Real Estate Terms You Should Know
The real estate process can be a tough one to navigate, even for experienced veterans, let alone beginners. Regardless of if you’re buying or selling, one of the most basic things anyone should do before starting the process is to educate themselves about the terms and vocabulary that will come up often. The more you understand these basics, the less likely you’ll be tripped up along the way. Here are 12 real estate terms you should know, no matter what side of the transaction you find yourself on.
What Are Some Common Real Estate Terms I Should Know?
Agent
If you’re buying or selling a house on the open market, you’re probably going to be dealing with real estate agents or Realtors. You’ll want to understand the different types. The buyer’s agent represents the party trying to buy the property while the listing agent represents the party selling the house or property. It is possible that one or both parties will forgo dealing with an agent but it’s unlikely. There are so many aspects to a real estate transaction that requires an expert who understands how to navigate them. FYI, one agent should never represent both parties in a real estate transaction.
Appraisal
An appraisal is a way to determine a piece of real estate’s value via an unbiased professional. Appraisals happen in just about every real estate transaction and can determine whether or not the final sale price is appropriate given the location, condition, and features of the property. If the appraisal varies greatly from the agreed-upon value of the home, it can force the deal to be renegotiated or even canceled. Appraisals are also used during refinance transactions as a way to determine if the lender is providing the appropriate amount of money.
Contract
Sometimes referred to as a purchase and sale contract or purchase contract, this is the document that outlines the terms of the property sale. Once both the buyer and seller agree on a price and terms, a property is said to be “under contract.” Contracts are often dependant on things such as the appraisal, inspection, and financing approval. They can also be amended given the results of inspections or contingencies in favor of the party who sees a value decrease.
Closing Costs
Closing costs can be a nebulous term but they basically include all of the expenses and fees above and beyond the purchase price that you will have to pay before closing on the sale. They are varied depending on your municipality, but often include attorney fees, title search fees, title insurance, taxes, homeowners insurance, and others. Some closing costs are considered negotiable with the entities that get them as well as with between the seller and buyer. Often, a buyer will ask the seller to cover some closing costs to entice them to buy the house.
The specific amount you’ll pay in closing cost varies depending on the size of the loan, local tax laws, and other factors, but is usually around two to five percent of the purchase price. So if someone purchased a house for $300,000, they can expect closing costs to be in the $6,000 – $15,000 range.
Earnest Money
Earnest money is often confused as the down payment but that’s not exactly correct. Earnest money is, in essence, a good-faith gesture from the buyer to let the seller know that you are very serious about buying the house. There are numerous factors involved with ensuring that the earnest money provided satisfies the seller. The buyer is also given a set of requirements that the seller needs to meet in order to keep the earnest money. If those requirements are not met, the buyer can often get back some or all of that earnest money.
Escrow
Escrow in real estate terms is meant to be a third party who acts as an unbiased central control on the real estate transaction to ensure both parties stay accountable. Once both sides of the transaction have agreed to all terms and gone under contract, a third party (the escrow) is brought in to handle the process. Escrow ends up managing many aspects of the sale from here on out, including the transfer of buyer’s loan documents and property taxes, ensuring that the title does not have any liens, and transferring ownership once all of the requirements are met.
Inspection
In any real estate transaction, a licensed inspector will visit the property and creates a report that outlines its condition and also notes any necessary repairs needed to meet the contract requirements. A buyer will do their own inspection as part of the contingencies in order to make sure the home is being sold as promised. Plus, their lender is going to require one as well. Based on the results, the buyer can ask the seller to cover things like repair costs or reduce the price overall. They may also decide not to buy the house if it is revealed there are extensive issues not previously disclosed.
Offer
When a buyer decides that they want to purchase a house, they make an offer. The offer can be at the price the seller asks, it can be for less, or it can even be for more. It all depends on market conditions and whether or not other buyers are making offers as well. The buyer will usually have to provide proof that they can satisfy the full price and should be prepared to provide earnest money. If the seller accepts, that offer becomes the purchase contract. The seller can also make a counteroffer if they feel as though they want more money than the buyer is offering. Or they could reject the offer outright if they don’t like it or have a different offer they prefer.
Real Estate Investor
For lots of reasons, some sellers don’t want to list their property on the open market. There are so many costs, fees, and requirements that it can feel daunting and not worth the hassle. It could be because the house comes with conditions that make it hard to find a buyer (financial concerns, water damage, tenants who won’t leave). They may also need to sell their home quickly because of relocation or lifestyle change. A real estate investor (or direct home buyer) will purchase property for cash without the need for inspections, agent commissions, or listing fees. They also buy the house as-is, which means no need for repairs or renovations. And they will often make the deal within days, depending on how fast you need to sell.
Title & Title Insurance
The document that provides evidence as to who is the lawful owner of a property is called the title. Title insurance is what protects the owner of the property (as well as any lender on that property) from loss or damage that could come from liens or defects. Unlike most insurances that protect against what can happen, title insurance protects the holder from anything that may have happened previously and was unknown beforehand.
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