Lesson 5: Purchase and Sale Transactions

Question 1

What is a “purchase agreement”?

Answer 1

A purchase agreement is a legal document that outlines the terms and conditions of a real estate transaction between a buyer and a seller. It includes the purchase price, closing terms, contingencies, and other critical details.

Question 2

Define “closing” in real estate.

Answer 2

Closing, also known as settlement, is the final step in executing a real estate transaction. It is when the title of the property is transferred from the seller to the buyer, and all financial settlements are completed.

Question 3

What are “contingencies” in a real estate contract?

Answer 3

Contingencies are conditions listed in a real estate contract that must be met for the transaction to proceed. Common contingencies include obtaining financing, home inspections, and the sale of a current home.

Question 4

Explain “title insurance”.

Answer 4

Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances, or defects in the title to the property.

Question 5

What is “escrow”?

Answer 5

Escrow is a financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a given transaction, helping to make transactions more secure by keeping the payment in a secure escrow account which is only released when all of the terms of an agreement are met.

Question 6

Define “real estate broker”.

Answer 6

A real estate broker is a licensed professional who arranges the buying and selling in real estate transactions. Brokers can work as agents for buyers or sellers and are typically paid a commission for their services.

Question 7

What does “due diligence” involve in real estate transactions?

Answer 7

Due diligence in real estate transactions involves the careful review and investigation of a property before finalizing the purchase, including reviewing financial records, checking for liens, and assessing physical conditions of the property.

Question 8

Explain “market analysis” in real estate.

Answer 8

Market analysis in real estate is a comprehensive examination of the current market values of properties, comparable to a particular property, to determine a competitive market price.

Question 9

What is a “home inspection”?

Answer 9

A home inspection is a detailed examination of a property’s condition, typically performed by a qualified inspector before the sale is finalized. The inspector assesses the property’s structure, systems, and physical components.

Question 10

Define “listing agreement”.

Answer 10

A listing agreement is a contract between a property owner and a real estate broker authorizing the broker to represent the seller and find a buyer for the property under specified terms.

Question 11

What is “buyer’s agent”?

Answer 11

A buyer’s agent is a real estate professional who represents the interests of the buyer in a real estate transaction, helping to negotiate the purchase price and terms on behalf of the buyer.

Question 12

Explain “seller’s agent”.

Answer 12

A seller’s agent, or listing agent, is a real estate agent who represents the seller of a property and works to promote the interests of the seller, including securing a buyer and maximizing the sale price.

Question 13

What is “FSBO” (For Sale By Owner)?

Answer 13

FSBO refers to properties that are sold directly by the owner without the representation of a real estate broker, often to avoid paying a commission.

Question 14

Define “capital gains” in real estate.

Answer 14

Capital gains in real estate refer to the profit that an investor realizes when they sell their property for more than the purchase price. This profit is subject to capital gains tax.

Question 15

What does “financing” involve in real estate transactions?

Answer 15

Financing in real estate transactions refers to the methods by which a buyer secures funds to purchase a property. This typically involves obtaining a mortgage or other loan types from financial institutions.

Question 16

Explain “mortgage pre-approval”.

Answer 16

Mortgage pre-approval is a lender’s evaluation of a potential borrower’s financial status to determine how much they can borrow before they apply for a loan. This helps buyers understand what they can afford.

Question 17

What is “offer to purchase”?

Answer 17

An offer to purchase is a document issued by a potential buyer proposing a price to buy a property. It includes conditions that must be met for the offer to become binding.

Question 18

Define “real estate commission”.

Answer 18

Real estate commission is the fee paid to a real estate agent or broker for their services in facilitating a property sale. It is typically a percentage of the sale price.

Question 19

What is “staging” in real estate?

Answer 19

Staging in real estate refers to the process of decorating and arranging a property to showcase its best features, enhancing its appeal to potential buyers.

Question 20

Explain “land contract”.

Answer 20

A land contract is a seller-financed agreement where the seller retains the title to the property until the buyer completes all payment installments. It is often used when traditional financing is unavailable.

Question 21

What are “adjustable-rate mortgages” (ARM)?

