The ratio of the mortgage loan amount to the properties appraised value (or the selling price whichever is less).

Margin
The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Marketable Title
Title which can be readily marketed to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.

Mechanics Lien
A lien created by statue for the purpose of securing priority of payment for the price of value of work performed and materials furnished in construction of repair of improvements to land, and which attached to the land as well as the improvements.

Mortgage Broker
One who for a fee, brings together a borrower and lender, and handles the necessary applications for the borrower to obtain a loan against real property by giving a mortgage or deed of trust as security. Also known as a loan broker.

Mortgage Guaranty Insurance Corporation (MAGIC)
A private corporation which, for a fee, insures mortgage loans similar to FHA and VA insurance, although not insuring as great a percentage of the loan.

Mortgage or Deed of Trust
Written pledge of real property given by the mortgagor to secure a debt. Should be recorded in the County Recorders Office.

Mortgagee
The lender of money or the receiver of the mortgage document.

Mortgagor
The borrower of money or the giver of the mortgage document.

Mortgage Insurance
Insurance required for loans with a loan above 80.01%.

Mortgage Warehousing
A system whereby a mortgage company will hold loans which would ordinarily be sold, in order to sell later at a lower discount. These are used as collateral security with a bank to borrow new money to loan.

Negative Amortization
Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results if monthly payments not high enough to cover the interest due.

Nonconforming
Use A property which does not conform to the zoning of an area.

Note
A written promise to repay a certain sum of money on specified terms.

Open End Mortgage
A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions, usually, as to the assets of the mortgage.

Origination Fee
A fee or charge for work involved in the evaluation, preparation and submission of a proposed mortgage loan.

Owners Policy
Title insurance for the owner of property, rather than a lien holder.

Package Mortgage
Mortgage covering both real and personal property.

Paper
A mortgage, deed of trust, or land contract, which is given instead of cash. 

Partial Release 
A release of a portion of property covered by a mortgage.

Perc Test (Percolation)
The test to determine the capability of the soil to absorb liquid, both for construction and septic systems.

Permanent Mortgage
A mortgage on completed construction on the same property under one mortgage or trust deed.

PMI Private Mortgage Insurance
Insurance similar to FHA or VA insurance, insuring part of the first mortgage or deed of trust, enabling a lender to make a conventional loan of a higher percentage of the property value.

Points
A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $100,000, one point means you pay $1000 to the lender. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order to increase the yield of the mortgage and to cover loan closing costs. These points are usually collected at closing and may be paid by the borrower or the home seller, or may be split between them.

Property
Tax Generally, tax levied on both real and personal property.

Prorate
To divide in proportionate shares, such as taxes, insurance, rent, or other items.

Purchase Money Mortgage
A Mortgage given by the buyer to the seller as part of the purchase consideration, as opposed to a hard money mortgage.

Quit Claim Deed
A deed operating as a release; intended to pass any title, interest, or claim which the grantor may have in the property.

Real Estate
Land and anything permanently affixed to the land, and those things attached to the building.

Recital
Setting forth in a deed or other writing some explanation for the transaction.

Recourse
The right of the holder of a note secured by a mortgage or deed of trust to look personally to the borrower or endorser for payment.

Refinancing The repayment of a debt from the proceeds of a new loan using the same property as security.

Reissue rate
A charge for a title insurance policy if a previous policy on the same property was issued within a specified period. Reissue is less than the original charge.

REIT (Real Estate Investment Trusts)
A method in investing in real estate in a group, with certain tax advantages.

Release
An instrument releasing property from the lien of the mortgage, judgment, etc.

Recision of Contract

Annulling a contract and placing the parties to it in a position as if there had not been a contract.

RESPA (Real Estate Settlement Procedures Act)
A federal statute requiring disclosure of certain costs in the sale of residential improved property which is to be financed by a federally insured lender.

Revenue Stamps
Formerly federal tax on a sale of real property. Canceled and replaced by state tax stamps.

Secondary Financing
A loan secured by a mortgage or trust deed, which lien is junior to another mortgage or trust deed.

Secondary Mortgage
The buying and selling of first mortgages of trust deeds by banks, insurance companies, government agencies, and other mortgagees.

Security
Real or personal property pledged by a borrower, as additional protection for the lender's interest.

Septic System
A sewage system, whereby waste is drained through pipes and a tile field into aseptic tank.

Set Back Ordinance
Regulates the distance from the lot line to the point where improvements maybe constructed.

Settlement Statement
A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale.

Sheriff's Deed
Deed given at sheriff's sale in foreclosure of mortgage.

Signed Sealed and Delivered
A phrase indicating that everything necessary to convey has been done by the grantor.

Specific Performance
An action to compel the performance of a contract, when money damages for breach would not be satisfactory.

Statutory Lien
An involuntary lien, includes tax liens, judgment liens, mechanic liens, etc.

Substitute of Trustee
A document which is recorded to change the trustee under the deed of trust.

Tax Lien
Lien for nonpayment of taxes.

Tax Sale
Public sale of property at auction by governmental authority, after a period of nonpayment of property taxes.

Tenancy by the Entiret
A form of ownership by husband and wife whereby each owns the entire property. In event of death of one, the survivor owns the property without probate.

Title
Often used interchangeably with the work ownership. It indicates the accumulation of all rights in property, the owner and others.

Title Insurance
 An insurance policy which protects the insured (purchaser and lender) against loss arising from defects in title

Vesting
Denotes the manner in which title is held. Examples of common vesting are: Community Property, Joint Tenancy and Tenancy in Common.