If you are involved in buying or selling a home in Los Angeles transaction, most likely you are confused all the terminology you are going to hear throughout the process. Below are some of the more common Los Angeles real estate terminology you are likely to hear:
1031 Exchange: a tax-deferred exchange of like properties. An investment property sold and the proceeds invested in a like property. A buyer will be asked to cooperate in the Exchange, basically by signing relevant paperwork.
Agency: this is the relationship established with your agent’s brokerage, usually with a signed contract, to allow them to conduct business on your behalf.
ALTA policy: extended title insurance developed by the American Land Title Association. This is required by most institutional lenders to protect from loss and is paid for by the borrower (buyer). (See difference between ALTA and CLTA policies.)
Appraisal: if you are applying for a loan your lender will send out an appraiser to determine the value of the home. This will be packaged into your loan cost.
Chain of Title: if you are purchasing a property transferability of the property will be checked from the time records were available to ensure that there are no liens or encumbrances on the property which would affect you taking title.
Cloud on Title: the result of finding something on the above search. This may or may not be valid, but until it is cleared you will not be able to take title.
CLTA policy: a standard title insurance developed by the California Land Title Association. This is usually paid for by the seller. (See difference between CLTA and ALTA policies.)
Comparative Market Analysis (CMA): you will hear this a lot from your agent if you are thinking of making an offer. They will conduct one of these, which compares your property with other comparable ones which have sold in the area. If nothing has sold, then your agent will have to go further afield. But the aim is to ensure that you are paying the proper price.
Condominium: simply put, ownership of a unit in a multi-unit building.
Contingency period: these are time frames for both the buyer and seller to fulfill certain conditions of the contract: e.g. the buyer will have x number of days to conduct an inspection and release their loan and appraisal conditions. The seller also has certain contingency deadlines, but they don’t have to remove them. The buyer does. Once these contingencies are released the buyer cannot back out for any of those reasons.
Coop: there are very few of these in Los Angeles. Here you own shares in the corporation which owns the building. Each owner can sell their own unit. Loans are not readily available for this kind of property, and it is usually with cash. Also the board have to approve new owners, and leases are often not allowed.
Counter Offer: when an offer is submitted by a buyer to a seller, the seller can either accept the offer or counter the offer. By the same token, the buyer can accept the counter or counter themselves. These counters can go back and forth indefinitely. If at any point either side is not interested in the terms they can just let the offer expire.
Covenants Conditions and Restriction (CC&Rs): these are the rules and limits applied properties that have a homeowners association. A buyer looking to purchase in one of these communities will be required to check out the CC&Rs before removing all their contingencies.
Deed of Trust or Trust Deed: this is used to convey the title to a property to a third person as security, generally the lender for the loan.
Deferred Maintenance: short and sweet the property has been been maintained in a while and is going to need work.
DOM (Days on the Market): the total number of days a property has been listed with one agent. The standard listing term is six months. It the property is not sold and the contract is renewed the CDOM (combined days on the market) will show. If a new agent takes the listing the clock will be rolled back.
Earnest Money Deposit (EMD) or Good Faith Deposit (GFD): upon the seller’s acceptance of the buyer’s offer escrow will be opened and the buyer has three days to put this deposit into escrow, usually 3% of the purchase price. This money is refundable if the buyer follows all the contingencies but cannot perform for good reason. If contingencies are removed and the buyer does not perform the seller is entitled to this money.
Easement: you will most like see this term on the title report. It simply means that permission has been granted for right-of-way on your property, e.g. electricity lines, phone cables, etc.
Escrow: once both parties are under contract the process will be handed over to an escrow company a neutral party who will manage the transaction through to completion.
Fanny Mae: the Federal Housing Mortgage Assocition.
Foreclosure: a lender-owned property (see Trustee’s Sale).
Good Faith Deposit: the money you will put into escrow within three days of contract signature, usually 3% of the purchase price, and which will be applied to the purchase price. This is fully refundable should you decide not to continue with the purchase for a valid reason.
Grant Deed: this is the conveyance of the property from the seller (the grantor) to the buyer (the grantee) ensuring that there are no liens or encumbrances (clear title) on the property.
Homeowners Association (HOA): this is a group of people in a community, such as a condominium building formed to manage the financial affairs and operations of those communities. These are the people that draft the CC&Rs and ensure that they are followed.
Home Warranty: this is usually requested on the purchase contract by the buyer. The seller pays for a one year policy to cover the buyer should appliances breakdown. There are options for air conditioning, roof, etc. depending on the price of the policy.
HUD1 Statement: provided by the escrow company at closing showing the costs involved in the transaction, both for the seller and buyer.
Leaseback or Sale Leaseback: the buyer grants the right to the seller to remain in the property after the close of escrow usually for a specific period and monetary compensation.
Liquidated Damages: a sum of money agreed on in the contract which will be the exact amount to be paid if there is a breach of contract. For the buyer is is no more than 3% of the purchase price (usually the Good Faith Deposit).
Multiple Listing Service (MLS): a listing service, usually provided by the local real estate board, which allows for the sharing of listings amongst member agents. These listings are generally syndicated throughout various platforms.
Notice of Default (NOD): this is recorded at counter recorder’s office and states that the trust deed is in default and the property will be sold by the lender. The owner has three months after this notice to reinstate the loan.
Preapproval: an evaluation of a borrower’s ability to qualify for a loan based on a credit check, income verification and analysis of debt. A pre-approval letter will be required from a lender before a non-cash buyer can make an offer on a property.
Private Mortgage Insurance (PMI): this is often required by lenders on loans with a loan-to-value (LTV) of over 80%.
Purchase Contract: the instrument with which a buyer makes an offer to a seller.
Quitclaim Deed: an owner can relinquish their interest in the property without offering any warranties. Often done in the case of divorce where one party grants full rights to the property to the other.
Real Estate Transfer Disclosure (TDS): required from the seller and listing agent of residential property from 1-4 units disclosing any known defects.
Realtor®: a member of the National Association of Realtors®.
REO (real estate owned): See foreclosure.
Short Sale or Short Pay: rather an oxymoron since these types of transactions can drag out. This is where the seller owes more on the property than its market value. The initial purchase process is the same, whereby the buyer and seller come to an agreement on price and terms. Then the seller and his or her agent negotiate with the lender to get their approval. Remember, the lender is losing money, hence the length of the transaction. Also, in this kind of transaction, the seller/lender will not do much or anything in the way of repairs.
Taking Title: buyers will be required to inform the escrow company the method in which they will be taking title.
Termite Report: this is almost always requested in the purchase contract by the buyer. It asks the seller to have the property inspected for termites and dry rot, and should infestation be found, to remedy it.
Time is of the Essence: many of the phases of a real estate transaction fall under this. Timelines need to be met.
Title Insurance: an insurance which covers the owner of a property against loss or defect should some unknown issues arise after they have assumed ownership. The seller usually pays for the owners policy, CLTA, and the buyer, if assuming a loan buys the ALTA policy which protects the lender.
Transfer Disclosure Statement (TDS): the seller provides the buyer with a list of all known conditions and issues with the property. In the case of a foreclosure, or in a probate, a TDS will not be issued.
Trustee: one who holds the property in trust for another, most commonly the lender.
Trustee’s Sale: a foreclosed property which if not sold at auction (trustee’s sale) becomes lender owned.
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