Welcome back to Home Buying 101 – Throughout this series I will be detailing the various parts of the transaction process for purchasing a single-family home. My goal is to answer the many questions looming around purchasing, especially for first-time home buyers. If you are just beginning, I recommend starting with Part One: Understanding Equity.
At this point we have submitted an offer on the house you & your family love, and God willing it is accepted. YAY! While this is one of the most exciting parts of the process, it does not mean my work is over. In truth, my work has really just begun!
Over the next 45-60 days while we are Under Contract, some of the various terms can get confusing. I thought it would be best to go over their differences to help clear the mud:
Earnest Money vs. Option Fee:
Earnest Money is a deposit, about 1% of the offer price, to show the seller the buyer’s “good faith” in the transaction – can be used as leverage to display the buyer’s seriousness in purchasing the property of interest. It is written to the title company of choice where it is deposited & held in an escrow account.
Option Fee is typically $100, a cost to allow the buyer time to complete inspections with the opportunity to terminate the contract if repair negotiations are not satisfactory. If needed, the Option Period can be extended for an additional fee. Or if repair negotiations are completed early, the buyer can waive their right to terminate. It is written to the sellers & deposited immediately.
Both will be credited at closing & can be written as personal check, cashier’s check, or money order.
Homeowner’s Insurance vs. Home Warranty:
Homeowner’s Insurance is required by your lender; it is a policy that covers any accidental damage to your real estate and personal property due to theft, storms, fire, and some natural disasters.
Home Warranty is an optional (read: highly recommended) service contract for repair or replacement of various house systems that falter because of age and normal wear and tear.
Both are renewed annually.
Title Insurance + Survey:
Title Insurance protects the soon-to-be owner and the lender against property damage or loss in cases of liens, encumbrances, or defects of title. Basically, the title company will perform a title sure & make sure that the seller truly owns the whole property and is able to sell it. Any issues that arise before closing are generally amended. If problems arise that challenge your ownership after closing, the insurance will pay to defend you in court.
Survey is completed and used in closing to be sure that everything concerning the property is true and legal. It includes boundaries, easements, and physical features concerning the property.
Appraisal vs. Tax Assessment
Appraisal is ordered by the lender and completed by state licensed appraisers. The appraiser walks the property, as well as tours the inside of the home to define any building materials, upgrades, overall size, and improvements based on comparable homes in the surrounding area. These factors are used to determine a fair market value for the property. It is mandatory for purchases requiring a loan because the lender wants to be sure they are not giving a loan for the home that is higher than the value of the property.
Tax Assessment is completed once a year by a tax assessor and has nothing to do with the purchase of the property. In our area, the tax assessed value is about 20% less than the market value. The assessor generally doesn’t enter the house and can use property data from precious years.
There you have it! Please leave any comments or questions below!
Katie Langthorn | Real Estate Agent, REALTOR®
C: 281.850.7743 | O: 979.703.1979 | F: 979.703.1980
3091 University Dr. E. #230 | Bryan, Texas 77802
Your Source for Bryan/College Station Real Estate