Answer 21

Adjustable-rate mortgages (ARM) are loans with interest rates that can change periodically depending on changes in a corresponding financial index that’s associated with the loan. Typically, ARMs offer lower initial rates than fixed-rate mortgages.

Question 22

Define “equity”.

Answer 22

In real estate, equity refers to the difference between the current market value of a property and the amount the owner still owes on the mortgage. It represents the owner’s actual stake in the property.

Question 23

What is “real estate appraisal”?

Answer 23

Real estate appraisal is the process of developing an opinion of value for real property. Appraisals are required for property transactions to ensure the selling price is fair based on market conditions and property specifics.

Question 24

Explain “deed of sale”.

Answer 24

A deed of sale is a legal document that officially transfers ownership of real estate from the seller to the buyer. It includes details of the property and the terms of the transaction.

Question 25

What does “lease option” involve?

Answer 25

A lease option is a contractual arrangement where a renter has the right, but not the obligation, to purchase a property after a specified period at a price agreed upon when the lease is signed.

Question 26

Define “commercial real estate”.

Answer 26

Commercial real estate refers to properties used solely for business purposes, such as office spaces, retail locations, and industrial sites, which are leased to tenants to generate income.

Question 27

What is “residential real estate”?

Answer 27

Residential real estate refers to properties used for housing, ranging from single-family homes and condos to multi-family rental units such as duplexes and apartment buildings.

Question 28

Explain “real estate investment trust” (REIT).

Answer 28

A REIT is a company that owns, operates, or finances income-producing real estate. REITs offer a way for individuals to invest in large-scale, income-generating real estate without directly buying properties.

Question 29

What is “flipping” in real estate?

Answer 29

Flipping involves purchasing a property with the intent to quickly resell it for a profit, often after making renovations or repairs to increase its value.

Question 30

Define “due on sale” clause.

Answer 30

A “due on sale” clause is a provision in a mortgage which states that the entire balance of the loan may be demanded to be paid in full if the property is sold or transferred without the lender’s consent.

Question 31

What does “seller financing” mean?

Answer 31

Seller financing is a real estate agreement where the seller handles the mortgage process instead of a financial institution. The buyer makes payments directly to the seller, who has assumed the role of the lender.

Question 32

Explain “purchase and sale agreement” (P&S).

Answer 32

A purchase and sale agreement is a legal contract stating the terms and conditions of a property sale between a buyer and a seller. It includes agreed-upon price, closing date, and other conditions.

Question 33

What is “land use planning”?

Answer 33

Land use planning involves the government-led process of evaluating the best uses of land within a jurisdiction based on factors like economic, environmental, and social criteria.

Question 34

Define “real estate syndication”.

Answer 34

Real estate syndication is a method where multiple investors pool their resources to invest in real estate projects. This collective investment structure allows for purchasing larger, more profitable properties.

Question 35

What are “real estate cycles”?

Answer 35

Real estate cycles refer to the periodic fluctuations in real estate activity, including prices, demand, and construction, influenced by economic conditions, interest rates, and government policies.

Question 36

Explain “broker’s price opinion” (BPO).

Answer 36

A broker’s price opinion is an estimated value of a property as determined by a real estate broker based on comparable property sales and listings in the area.

Question 37

What is “pre-listing inspection”?

Answer 37

A pre-listing inspection is conducted by the seller before putting a property on the market. It identifies any potential issues that could obstruct the sale, allowing sellers to make repairs beforehand.

Question 38

Define “exclusive listing”.

Answer 38

An exclusive listing is an agreement in which one real estate broker is given the exclusive right to sell the property. No other broker can represent the seller during the contract’s term.

Question 39

What does “multiple listing service” (MLS) provide?

Answer 39

The Multiple Listing Service (MLS) is a database established by cooperating real estate brokers to provide data about properties for sale. It helps brokers find buyers by sharing comprehensive information about listed properties.

Question 40

Explain “investment property”.

Answer 40

Investment property refers to real estate property that has been purchased with the intention of earning a return on the investment, either through rental income, the future resale of the property, or both.