REAL ESTATE Lingo, you should know Before buying a home in the Cayman Islands
So, you decided to dip your toe into investing in the Cayman Islands real estate! There could be a lot of strange terms the realtors and banks will use. Do not worry; we have you covered, and here is a list of words and explanations of real estate in the Cayman Islands.
Acceptance Date: the date when the Offer to Purchase has been accepted, signed, and initialled by all parties, making it a fully binding contract.
Adjustable-rate mortgage (ARMs): This type of mortgage usually has a lower initial rate (for a set number of years). The interest rate varies depending on the US Prime rate and how well or poorly the United States economy is doing.
Amortization outlines how much principal and interest you pay monthly for that loan. You will pay only the interest for the first couple of years to the bank and almost no principal. If you can comfortably afford the mortgage fee, choose a shorter loan period of 10 or 15 years instead of a 25 or 30-year term. Also, ask your bank to split that monthly payment into weekly payments. Also, ask your lender if you are allowed to pay down your loan a few times a year. This payment goes directly to your principal.
Appraisal/Valuation: the approximate value of a property based on the appraiser’s written analysis. Here in Cayman, it is The Royal Institution of Chartered Surveyors. Your mortgage lender will assign a valuator to you and ensure you are not overpaying for the property they will finance.
Bank Foreclosure/Short sale: That is when someone has stopped paying their mortgage, fallen so far behind in repaying the loan, and has made no efforts to work with the lender. Historically, in Cayman, it takes a long time for the courts to allow the banks to foreclose on a homeowner. That process costs a lot of legal fees, so when a forced sale does come to the CIREBA market, there is usually not much equity left in the home. This means that there are no screaming deals with bank foreclosure. The bank tries to get the market value for the house to be repaid and hopefully have some equity left to pay to the homeowner.
Backup Offer: this is when the home you wanted to buy is already under contract but with conditions or contingencies, and they are still in their due diligence period. It could be that they are requesting a loan, and if the local bank takes too long to process their paperwork, they might miss that deadline and the Offer are dead. In that case, your backup Offer that the seller has accepted is next in line. Your CIREBA agent will know how to submit your Offer as a backup.
Buyer: also called purchaser
Chattels: a fancy word for furniture, or inventory, that you get when you buy a home. If you can turn the house upside down, anything that falls out is called Chattels. For example, carpets, no, but area rugs, yes. Fixed bookshelves, not stand-alone bookshelves, yes. The listing agent and the seller work together to add value to each item. Once the seller has agreed on the used value of what is staying with the home purchase, they will sign off on the value. That value is then taken off for stamp duty as you do not pay a tax on chattels.
Closing Date: when the title to the property is transferred, loan documents have been agreed upon and signed, and the money is paid to the seller. The seller has moved out and handed the keys and all responsibility to the new homeowner.
Closing costs; fees associated with completing real estate transactions, including attorney’s fees, document preparation fees, a stamp duty of 7.5% on the property minus the value of the chattels/inventory and a 1% stamp duty on the mortgage amount. The vendor pays the commission to the listing broker and shares the commission fee with the agent who brings the buyer.
Contingencies/Conditions to the contract; conditions must be met before closing a real estate transaction. Such conditions would be a buyer who wants a home inspection to make sure the home has no severe defects. Another common condition is bank financing, ensuring a local bank will fund the mortgage. Speak with your Engel & Volkers Advisor, and they can recommend some conditions to the Offer to the Purchase agreement. Remember, the fewer conditions, the better in this hot Cayman Real Estate market, but you must feel comfortable with the Offer. If you have twelve conditions and another offer has only two, guess who will get their Offer accepted?
Covenants: a set of requirements and limitations of what an owner can do on their land or property and associated fees. Such as, the home must be at least 2500 sq ft, or there must be no storage of boat trailers etc. These are enforceable if they are registered on title. Some covenants are ordered by the HOA but are not enforceable. Registered Covenants are enforceable, and general covenants are more challenging to enforce.
Down payment: you must save up to go to the bank and let them know you are a viable candidate to extend your mortgage. The banks in the Cayman Islands are very conservative, and you will need to prove that you have at least a 10% down payment, you are trustworthy and can pay the mortgage payment every month. The banks will require you to put at least 30% equity into the loan if it’s not your principal residence.
Earnest money/ Deposit: funds the listing CIREBA Broker holds in their Client Trust Account. This demonstrates to the vendor that the buyer is interested in purchasing the property. The deposit funds cannot be touched or used in a Client Trust Account. Anywhere from $1 to 10% of the purchase price is acceptable. However, a more substantial deposit will show the seller you are serious. The bank will also see that the deposit or down payment is safe sitting in a trust account.
Equity: your savings account or your net worth. It is what you own versus what the bank is lending you.
FHA Loans: a group of loans in the United States insured by the Federal Government; in Cayman, we do not have that provision.
Fixed-rate mortgage: a loan with a locked-in interest rate for the loan repayment period.
