Lew Sichelman
“Vive la difference” is a French phrase that encourages us to celebrate differences, usually among people. But real estate has its differences, too – like the difference between spec houses and custom-built homes, or between a pending sale and a completed one.
Let’s examine a few of these distinctions, which homebuyers should be familiar with.
New houses. Builders who put up entire subdivisions are building “production” houses: homes that are built for the masses. Usually, they don’t start construction until they have a signed contract, but sometimes they move ahead with a house that has yet to be sold. In those cases, they are speculating that a buyer will come along soon – hence the term “spec” houses.
“Custom” houses, on the other hand, are usually one-of-a-kind, architect-designed homes built for one buyer and one buyer only. With a production house, builders have made most of the design choices for you; all you have to do is pick the finishes. With a custom house, you choose everything. It may sound fun, but it’s a chore most people say they would never do again.
Also, some production builders allow their buyers to make more substantial design changes to their models, which then are called “semi-custom” houses.
Style. You can put any type of facade on a house – colonial, modern, traditional and so on – but there are only four basic plans: two-story, one-story, split-level and bi-level. And while single-floor houses can be called ramblers or ranches, the terms mean the same thing.
Who Does What?
Agents. There are more than 1 million real estate agents and brokers plying their trade throughout the country, but not all of them are Realtors. To be called the latter, you have to be a member of the National Association of Realtors. In and of itself, being a Realtor does not make an agent any better or worse, although Realtors are supposed to abide by a detailed rulebook, have extra training and a code of ethics maintained by the association that might go beyond what a state’s regulations might require.
Loan officers and mortgage brokers aren’t the same, either. Loan officers work for banks or lenders and only write loans offered by their institutions. Brokers, on the other hand, are independent agents who originate mortgages for any number of lenders. They tend to offer a broader array of products.
Sold. A house is sold only when all the documents are signed at closing and money changes hands. Many agents post “Sold” signs on properties as soon as the seller gives their blessing, but the place ain’t sold until settlement. Until then, the seller can entertain more offers and even hold some as back-up contracts in case the original deal falls through.
A “Pending” sign offers another meaning: It tells other would-be buyers the seller has accepted an offer, all contingencies in the contract have been satisfied or removed, and the deal is heading toward closing.
Preapproved. In the financing world, there’s a big difference between being preapproved and prequalified. Generally speaking, with preapproval, a real estate agent or lending professional takes a look at your credit, debt, income and assets, then estimates how much you may be able to borrow. That information, and the amount you have put away for a down payment and closing costs, indicates roughly how much you can spend on a house.
But a preapproval is virtually worthless – so much so that it’s called a “Swiss cheese loan commitment” because it’s riddled with holes that lenders can use to deny your application. These days, agents and sellers won’t even talk to you unless you are prequalified for financing.
“Prequalified” means that you have been actually cleared for a mortgage at a certain amount. As long as the valuation of the house supports the price you’re paying and does not exceed your maximum, you are good to go.
What’s in a Home?
Examinations. A home inspection is different from a final walk-through. With an inspection, the buyer hires a professional to go over the house, top to bottom, looking for any defects, flaws or faulty systems and appliances. Armed with the inspector’s report, the buyer can make a decision on whether to proceed.
The final walk-through, by contrast, is when the buyer visits the house a few days prior to closing to make sure all the requested repairs have been completed to their satisfaction. This final look-see is also a chance to make sure the house is clean and possibly discover problems the inspector missed.
Remodel. There’s “remodel,” which is changing something in the house for the better – say, an all-new kitchen or bathroom. Then there’s “renovate,” which is almost an entire makeover. And there’s also “restoration,” which is returning a house to its original state.
Unless your property is historic, a restoration usually only occurs after a fire or other disaster. In those cases, the insurance company will pay to have the house restored to the way it was before the covered event. It will not pay for any upgrades or improvements; if you want to make the house better while you’re at it, that’s on your own nickel.
If the house has some historical significance, a restoration would hearken back to its original design, often using authentic materials and components from the time when the house was constructed.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
