The real estate process can be tricky for seasoned veterans, let alone a beginner who has never worked in the industry before. Whether you’re buying or selling, one of the most basic things anyone can do before dipping their toe is to educate themselves about the important terms and vocabulary that will be used. The more you understand the basics, the less likely you’ll be confused and more likely you’ll be able to complete a smooth transaction.
Here are 13 real estate terms you should know, no matter what side of the transaction you find yourself on.
Most Common Real Estate Terms
Real Estate Agent or Realtor
If you’re buying or selling a house on the open market, you’re probably going to be dealing with real estate agents. But it’s good to understand the different kinds. There’s the buyer’s agent, who represents the person or people trying to buy the property, and the listing agent, who represents the party selling the home or property. It’s possible that either or both parties will forgo dealing with an agent but unlikely. One agent should never represent both parties in a real estate transaction.
An appraisal is a way for a piece of real estate’s value to be determined in an unbiased manner by a professional. Appraisals happen in almost every real estate transaction to determine whether or not the contract price is appropriate considering the location, condition, and features of the property. Appraisals are also used during refinance transactions as a way to determine if the lender is providing the appropriate amount of money given the value of the property.
If a seller feels as though their property isn’t attractive enough to get a good offer as-is, they can offer concessions to make the property more appealing to buyers. These concessions vary but can often include loan discount points, help on closing costs, credit for needed repairs, and paid insurance to cover any potential pitfalls.
Either referred to as a purchase and sale contract or simply purchase contract, this document outlines the terms surrounding the sale of a property. Once both the buyer and seller have agreed to a price and terms of sale, a property is said to be under contract. Contracts are often dependant on things such as the appraisal, inspection, and financing approval.
Closing costs are the name given to all of the fees that you pay at the close of a real estate transaction once all of the demands of the contract have been satisfied. Once closing costs are paid, the property title can be transferred from the seller to the buyer. Both sides of the transaction incur closing costs, which vary depending on state, city, and county. Common closing costs include the application fee, escrow fee, FHA mortgage insurance premium, and origination fee.
In every contract, there will be contingency clauses that act as conditions that need to be met in order for the completion of the sale. These include the home appraisal as well as financial requirements and timeframes. If the contingencies are not met, the buyer can opt out of the home sale without losing their earnest money deposit.
Once a seller accepts a buyer’s offer on a property, the buyer makes a deposit to put a financial claim on it. This is called earnest money and it is typically one to three percent of the overall contract price. The point of earnest money is to protect the seller from the buyer walking away even though the contract has been agreed upon. If one of the contingencies in the contract is not met, however, the buyer can back out of the contract without losing their earnest money.
In terms of a real estate transaction, escrow is usually meant to be a third party who acts as an unbiased control on the process to make sure both parties remain honest and accountable. This is often in the form of holding onto financial deposits and necessary documents. The escrow ensures that contracts are signed, funds are disbursed properly, and the title or deed is transferred properly.
Both the seller and the buyer have a good reason to get their own inspection of any property. In either case, a licensed inspector will visit the property and create a report that outlines its condition as well as any necessary repairs in order to meet the requirements of the contract. A buyer will do an inspection as part of the contingencies in order to make sure the home is being sold in the condition it has been presented to be. Based on the results of the inspection, the buyer can ask the seller to cover repair costs, reduce the sale price based on needed repairs, or walk away from the transaction.
When a buyer decides that they want to purchase a home or property, they make a formal offer to do so. The offer can be at the list price or it can be below or above it, depending on market conditions and the possibility of other buyers. If the seller accepts the offer, it becomes the purchase contract. However, the seller can also make a counteroffer or reject the offer outright.
Real Estate Investor
For various reasons, some sellers don’t want to list their property on the open market. Or they 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.
Title & Title Insurance
The title is the document that provides evidence as to who is the lawful owner of a property. Title insurance protects the owner of the property and any lender on that property from loss or damage that could otherwise be experienced through liens or defects to the property. Unlike many insurances that protect against what can happen, title insurance protects the current owner from anything that may have happened previously. Every title insurance policy has its own terms and conditions.
A title company makes sure that the title to a piece of real estate is legitimate and free of any liens, judgements, or any other issue that may cloud title. The title company will work to clear any necessary issues so that they can issue title insurance. Some states use title companies while others use real estate attorney’s offices. Most title companies do have a real estate attorney on staff.