Home Inspection: a professional examination (at the buyer’s expense) that evaluates the structural and
mechanical condition (plumbing, foundation, roof, electrical, air-conditioning systems, etc.). If the inspector finds issues that may be expensive to remedy, these can be discussed with the seller before proceeding with the sale. This is where your experienced Real Estate Advisor with Engel & Volkers can assist you in negotiating with the seller for costs. Alternatively, if it is a significant home defect, the buyer can choose to walk away and have their deposit funds returned.
Freehold vs leasehold: freehold is where you own the land your home sits on, and leasehold is where you are leasing the land from the Cayman Islands Government. There are only a few condos and homes on leasehold land. These include The Ritz Carlton Residences Grand Cayman, Villas of the Galleon, The Westin Casuarina Hotel and Spa, Governors Square, Lime Tree Bay Condo, Waterways Condos and Turnberry condos, to mention a few. The majority of the Cayman Islands’ land is freehold.
LDX: means listing data exchange, which refers to a reciprocal system whereby consenting brokerage agrees to advertise the listing on their internet websites each other’s active listing in the MLS, and you, a seller, get the maximum explore. Not all CIREBA companies participate, so when listing your property, ask this question.
Listing: means an agreement between a brokerage and a client granting the brokerage the authority to offer to sell the client’s real estate property with defined terms and conditions set out in the CIREBA MLS Agreement. Listings will include details about the property and the home, such as the number of bedrooms, bathrooms, features, other structures, the price, photos, land size or strata or condo fees.
Listing agent: the agent or advisor representing the seller of a property. Their job is to act in the seller’s best interests, market their home to potential buyers, and negotiate on the seller’s behalf by taking instructions from the seller.
MLS: Multi Listing System, by which the Listing Brokerage member submits the listing agreement signed by a vendor or seller.
Net worth: your savings or the home equity minus any debts.
Offer to Purchase: OTP means the CIREBA Offer to Purchase or Agreement of sale.
Opinion of value: estimating real estate property value based wholly or partly on a CMA, comparative market analyses. An Opinion of Value contains relevant data and details of a property; often, it is more detailed than an appraisal or valuation and may be completed by a CIREBA member.
Pending Contract: when all the conditions to the OTP have been waived or satisfied by the purchaser, the deposit becomes non-refundable. After this point, all parties are waiting to transfer the title to the new owner.
Pen/Con Contract: pending/conditional when all parties have accepted the OTP, and the purchaser is working thru their conditions to the contract (due diligence or contingencies), which they must either waive or satisfy to move to the next step, which is pending and then to closing.
Pre-approval for a loan: a local bank gives a written assurance to provide a loan up to a certain amount, subject to receiving complete documentation from the borrower. Pre-approval for a loan strengthens a purchaser’s negotiating position with the vendor.
Pre-qualification for a loan; a less official than a loan pre-approval; banks offer pre-qualifications to tell the buyer how much they can borrow based on their salary and other financial obligations. A pre-qualification letter is beneficial in the early stages of a buyer’s search to help determine a reasonable cost. If you can afford a $650,000 home, why are you looking at a $300,000 home or a 3-million-dollar home?
Private mortgage insurance (PMI): A weekly or monthly insurance payment is required if the down payment is under 20% of the purchase price. It helps protect lenders against loss if a borrower defaults; however, local banks do not offer that here in Cayman.
Realtor/Real Estate Agent/Broker/Estate Agent/Advisor: they are different titles for a professionally licensed person who has passed the training to work as a realtor. They must have completed the CIREBA training course on ethics and professional behaviour, basic legal terms and obligations, and the Cayman Islands Government Land titles. If they are a full-time Real Estate agent, they will know the island and have the market knowledge and a pulse on market trends.
Under Contract/Under Offer means that a buyer and seller have agreed on a selling price, and the buyer is working thru their condition or due diligence period.
Sales contract or Offer to Purchase: a legal agreement between a seller and the buyer to purchase real estate for a stipulated price and terms, also called a purchase contract or OTP or Offer to Purchase. When the seller accepts (or the buyer agrees with the seller’s counteroffer), it becomes a legally binding sales contract.
Section 6.4: for condos, typically, it is a statement from the Strata corporation or (HOA) that informs the buyer of the fees they will be responsible for. If the current owner owes outstanding strata fees, the funds from the property’s sale must first pay off any strata fees the sellers owe and then pay off the mortgage if applicable. The new owner will start with a clean slate for strata or HOA fees.
Strata Fees: are HOA (homeowners association fees). In a condo complex, it is the shared cost of insurance, common area power and water costs, landscaping and pool maintenance and a reserve fund, to name a few things. Ask your Engel & Volkers Real Estate agent for a complete detailed list of what the strata fees cover. Makes sure you request a copy of the latest AGM strata minutes and financials. Once you read and accept those rules and the strata fees, you must abide by them or else there could be issues later.
Seller: also called vendor
Title Insurance: We do not have this in Cayman, but we have something similar. Local attorneys will investigate the land title at Lands and Survey Government office and check to see if any unpleasant surprises show up on the title, such as unknown liens or debts placed against the property. They will search the records to ensure that the current owner has legal rights to the title and the legal ability to sell the home and that no liens are held against the property.
Waiver of Conditions: when the party has waived the right to a condition in clause 5 Addendum A of the OTP and does so in writing.