What would be the best real estate collateral definition?
Could we say it’s just like a hostage? No, that would be insensible. But the idea is similar. In real estate, collateral is a tool to diminish one’s risk in a transaction. It’s about having something of value from the other party in order to “motivate” them to do right by their responsibility.
Let’s elaborate on that real estate collateral definition: when two parties are doing business of any kind, they need assurance that each party will do their part, right? That’s why a bilateral contract is made. However, there are circumstances that once one fails to do its part… the damage has already been done. The other party has already sustained a hard financial (or otherwise) loss. With that in mind, comes the collateral. Collateral is an asset that is made available to a party in the case the other party fails to do his or her part.
What’s interesting is that, in real estate, the collateral definition gets a little more complex, because the real estate collateral is usually the asset to which the business itself is being done. That is: when someone asks a mortgage company for a loan to buy a Townhouse; the Townhouse itself usually becomes the collateral and, once that someone defaults the payments, the mortgage company is allowed to seize the real estate collateral and put it in foreclosure in order to recuperate the losses from the lack of payment by the borrower.
The collateral value must meet or exceed the amount of the loan.
Real Estate Advice:
Think of real estate knowledge as collateral: real estate agents got it! Contact one right now and have access to it so your home buying (or home selling!) process can be the best, most lucrative, less troublesome possible!