Choosing the Right Word
Mark Twain once said: The difference between choosing the right word and the almost right word is the difference between the lightning bug and the lightning..
Here are a few words we commonly see that are easy to confuse or misuse in real estate parlance:
Selling agent vs. Seller’s agent — The selling agent works with a buyer making an offer and making the sale, whereas the seller’s agent is the listing agent.
Principal vs. Principle — The client is the principal in an agency relationship; also, principal is the original amount of the loan. Sometimes ‘principal’ is misspelled as principle, which is a rule or doctrine. “George is a principal in our company and has strong principles about making timely principal payments on his loans.”
Mortgagor vs. Mortgagee — The mortgagor (borrower) gives the mortgage to the mortgagee (lender). The mortgage thus pledges (hypothecates) the property as collateral for the loan and promises the repayment of money by way of a note.
Specific performance vs. Liquidated damages
Specific performance is an action brought in a court of equity in special cases to compel a party to carry out the terms of a contract. The basis for an equity court’s jurisdiction in breach of a real estate contract is the fact that land is unique and mere legal damages would not adequately compensate the buyer for the seller’s breach. The courts cannot, however, specifically enforce a contract to perform personal services, such as a broker’s agreement to find a buyer; nor can they enforce an illegal agreement, an ambiguous contract, or a contract in which there is inadequate consideration.
Liquidated damages describe an amount predetermined by the parties to an agreement as the total amount of compensation an injured party should receive if the other party breaches a specified part of the contract. Often in building contracts the parties anticipate the possibility of a breach (for example, a delay in completion by a set date) and specify in the contract the amount of the damages to be paid in the event of the breach. To be enforceable, the liquidated damage clause must set forth an amount that bears a reasonable relationship to the actual damages as estimated by the parties; otherwise, the court will treat the amount as a penalty for failure to perform.
Exclusive right to sell vs. Exclusive agency
The exclusive right to sell listing gives the broker a commission no matter who sells the property (the owner or the brokers), whereas under an exclusive agency, no commission is due if the seller finds the buyer.
Exclusive agency — A written listing agreement giving a sole agent the right to sell a property for a specified time, but reserving to the owner the right to sell the property himself without owing a commission. The exclusive agent is entitled to a commission if he or she personally sells the property or if it is sold by anyone other than the seller. It is exclusive in the sense the property is listed with only one broker. The multiple-listing service must accept exclusive-agency listings submitted by participating brokers.
Exclusive right to sell — A written listing agreement appointing a broker the exclusive agent for the sale of property for a specified period of time. The listing broker is entitled to a commission if the property is sold by the owner, by the broker or by anyone else. The phrase “right to sell” really means the right to find a buyer; it does not mean that the agent has a power of attorney from the owner to sell the property. Unless the contract clearly states it is an exclusive right or authorization to sell, most courts will treat it as being a mere exclusive-agency listing.