Common Real Estate Terms
Buying a home can be confusing enough without having to remember all of the different vocabulary involved. Here is a list of useful real estate terms.
Appraisal
The appraisal is the part of the home buying process wherein a licensed appraiser, generally hired by the lender, will assess the value of a home. They are normally ordered by the buyer's lender. Having a property appraised ensures that the buyer isn't asking for more than the bank needs to lend them for the price of the house. Appraisals may also be required when taking out a loan against a home, such as a HELOC (Home Equity Line of Credit). In short, this is the objective, independent, and current value of your home based on what the appraiser sees. Generally speaking, the more updates or desirable features a home has, the higher the appraised value.
Assessed Value
Not to be confused with an appraised value, the assessed value is the value of your home as determined by the state and is for calculating property taxes. This is solely to determine how much you owe your state in taxes for your home each year. Sometimes, ordering a property assessment can be a good idea, even when you're not selling your home. You may discover that you owe less in taxes on your home than you've been paying! This is the value over the long term and isn’t affected by short term variances.
Buyer's Agent
A buyer's agent is a licensed real estate agent who is authorized by the buyer to work on their behalf. They can negotiate for the buyer and be the general liaison for questions, concerns, contracts, and more. The buyer and their agent enter into a legally binding representation agreement which defines each of their responsibilities.
Cash to Close
Cash to close is the total amount of money you need to bring to the table to buy a home (this includes closing costs, escrow funds, title fees, attorney fees, etc). Despite the name, it doesn't have to be in the form of cash, and, in most cases, is handled electronically, or via check.
Closing Costs
Closing costs are amounts that either or both a buyer and a seller pay to complete a real estate transaction. Fees include fees to your mortgage company to obtain and close on your loan. In most markets, both sellers and buyers pay closing costs (although that's not always the case). Sellers pay a commission that is divided between the listing firm, listing agent, buyer’s firm, and the buyer’s agent.
Contingent
When a listing has been marked as contingent, it means that a buyer and a seller have agreed on a contract assuming certain conditions are met. The two categories of contingencies are financing and inspection.
Deed
A deed is a legal document that transfers a title from one person to another. They're recorded with the county registrar’s office, and they also outline to which party the title is being transferred.
Due Diligence
Due diligence is just that. There are a lot of details to look over when buying and selling a house or other property. Make sure you pour over contracts, calculations, and even physical/cosmetic details so you know just what it is you're committing to. In short, do your homework! Your real estate agent will guide you through this process and help you identify the items which need special research.
Earnest Money
Earnest money (also known as trust money) is the amount that a buyer puts down when they go into a contract with a seller. This money shows the seller that the buyer is serious about, purchasing a property. If the sale goes through, earnest money goes towards the down payment and closing costs. If the contract is terminated due to a contingency, the buyer receives the earnest money back. However, if the buyer defaults on the contract, the seller may be entitled to keep the earnest money.
Equity
In the simplest of terms, equity is the value of a homeowner’s interest in their property. Remember, unless you own your home outright, the bank technically owns your property, and you make payments to them (i.e. a mortgage). Equity is calculated as the difference between the fair market value of your home, and the amount you still owe. Here's a very small example: If your house was worth $200, and you owed $150 on it, then your equity is $50. Upgrades and repairs are a great way to build equity on a property.
Escrow
When you enter into a contract as a buyer, you put down earnest money. That earnest money will be placed in "escrow." This simply means that a neutral third party (typically the seller’s listing agency) will hold these funds until closing. Real estate escrow accounts are legally governed and scrutinized to protect buyers and sellers.
Foreclosure
When a party responsible for paying a mortgage on a home goes into default on those payments, the property goes into foreclosure. Once the bank repossesses the house, the lender sells it to recover their losses from non-payment. Buyers looking for a bargain often consider foreclosures. However, foreclosures follow a slightly different set of purchasing guidelines that you and your REALTOR should discuss. Foreclosures may or may not be desirable and financeable depending on condition and cost. The lender wants to sell for as much as possible.
