Title Contingency

A contractual term that allows a buyer to inspect and approve the Preliminary Title Report before the contract becomes binding. The buyer doesn't have the right to simply rescind the contract, though. First, the seller is given an opportunity to fix the defect. If the seller can do so prior to closing, the contract remains binding. If the seller cannot do so, then the contract terminates and the buyer gets their earnest money back.

Want to learn more? Check out my great blog post on how to read and understand a title report.

Tenants in Common

When two or more people unmarried to each other co-own real estate, they own either as tenants in common, or joint tenants. When married, they own as community property.

When people own as tenants in common, they have some flexibility in ownership. Tenants in common can own in unequal percentages. This can be important where one person invests more than the other in the property. Also, when one tenant in common dies, their ownership interest goes according to their will (or the law of intestate succession). This works well when the co-owners are not also in a life relationship.

For an unmarried couple, ownership as joint tenants may make sense. Joint tenants own in equal shares. When one dies, the ownership automatically passes to the surviving owner.

For more, here is a good blog post on co-ownership of real property by single people (on FSBOLawyers.org).

Selling Office Commission (or SOC)

This is the old name for the seller-paid commission offered to the buyer’s real estate agent. These days, forward-thinking brokers (like the NWMLS) have re-named it (the NWMLS now calls it the “buyer brokerage firm compensation”).

The commission is technically paid to the real estate firm where the agent works, and that firm then splits the commission in some fashion with the agent. That split can be a percentage, or simply paid via a flat monthly fee (a "desk fee").

Most people assume that the split is even (so the typical 3% is split evenly between the firm and the agent). But that is rarely the case anymore. The "splits" vary from office to office and within offices, based on an agent's "production." The more commissions they earn, the better their splits will likely be.

Settlement Statement

The formal spreadsheet issued by the Closing Agent at Closing that shows the origination and disbursal of all funds.  If there is a lender, the Closing Agent will use the form required by federal law.

Formerly called the HUD-1 (the designation of the federal government), then known as the TRID (a really complicated acronym for the post-meltdown reform law), it no longer has an official name. It is often called the “Master Statement.”

Preliminary Title Report (or Title Commitment)

The initial document generated when a policy of Title Insurance is ordered.  The Title Report shows all of the existing encumbrances on the title to the property.  This includes liens, as well as any other interest in the property held by someone else, such as an easement. A prudent buyer will have the Title Report reviewed by an attorney to identify any encumbrances of concern. It is rare for there to be an issue… but it happens. Only an attorney is qualified to interpret a Title Report.

A title company may offer a courtesy "title review." Note, however, that the title company's interests are not identical to yours. For example, the title company likely will not call out a shared driveway easement because the title company has no concern with it. The buyer? Well, that's a different matter. Don't rely on the title company's review of title.

Pre-Approval Letter

A letter issued by a lender stating that a buyer is "pre-approved" for a particular loan amount and purchase price. The term does not have an agreed definition and can apply generally to any such letter.

A Pre Approval Letter is Critical.

However, not every pre-approval letter is the same. There are three different types that vary in strength. Paricularly in a hot housing market, where there may be competing buyers, a smart buyer will make sure to get the strongest letter possible.

Pre-Approved is the Simplest.

In its simplest form, a “pre-approval letter" is based simply on what is reported by the buyer to the lender about their assets, debts, and income. These letters are often generated online. Because the lender is relying solely on what the buyer typed into the form (and the buyer was surely feeling optimistic!) there is a good chance that reality does not match. In other words, the letter notwithstanding, the buyer may not be able to actually get the loan. Accordingly, sellers do not give much weight to a pre-approval letter.

A Pre-Qualified Letter is Better.

A step up is the “Pre-Qualified Letter.” A pre-qualified letter is based on documents provided by the buyer to the lender. The loan officer (the consumer-facing employee of the lender) then uses those documents to confirm that the buyer is qualified for the sale price. This gives the seller at least some assurance that the buyer — and their offer — is legit.

A Pre-Underwritten Letter is Best.

The best of all is a “Pre-Underwritten Letter.” This letter tells the seller that the an actual loan underwriter has received and reviewed the buyer’s documents, and confirmed that the buyer can get the loan needed for the purchase. A “loan underwriter” is the person who actually reviews and approves — or denies — loan applications. So an offer that includes a pre-qualified letter is going to be considered the strongest, at least in terms of financing.

Read your Pre Approval Letter Closely to Confirm.

Because these terms are all fairly “loose,” your lender may not totally understand if you ask for a pre-qualified or pre-underwritten letter. When you get the letter, read it closely. It should say what the lender has received and reviewed, whether by an underwriter or not. So by the terms of the letter, if nothing else, you can determine the strength of the letter. And if needed, you can follow up to improve it.

Offer Expiration Date

The most misunderstood date in real estate!

Quite simply, this is the date on which an offer will expire.  Most commonly, the offer is prepared and extended by the buyer, to the seller. But a seller can also extend an offer to sell, to a potential buyer.

In either event, until the offer expiration date, the recipient of the offer has the right to accept the offer, which creates a binding contract.  Acceptance happens by signing and returning the document.

After that date, simply signing and returning is not enough. Rather, the extender of the offer has the right to approve the contract before it is binding.  In other words, if the seller returns the signed offer after the expiration date, it is a counteroffer subject to buyer's approval. 

Many sellers freak out when they see the offer expiration date. Don’t! If a buyer takes the time to extend an offer, they are very, very unlikely to bolt if the seller does not timely accept it. Rather, any rational buyer will show a little patience. So “missing” an offer expiration date is not a big deal!!! The buyer will almost certainly be thrilled to hear from you, whenever that may be.

Besides, any counteroffer by the seller terminates the offer. So if you get an offer and you know that you will be making a counter offer, then the offer expiration date is irrelevant. You won’t be accepting the offer in any event.

In almost all instances. the Offer Expiration Date is largely irrelevant. Either the seller will counter, or the buyer will still be thrilled to get back a signed document a day or two “late.”

Managing Broker

A real estate broker who is licensed to supervise other real estate brokers, Every real estate firm must have a managing broker who is responsible for supervising the firm's agents. Here in Washington, the legal term is Managing Broker and is defined by statute. The WA Deparment of Licensing issues the Managing Broker license.

Joint Tenants

When two or more people unmarried to each other co-own real estate, they own either as tenants in common, or joint tenants. When married, they own as community property.

For an unmarried couple, ownership as joint tenants may make the most sense. Joint tenants must own in equal shares, which may be a problem. But if both people contribute an equal amount, or if one is comfortable contributing more but only being half owner, then this option is available. The biggest benefit of joint tenancy is that, when one dies, the ownership automatically passes to the surviving owner. So it can be part of a very basic estate plan.

When people own as tenants in common, they have some flexibility in ownership. Tenants in common can own in unequal percentages. When one tenant in common dies, their ownership interest goes according to their will (or the law of intestate succession). So this works generally well when the co-owners are not also in a committed relationship.

For more, here is a good blog post on co-ownership of real property by single people (on FSBOLawyers.org).