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Key Real Estate Terminology for Future Sellers

Posted by Marie Drake | Nov 10, 2021 | 0 Comments

If you're preparing to sell either your home or your investment property, you should take the time to master a few pieces of real estate terminology. Real estate is just like any other field: it has its own lingo and its own concepts. Even though you will hire your own team of professionals to assist you – i.e., broker, escrow officer, attorney, etc. – learning some of the essential terms can still be highly useful. When you're inundated with a bunch of unfamiliar language at once, this can be overwhelming. Learning a few things in advance will make things much easier to navigate in the future.

Capital Gains

This is one which is absolutely critical. Whether you're selling a personal residence or investment property, you will have to deal with capital gains, unless you don't realize any profit on the sale. Suppose you buy a property for $150,000, and then sell the property 2 years later for $250,000. During that time, you rented the property to a tenant and held the property solely as an investment. When you receive the $250,000 after the close of the sale, $100,000 will be your capital gain, because this is the amount above the original investment put into the property. In other words, the capital gain is amount obtained above the “basis” in the property.

Fee Simple

This is a term which is literally medieval in its roots. Real estate can be held in multiple ways. Real estate can be held by an individual, or it can be jointly owned or co-owned by multiple people simultaneously. What's more, there are different levels of ownership. Not all owners have complete control over a property without any restrictions. When someone owns a property with a “fee simple” interest, this is the highest kind of ownership a person can have. This essentially means that the owner has the ability to freely sell the property without any restrictions, and can manage the property as he or she desires. Other kinds of interests, such as a fee simple subject to a condition subsequent, may restrict the owner by forbidding certain types of outcomes or behaviors.

Earnest Money

Earnest money is very similar to a deposit placed on a property. When a seller executes a sales contract with a buyer, the buyer will often deposit a certain amount of money with the seller's escrow office immediately. These funds will be held in a separate account, and may be forfeited to the seller or revert back to the buyer in the event that the deal falls through. If the deal goes through, the earnest money will be credited toward the purchase price. The purpose of earnest money is for the buyer to show good faith when it comes to acquiring the property.

Quit Claim Deed (QCD)

A Quit Claim Deed (QCD) is a document which relinquishes the seller's ownership interests in a given property to the buyer. A QCD is distinguished from other types of deeds, such as general or special warranty deeds, and is unique because it doesn't address many issues which typically concern potential buyers. For instance, a QCD doesn't give any guarantees regarding underlying defects or title issues with the property, it simply conveys the current owner's interest to the buyer. For this reason, potential buyers need to be cautious when using a QCD.

Easements

An easement is a burden on someone's property.  These can come in many forms, from someone being allowed to walk across your property to the State being allowed to run telephone lines across. Easements must be disclosed and consented to prior to the sale, or the entire deal might fall through for having a defect in the title.  Careful though, if it is an obvious easement, you may not get off the hook due to having what is called implied notice.  Also, many easement agreements are recorded (best practices).  Relating back to the QCD, if it later comes out that there was an easement on the property that the buyer and maybe even the seller was unaware of, and buyer only received a QCD, this defect in the title would not allow the buyer to escape from the contract.

Contact the Drake Law Firm for More Information

These are just a few terms which sellers are likely to run into at one point or another. There is plenty more terminology to learn. For more information, contact the Drake Law Firm today by calling 720-790-4023.

About the Author

Marie Drake

Marie is a graduate of Trial Lawyers College, a member of the Colorado Trial Lawyers Association, a member of the Board of Trustees of the First Judicial Bar Association, a member of the Colorado Bar Association, the Denver Bar Association, the Colorado Women's Bar Association, The...

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