Home Equity Line Of Credit
HELOC for short, a Home Equity Line Of Credit is a specialty mortgage. While living in your home, you build equity, and you can borrow against your property. Once your home has been subject to an appraisal, your lender will determine how much money you can borrow. A HELOC is a line of credit that you can pull from on an as-needed basis. It's a great way to fund making needed repairs to your home or to get it up to par for sale. Keep in mind, the bank expects to be paid back. You can do this with regular payments over the life of the loan, or it will be paid out when your property is sold.
Home Equity Loan
A home equity loan is very similar to a HELOC, with the primary difference being that a home equity loan is a lump sum of money, whereas the HELOC is a credit line that can be pulled from on an as-needed basis.
Inspection
Generally, a home inspection, ist a valuable practice. During a home inspection, a licensed inspector will come and look at all of the major facilities of a property: Everything from HVAC, plumbing, and electrical, to more cosmetic items like the roof, siding, and crawl spaces. It is important to note that inspectors cannot disassemble equipment or damage the house in any way, so they can only inspect what they can see. It's an inspector's job to bring to light any issues the property might have so that both the buyer and the seller know what steps to take next. While it's not required, we recommend attending the home inspection so that your inspector can discuss any potential issues. After the inspection is done, you'll receive a full report with pictures of every detail about the property. From ceiling damage to ungrounded outlets, they'll work to find any issues.
Interest
Just like any other line of credit, mortgage loans come with interest attached. Interest is essentially the "cost" of borrowing money. Interest rates can fluctuate from day to day, and once a borrower has "locked-in" a rate, that will be the interest rate for the life of a fixed-rate mortgage loan unless the homeowner chooses to refinance down the road. As with a normal credit line, a major determining factor of getting a good interest rate is your credit score.
MLS
A Multiple Listing Service (MLS) is a database that real estate agents and brokers use to let one another see the listings available across multiple firms. Member firms share access to information in MLS databases. This is beneficial because both the buyer’s and the seller's agent benefit if a house is sold, so sharing information is good! The more people that see a home, the more likely a sale is to be made. Many cities or regions will have their own local MLS databases that are used by REALTORS to which the public does not have access.
Offer
An offer is essentially the proposal of a contract. When a buyer is interested in a property, they make an offer to the seller. This generally includes how much they're willing to pay for a property, how they'd like closing costs handled, and a variety of other details. After an offer is accepted, the property goes under contract and new offers are no longer accepted at that time. Purchasing a house often involves a negotiation process, and buyers and sellers may go through a sequence of offers and counter-offers until an agreement is reached on price and conditions. It's during this period that a good agent can be invaluable!
Pending
A property listed as pending means that the seller has accepted an offer from a buyer and the parties have completed enough of the pre-closing process that they believe the sale will be completed.
Pre-approval
Getting pre-approved by a lender is an excellent start to the process! Getting pre-approved means that you've already spoken with a bank/lender and that you meet the conditions for a mortgage loan. Once under contract, your finances will undergo further scrutiny to determine if you (the buyer) can borrow. Some sellers won't work with a buyer who isn't approved, because it's unclear whether or not a buyer will be able to get funding from the bank.
Pre-qualification
Pre-qualification is the first step to getting pre-approved for a mortgage. This will help give you an idea of how much money the bank is willing to lend you, and how much house you can afford to buy. All of this is determined by a variety of information for which a lender will ask.. It will include items like bank statements, other credit lines, pay stubs, taxes, and any other article that they deem necessary that would give them a better idea of you as a loan candidate.
REALTOR
A REALTOR is licensed by the state under governing laws in the buying and selling of homes. When buying or selling a home, most people use a REALTOR to help them navigate the process. A REALTOR can be invaluable because they will be able to explain terms, conditions, calculations, and, most importantly, go to bat for you when negotiating the purchase or sale of a property. REALTORS will make suggestions and be an ally for their clients.
Seller's Agent
The seller's agent is the licensed REALTOR representing the seller in a property sale process. They will negotiate for the seller and be the liaison between the buyer's agent and their client.
Sold As-Is
When a property is listed as "sold as-is" it means that the owner of the property does not intend to make any repairs or updates to the home. It is literally sold in its existing state. What you see, is what you get! Some of these kinds of properties are great opportunities for people looking to flip or completely customize a home, but they can also be more costly in the long run. They may or may not be financeable.
Title
Just like with a vehicle, having the title to property means that you own that piece of land and permanent improvements.