The real estate world has its own terminology and whether you are a first-time buyer/seller or have a few experiences under your belt, it’s best to know the terms associated with what can be a complicated process. Here are a few of the most important:
Both the buyer and the seller are often represented by licensed real estate agents. Among other things, they handle much of the complexity of the sale, have access to the MLS (Multiple Listing Service) to list or search for homes and comparables, show homes, and assist with the closing. Buyers often don’t pay their real estate agent, who will get a commission from the seller.
This is the real estate term for homes that are currently for sale or are “pending” (meaning they are under contract to sell if all goes as planned). Pending sales can return to a “for sale” status if the contract falls through. Listings are put on the MLS (and subsequently on real estate apps) by the real estate agent.
Homes that are similar to the property for sale in location, quality, condition, architectural style, living area, and lot size. These comparables will be used in the appraisal report to determine the appraisal value of the home. Differences between the home for sale and the comparables will result in value adjustments in the report.
The bank can pre-approve a potential loan amount for a home buyer based on an estimate of the property’s value. This assists the seller and his or her agent to know that the buyer will most likely be able to secure a loan after an offer has been made and accepted.
A legal offer made by the buyer using a real estate agent or attorney to purchase the property for sale.
These are certain stipulated conditions or actions that must take place before the sale can legally close (e.g., that the home inspection is acceptable to the buyer before the contract is legally binding).
In real estate terms, “in escrow” signifies documents or funds in the keeping of a third party—typically an escrow agent. These contracts, funds, or documents are to be disbursed at the closing of the sale. The escrow is critical for buyer and seller security.
A deposit of “earnest money” by the potential home buyer is sometimes required by the bank to substantiate that he or she is serious about purchasing the property.
The appraisal report (as performed by a licensed real estate appraiser) gives an estimate of the home’s value at that point in time based on comparables, market conditions, and the appraiser’s knowledge of factors affecting home values.
The mortgage is the transference of interest (ownership) in the property as security that the money borrowed from the lender will be repaid. In other words, the actual home or property is the collateral in exchange for the money you borrow. A “mortgage” is the deed through which this takes place. A mortgage payment typically consists of the principal, interest, insurance, and taxes.
A legal document proving the right to or ownership of a piece of property.
Title insurance covers the purchaser and title company in case there are legal disputes regarding the home in question (Does the seller have a legal right to sell the property? Are there any liens on the property? Are there any prior legal disputes that continue to affect the home?). The title agency will search court documents, property records, etc. to verify that the title is clear.
There are additional costs that will be incurred to legally complete the sale of a home. These costs can actually add up to 2-5% of the cost of the home. Closing costs can include loan processing fees, title insurance, loan origination fees, taxes, appraisal fees, title searches, survey fees, etc.
The sale or purchase of a home is a complex and lengthy process. The understanding of basic real estate terminology can greatly assist those involved to maneuver the procedures that eventually lead to the successful completion of the home sale.
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