Language in Real Estate : Key terms in Albuquerque’s market

Language in Real Estate : Key terms in Albuquerque’s market

(Transcript Snippet): “Tracy:

We were talking about this over coffee the other morning, right? Like we typically do our morning coffee where we talk real estate.

Tego:

That’s welcome to the Venturi Household. Yes, yes, yes.

Tracy:

We probably just shouldn’t talk about the things that need to be done around the house. We’ll just talk real estate. But we were talking about all the words that, you know, we weren’t using until recently, very often they weren’t in our general lingo, right? Yeah. Yeah. Well, in one of them

Tego:

Is the word equity Tracy. And that obviously that is a word we’ve used for a long time. And we’ll continue to use in, in the world of real estate. It’s just that equity has exploded in the last year for, for many homeowners

Tracy:

We need to say what equity is.

Tego:

Right. Right. So

Tego:

Here, here’s the, here’s the definition, the value in your home above the total amount of liens against your home liens, as in what you owe, right? What you owe to the bank or whoever,

Tracy:

And you might have a first, a second, a home equity line that you’re using. So it’s everything that you, you have value in above what

Tego:

You have, what’s your equity, right? So,

Tego:

So it, it, it has, I mean, and I know that the study that, that came out and I’ll just throw the stat in here is in New Mexico in the last year was about $23,000. The average homeowner gained in equity,

Tracy:

Significant number for, you know, your personal wealth growth, for sure. And

Tego:

Just the last thing on equity, it grows two ways. One, it grows by just a price appreciation in the market over time, as well as you paying off your principal every month, you’re putting a little bit toward that. So the equity is a big one contingency. Tracy, let’s talk about that one. That one, again, it’s been around, but it’s in the middle of a real estate purchase in the transaction. That’s something we deal with all the time, right?

Tracy:

Purchase contracts have a lot of contingencies in them, right? That’s not just one. It’s not just contingent on selling a house, but there’s a lot of contingencies that are New Mexico purchase contract. There’s a financing contingency. There’s an earnest money. There’s you’ve got a list. Go

Tego:

Ahead. I’ve got a list. So there’s an appraisal contingency. We’re going to talk about appraisal in a second. Assessments and titles. So that’s different title work to find out what what’s going on with the property in, in ownership. And if there’s any assessment against the property, meaning stuff that needs to get paid. There’s an insurance review. That’s a really big overlooked one, right?

Tracy:

Right. For prop, for property insurance. Right. Making sure that the house, isn’t what we would call a lemon. Right. Just like the old days, you know, we don’t hear that about cars anymore. Really cars being a lemon. I’m sure it still happens occasionally, but how’s, this can be sort of a lemon. They, the insurance industry feels like if you’ve had a couple of claims on a house there’s wrong with the house. Right. So, and that stays with the house even when you sell it.

Tego:

Yeah. So insurance review is one of the contingencies. And then, and then there’s a bunch of other things that the buyer has the option to review about the property.

Tego:

Right. Right. I mean, it can

Tracy:

Be from septic, well, water, all sorts of different things that it could be. Right. Right.

Tego:

If it’s a solar system, right. If you’ve got a solar solar system that sounds like, you know, pretty Spacey, a solar panel, photo-voltaic electrical generation system on the house. We did have a lot

Tracy:

Of solar space type things going on in New Mexico where the last Texas,

Tego:

Texas. Yeah. Speaking of space. And then,

Tego:

You know, I think one of the, just, just to wrap up this, you know, on contingencies, one of the biggest one is the inspections, the actual inspection of the property, as well as the survey of the property. Right. Another word

Tracy:

That we’ve used a lot this year, that wasn’t common is escalation, escalation

Tego:

Elation, or, or what we call escalation clause. What does that mean, Tracy? So an escalation

Tracy:

Clauses, when there’s multiple people wanting a home and somebody might say, I’ll pay X over, up to a certain dollar amount and they’ll escalate their offer based on what the other offers are.

Tego:

Yep. Yeah. So that’s, that’s become very common now in, in, you know, if in this competitive market, if the, if you’re writing offers. So let’s talk about the last one. Okay. Virtual showings, virtual showings, obviously that’s an that’s that

Tracy:

Started like last spring, pretty much,

Tego:

You know, we had done that before just with FaceTime and other stuff like that for COVID. But now it’s become much more common where somebody will want to see the home, but they can’t either they’re out of state or whatever reason can’t go see the home in person. So the, the buyer’s agent will go to the home and pull it up on their phone

Tracy:

Or the buyer who’s not able to go to the home, just looks at the virtual tour online and feels like they toured it a lot of times. There’s not even a buyer’s agent that goes to the house on their behalf. Yeah. Right. Yeah. There’s a lot of ways to tour him virtually these days. Appraisal,

Tego:

Tracy, let’s just talk about appraisal again. Appraisal has been around forever and first off, what and why on an appraisal? So

Tracy:

An appraisal is for the lender. Typically it’s not usually done with cash unless, you know, the buyer really wants one, but for loans it’s often required so that the lender can get a baseline and feel like they’re making a good loan, that the house is worth what they’re going to be lending on it. Now these days we’ve seen appraisal waivers from some lenders. They have some automatic system where they put the property in the price that’s coming, the buyer’s qualifications, their credit score. It’s not just the house, but the whole package. And they might say, they’re putting $200,000 down. We don’t need an appraisal for this loan.

Tego:

Well, th there is, that’s one of the challenges in our market right now is getting appraisals done. They’re just so backlog can be, can be a challenge. So what about waiving an appraisal and an appraisal gap? Tracy, those are two kind of new terms, not new, but they’re much more commonplace now. So appraisal waiver, what’s that appraisal waiver

Tracy:

Waiver of the contingency. So they’re saying we probably will still need an appraisal, but even if it comes in that I’m paying more for the house and the appraiser says it’s worth, I’m still going to pay the price. We agreed upon

Tego:

The appraiser set the value of the home.

Tracy:

That’s a set up question. I now, so the appraiser gets a copy of the contract, which a lot of people don’t realize. They’re just trying to appraise it for the agreed upon price. But if they don’t see other data out there that it justify it for the bank, they’re going to appraise low, but no, the buyers set the value of home and what people are willing to pay. The appraisal is there to justify the loan amount for the lender.

Tego:

And so an appraisal gap is that comes in. If you have an appraisal come in lower than what the buyer wants to pay or offered. Right. Right.

Tracy:

So we might be under contract for 200,000. The appraisal comes in at one 90. The gap is $10,000. And some of the offers we’ve been seeing lately, somebody might say, I’ll pay 5,000 over appraised value if the appraisal comes in low. So they’re kind of limiting how much extra they might be willing to contribute if the appraisal is

Tego:

Got it. Got it. Okay. Well

Tego:

That was our rundown on some of the terms out there, but if you ever want to talk about you know, some of these terms you hear in real estate and you’re not sure what the heck they’re talking about, give us a call 5 0 5 4 4 8 88, 80 inventory Realty group with Keller Williams Realty. And just on the side note, Tracy, we were talking the other day about some of these terms when you’re talking real estate investment investing in real estate, which is you know, there’s a lot of that going on. A lot of people are, you know, understand the, the, the value of real estate as an investment. I’m a big believer in that myself and you are as well. But the, you know, some of those terms like cap rate, internal rate of return gross rent, multiplier, net, present value, you know, there’s all these different terms. And when you start getting into net world that are, that are just, again, it’s like a whole different world. I

Tracy:

Was going to say, we could do 10 shows on just that world. Right. The, all the other ways to look at it and all the other terms and the creative ways to finance deals and just lots of lots more about that. Yeah.