What’s Your Real Estate IQ?
Do you know the difference between homeowner’s insurance and a homeowner’s warranty? Do you know how an appraisal works? These are some of the questions that ERA Real Estate asked some volunteers recently in an effort to gauge their “Real Estate IQ.”
ERA said that its “Real Estate IQ” quiz consisted of 13 questions that got into the nitty-gritty of issues specific to home ownership. Overall, it found that home owners and people over 30 scored highest, and that most home owners had a good functional knowledge of the often complex issues bearing on real estate transactions.
For instance, a full 95% of respondents knew what a foreclosure was, and 81% homeowners knew what an appraisal was. (Even 67% of non-homeowners knew what an appraisal was.)
However, only 25% knew that the (industry standard) Case-Shiller Index tracked home prices. Another surprise finding: recent homebuyers (within the past year) actually scored lower than those who had bought a home more than two years ago.
You would think that the recent homebuyers would have the most up-to-date knowledge of the process, and yet it seems as if many homeowners only learn after they’ve closed their purchase and settled into their new home.
Just so you won’t have a low “Real Estate IQ,” we’ll explain some of the more important features covered in the quiz:
Homeowner’s insurance is a policy you buy and maintain, that protects your home investment from various threats. The most crucial of these threats is fire, but this insurance can also cover such things as flooding, damage from ice – even theft. It’s very important that your home carries adequate insurance, and that the homeowner fully understands the coverages and limitations of his/her policy.
A homeowner’s warranty, on the other hand, is a contract between a homeowner and another party – usually a home builder. ‘Homeowner’s warranty” is a bit of a tricky term, since not all states hold the providers of such warranties to strict enough standards.
In some cases, these warranties cover things like appliances and HVAC systems, but can skimp in other important areas, such as specifying homeowner-friendly remedies in the case of shoddy workmanship. Always read the fine print on any warranty, and don’t assume anything about the coverage.
Another type of insurance that homeowners deal with is called Mortgage Insurance, or PMI. This is insurance that covers the lender against losses in the event that the mortgager is unable to repay a loan and the lender must foreclose.
PMI is usually required of homebuyers who put less than 20% down on their home purchase, and is added to the cost of the mortgage. Charges can run as high as $125/month on a $200,000 loan. Knowing about this should be an incentive to save up for a bigger down payment!
Big advice: don’t be one of those homeowners whose “Real Estate IQ” increases years after closing on your home. Learn all you can about the intricacies of mortgages, applicable real estate contract law and other aspects of the process. Knowledge is king if you want to avoid common traps and scams, and get the best deal on both your home and your mortgage.
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