For those individuals new to home selling and buying, the real estate language keeps adding new terms to an already complicated home sale process. Taking time to make sure you understand the terms associated with real estate can assist both sellers and buyers educate themselves on the entire process, as well as eliminate confusion, and prepare themselves for a smooth and swift transaction.
We have alphabetically put together a list of 17 real estate terminologies you need to know. Understand all these terms, and you are half way to either buying or selling a home successfully.
An appraisal is needed for gathering the estimated value of real estate pieces. During the process of selling the home, the mortgage lender hires an appraiser and sends him/her to get an expert opinion of the value of the property. This will help the mortgage lender make a decision whether the property is worth the loan, the buyer is seeking.
A listing agent is a representative of the home seller’s interest, he prepares and markets the home for sale.
A buyer’s agent is a licensed and qualified real estate professional with the responsibility of finding homebuyers their dream houses, as well as representing their interests in real estate transactions.
Both listing and buyer’s agent charge a commission that is usually 2% to 3% of the agreed contract price in each home sale. The seller is usually responsible for the payment of both commissions.
A contract is an obligatory document that lists out the terms of a property sale. Whenever a house is under contract, it implies that both the seller and buyer have agreed on the contract price and other sale terms.
Closing costs are different types of cost and expenses that are paid at the end of a real estate deal. Normally, closing costs cover title search, taxes, the appraisal, processing fees, and loan fees.
Closing refers to the end of a real estate deal. The closing date is typically set at a time which allows the home buyer to carry out prosper inspection on the home, and also for the mortgage lender to finish up the underwriting process. At the close of the deal, the parties involved will carry out the final paperwork, and the homebuyer will receive the keys to the house.
Contingencies are those contingency phrases in the purchase agreement. These are those conditions that have to be met for the contract to move forward. Most common contingency phrases are “home appraisal”. The house needs to be appraised for the sale to continue, and “financing contingencies”, where the purchaser needs to obtain the home financing within a given period of time. With all these contingencies, in case the home is not properly appraised, or the buyer fails to get financing, the homebuyers can withdraw from the contract without having to lose their money.
The DTI ratio is a number that mortgage lenders used to know how much a borrower can pay monthly for the mortgage.
Your Debt-to-income ratio is the total of all your debt expenses plus your housing monthly payment, divided by the gross income you receive monthly, and finally, multiply by 100.
Lenders usually look for those borrowers who can pay 28% of their total monthly housing income, and can also pay below 36% of their income gotten from debt payments. If any of these percentages are higher than the ones mentioned above, and you intend buying a home, you may have to amend your budget.
This refers to understanding and researching all legal requirements before deciding to buy a home. The period of due diligence is the time frame negotiated in the contract, where the homebuyer evaluates the home, through inspection.
This is the amount deposited by the buyer after the seller has accepted and acknowledged his/her offer. It is normally around 1% to 3% of the total contract price, and it is always held by the escrow company.
Earnest money is aimed at protecting the seller in case the buyer decides to withdraw himself from the contract. But buyers can still get their earnest money back if a contingency clause permits them to walk away from the contract. In case the sale is successful, the money is added to the total payment the buyer has to pay for the home.
Escrow refers to an unbiased third-party that watches over the transaction. It often comes up in different ways during a home sale.
First and foremost, during the process of selling a house, the escrow agent keeps all the funds, documents, and instructions relating to the contract, including down payment, earnest money, loan documents, sale documents, title insurance, and hazard, as well as the seller’s deed. When closing the deal, the escrow agent makes sure that the final paperwork has been properly signed, funds have been disbursed, and also oversees the successful transfer of the deed.
Secondly, as a purchaser, your mortgage lender may demand you make a deposit in an agent’s escrow account for property taxes and insurance premiums. Agreeing with this demand reassures the mortgage lender that he/she won’t go unpaid.
This is what the homeowners have invested in their house. To calculate the value of equity, take the home’s market value, and subtract any liens or mortgages against the house. The leftover amount is the value of equity left in the home.
In case you purchase a home worth $270,000 at a price of $250,000, you are gaining what is called “instant equity” since there is a difference of $20,000 between the cost and the value of the home. If you sell a house you purchased for $270,000 for $290,000. You will tend to be retaining the equity in the house after closing the deal, as soon as all the expenses have been paid.
A home inspection occurs when the buyer pays an authorized professional inspector to visit the house and make a report concerning its current conditions and the required repairs. This inspection normally occurs as part of the period of due diligence, so homebuyers can have full access to a home they intend buying, thus deciding if they want to purchase the home as it is, or after the needed repairs have been made.
A multiple listing services (MLS) is a database that gives brokers and real estate agents the opportunity of accessing and adding information about different properties for sale in a particular area. Whenever a home gets listed for sale, it gets added to the local multiple listing services by a listing agent. Homebuyer’s agents usually check the MLS to know those homes listed for sale, and also how other similar homes were sold.
A buyer makes a formal offer on the house they want to buy. This offer can be the total list price, or what the homeowner and his agent deemed as fair market value.
The homebuyer’s agent will put down the offer in writing, and then ask the seller to sign it, before submitting it to the seller’s agent. The homeowner can either decide to accept the offer immediately or make a counteroffer.
The principal mortgage loan balance is that amount of money owed to a mortgage lender, excluding interest. For instance, if you borrowed $850,000 from a lender. This amount is called the “principal”. Buyers often pay the principal amount plus interest every month. Payments are always targeted at interest first, before focusing on paying the principal amount. After all, the reason why banks give out loans is because of the interests it attracts.
Realtor and real estate agents are usually used interchangeably. A Realtor refers to an agent who is a registered member of NAR (National Association of Realtors. A licensed Realtor adheres to the ethics of NAR and keeps up with their education and membership.
Sellers might offer concessions to persuade buyers to buy the home. According to FHA.com, a seller concession for an FHA includes;
A title search evaluates public records for knowing the history of the house, including purchases, sales, taxes, and other types of liens.
While buying a home, a title company will carry out this search to make sure that the seller is the rightful owner of the house, and there are no existing obligations that need to be met, before selling the home.
Once you have understood these essential real estate terminologies, the process of buying or selling a home will become easier. In case you are familiar with the terms, you could ask the escrow company and the agents more informed questions, that will give you a better understanding of the process, and also help you understand exactly where your money, is going.