Welcome to the Glossary!
Scroll through or choose an alphabetical section below! You can also return to the top with the little arrow in the bottom right.
Appraisal
An appraisal is a valuation of a property by a professional appraiser. If you're getting a mortgage, your lender will usually require an appraisal to ensure that the property is worth what you're paying (and what they're lending). An appraisal usually happens once inspection issues are resolved.
Appraisal Gap
An appraisal gap refers to the difference between appraised value and the contracted purchase price. If you're offering over list price (common in Denver's market), you'll likely need to offer some amount of coverage.
Since the lender will only lend up to the appraised value, there could be a discrepancy between that number and the purchase price you've offered. Offering to cover that gap provides the seller with extra assurance that a low appraisal will be less likely to crash the deal (and can help your offer rise to the top of the pile)!
Example: a house is listed at $525,000. You offer $550,000. The seller wants to know that even if the appraisal values the house at (or closer to) list price, you will still be able to purchase the property at $550,000. You could offer $25,000 worth of appraisal gap coverage (if you are able to!). You could also offer an amount less than the full difference, still signaling that you are a serious buyer and are willing to cover as much as you can if needed.
This number is both hypothetical and real. You should not over to cover more than you can actually afford to cover in cash - but you may not actually need it.
Closing
Closing refers to a buyer or seller signing all of the documentation to transfer ownership of the property in question, and the transfer of funds occurs to complete the transaction. Closing is generally the end of the contract period, when ownership of the property officially transfers from seller to buyer. It is also usually the date that the buyer takes possession of the property, unless there is a Post-Closing Occupancy Agreement.
Closings can be done with both parties in the same room, or separately, with buyer and seller signing at different times. Closings are usually held at the offices of the title company that handled the transaction.
You can expect to sign lots of documents at your closing, and it usually takes 1-2 hours.
Closing Costs
Closing costs are the fees and expenses associated with closing. These can include taxes, HOA dues and transfer fees, property insurance premiums and reserves, loan processing and closing fees, the cost of appraisal, title insurance, and others.
A common estimate of closing costs is 2-5% of the purchase price, but your actual costs will vary based on the loan, the property, and whether you are the seller or the buyer!
Contract
In a real estate transaction, “contract” usually refers to the Contract to Buy and Sell Real Estate, the main instrument of a transaction. When we discuss “writing an offer”, this is the contract we are referring to. You can look at a blank Contract to Buy and Sell (residential) here.
Contract can also refer to an agency agreement, a document that establishes a relationship between a buyer or seller and the agent that is working with or representing them. These are the Exclusive Right to Sell Listing Contract (for sellers) and the Exclusive Right to Buy Listing Contract (for buyers). If you have any questions about these contracts, contact me - I’m happy to review them with you!