Buying a home in Rhode Island can be confusing, especially for the first time home-buyer.
The real estate industry, like most others, uses jargon that is sometimes difficult to understand. Consider this a primer to learning a few of those terms. Below you have a step by step definition that will make you sound “in the know” when buying or selling a home.
“CLOSING” - Closing refers to the final steps in securing a home purchase. When a property is sold, it is referred to as “closed.” In Rhode Island, the closing takes place with an attorney or at a title company. This is different than other states that use “escrow” agents.
“OFFER” - Buyers “offer” a contracted rate on a home for sale. A seller may receive many “offers” and is not required to accept any. Full price “offers” are looked upon favorably, but even “offers” of up to ten percent beneath the asking price may be an acceptable practice, too. There are several variables to discuss with a knowledgeable real estate agent before submitting a low “offer,” however, so do your homework. Comparing a home to others in the local market and recognizing the length other homes have been listed are helpful to consider prior to submitting or accepting any “offer” in real estate. In Rhode Island, there is no rule of thumb here. Ask your agent to help you evaluate your starting offer in light of where you wish to end (purchase price).
“DEPOSIT” – The “deposit” or earnest money pledged with an “offer,” illustrates a commitment from the buyer to the seller. Generally the “deposit” amount is determined based on a percent of the home’s purchase price and applies to the final purchase price of the home for sale. This deposit is held “in trust” until the purchase is completed. As a potential home buyer, your “deposit” will only be accepted if your “offer” is accepted. Occasionally a home buyer decides not to move forward with the home sale which can result in the loss of the “deposit.” In Rhode Island, the general practice is to have this deposit placed in the escrow account at the listing brokerage. So it Residential Properties LTD (our parent company) has the listing, the buyer would make a check out to “Residential Properties, LTD” for the deposit amount. Although not set in stone, general practice seems to be a 5% deposit upon signing a purchase and sales agreement.
“CONTINGENCIES” – Contingencies are requirements outlined in the contract that must be fulfilled prior to “closing,” often relating to financing or the house inspection. Another example of a contingency would be the buyer sale of their current property. In Rhode Island this used to be called a “Hubbard” clause, so you may hear agents refer to this contingency as that term.
“CONTRACT” – When a home seller accepts an “offer,” the “contract” is then created. A legal and binding document which guarantees the buyer will purchase the property when all contingencies are met. Transaction details are included in the contract, such as the property selling price and description, any important dates and contingency clauses. In Rhode Island, this is called a “PURCHASE AND SALES” agreement or P&S for short.
“CLOSING STATEMENT” – Required by the Department of Housing and Urban Development to ensure accountability of all finances relating to the sale and purchase of a home. Real estate commission, escrow securities and deposits, and any other fees must be outlined in this document. The buyer and seller will each receive a copy of the “Closing Statement” per the Real Estate Settlement Procedures Act prior to “closing.” When your attorney says that they are sending you the “HUD”, this is the document to which they refer.
“CLOSING COSTS” – These are the actual costs of “closing” and include securing title, loans, appraisals, credit reports, inspections,brokers, taxes and document preparation. Closing costs, if agreed to by the seller are able to be rolled in to the purchase price allowing a buyer to come up with less cash out of pocket. Always talk to your agent to see if this makes sense for you.
Hopefully this tutorial has helped you feel a little more familiar with real estate terms, so that whether you are buying or selling a home, you can feel a bit more at ease.
As always, we are here to help!