So you’ve been looking around online, maybe you’ve gone to an open house or even a few showings. Maybe you liked the really big backyard from the first showing or the kitchen in the
Common Real Estate Terms You Should Know
Dated: June 15 2021
If you’re interested in buying or selling a home, you’ve probably been doing some research on the market and on the process that goes along with it. The more research you do and conversations you have regarding real estate, you might find yourself faced with a whole bunch of real estate slang and jargon that you aren’t familiar with. Here’s a list of common real estate terms that are important to the buying and selling process:
- Adjustable rate mortgage: An ARM loan allows for interest rates to adjust after a certain amount of time. This can allow for a loan to secure lower interest rates for a specific period of time.
Appraisal: An appraisal is an estimate of the value of said piece of real estate. The mortgage lender will send out an appraiser to professionally estimate how much the property is worth.
Appraisal Contingency: Through an appraisal contingency, a buyer is able to cancel a sale if the home's appraised value is less than what they were going to pay for the property. A buyer’s lender will hire an appraiser to assure that the buyers are not paying more than they should for a home.
Backup Offer: A buyer may be interested in buying a property that is already under contract with someone else. If this is the case, the interested buyer can make a ‘backup offer’ in the event that the first sale falls through. Legally, you are only allowed one backup offer on any property.
Buyer’s agent: Also known as ‘selling agent’, this agent represents the buying party. The buyer’s agent will find the buyer's properties to visit and negotiate on the buyer’s behalf.
- Closing/Closing costs: A real estate sale is considered final at closing; all of the paperwork has been signed, finances secured, and closing costs paid. Closing costs are an assortment of fees charged by the lender, title company, attorneys, agents, and all other parties involved in the transaction.
Covenant’s, conditions, and restrictions (CC&R’s): CC&R’s outline community guidelines and procedures for residents living in a specific neighborhood or community. These community rules and regulations can be legally enforced by a city or county department and Homeowners Associations.
Conventional sale: A conventional sale is the most common type of real estate sale. The owner of the property either has no mortgage left to pay, or the amount of mortgage left to pay is less than the current market sale price of the property.
Days on Market (DOM): DOM refers to the number of days a property is on the market. In a seller’s market, the local DOM average will be lower, and in a buyer’s market the DOM will be higher. DOM is also impacted by seasons.
Debt to Income Ratio: This ratio is used by lenders to determine how much mortgage you can afford each month. The ratio uses your monthly housing payment, how much debt you are paying off, and gross monthly income.
Due diligence: The period of time after an offer has been accepted on a property where the buyer/buyer’s agent schedules inspections, reviews the inspection report, and then decides how to proceed with the sale. Based on the findings in the inspection reports, a buyer may be able to renegotiate the contract (accepted offer), or possibly cancel the transaction.
Earnest money: Earnest money is the initial deposit required of the buyer once the seller accepts the formal offer from the buyer or after negotiations have been completed. The amount of earnest money can vary anywhere from 1-5% of the sales price.
- Inspection Contingency: An inspection contingency grants a buyer a certain amount of time when the property is under contract to hire inspectors and collect inspection reports.
Inspections: The buying party hires a professional inspector to go to the home, after the offer has been accepted, and assess the condition of the property and report on any repairs that need to be done. This inspection happens when the property is ‘pending’ or ‘under contract’, meaning an offer has been accepted and negotiations are complete on the sale price.
Loan Contingency: A loan contingency is an addendum in an offer contract that allows buyers to dissolve a deal and keep their deposit if they cannot secure a mortgage during a fixed period of time.
Multiple Listing Service (MLS): A database specifically for real estate agents and brokers to add information about properties for sale in the area. A listing agent, also known as seller's agent, will upload the information on a property for sale and the buyer’s agent will search the MLS for properties that fit his/her buyers requirements. Look at recent listings in Manhattan here:
Offer/Counter Offer: When a buyer finds the home they want to purchase, a formal offer is drawn up by the buyer’s agent, the buying party signs the offer, and then the agent sends the offer to the seller’s agent. The formal offer does not have to be the listing price,it can be more or it can be less, depending on what the buyer’s and buyer’s agent agrees is a fair market price. The seller may accept the formal offer or they may submit a counter offer, thus where the negotiating part happens in real estate. The buyer’s and seller’s agent will negotiate on behalf of their respective parties when a counter offer is submitted.
Pre-approval: Buyers must fill out an application that helps a lender understand their financial situation. Credit scores, debt to income ratios, income, and other financial information is examined during the process of getting pre-approved. The lender will then give the buyers a letter of pre-approval, stating the loan amount and total sales amount that the buying party has been pre-approved for.
Pre-qualification: An informal assessment of the buyers financial situation based on what the buying party tells the lender (no official documentation or proof required for pre-qualification). A faster, but less reliable way of getting a mortgage loan estimate.
Proof of Funds: Sellers require anyone submitting an offer to have proof of funds. This means that the potential buyer must offer proof that they have the money to purchase a property, regardless of if it is being paid with by loan or cash. Lines of credit, financial statements, and bank statements can all be used as proof of funds.
Seller’s agent/Listing agent: The listing agent markets a property for sale on behalf of the selling party. The listing agent represents the seller's best interest, settling on a listing price and listing expiration dates.
Seller Concession: Seller concessions help entice a buyer to submit an offer on a property. The seller may offer to pay a certain percentage of the buyer's closing costs, which leaves the buyer with more money at closing.
Seller’s Disclosure: The SD is a document provided by the seller that includes information on the condition of the property. Included on the document are any issues with the property, personal property that will be staying with the home once it is sold (i.e. dishwasher, stove, etc.). Also on the document is anything that might be a disturbance to a potential buyer, which can be a nearby construction site, odd smells from a factory or plant, legal issues, and much more. An SD is disclosed to keep buyers as informed as possible before they put down an offer.
Subject to Inspection: Subject to Inspection means that the seller is not letting potential buyers see the property without an accepted offer. This sometimes happens when there are uncooperative tenants or to respect a seller’s privacy. Though putting an offer on a house you haven’t seen might sound scary, there is always a period after the offer has been accepted where inspections are done and the sale can be cancelled with no repercussions.
Termite Report: Termites can be extremely destructive, so you would definitely want to know if a property has or has previously had termite activity. The termite report is a diagram of the property showing where there has been recent or past termite activity.
Title Search: A title search examines the past of a property. Included in the search are city and county records, previous sales and purchases, taxes, and other relevant information.
VA Loan: VA Loans are government-issued loans provided to veterans, active duty, and even some spouses. These loans are usually low-to-no down payment with competitive rates and fees.
Navigating all of these (somewhat) foreign terms is bound to give you a headache, BUT if you have a great real estate agent on your side, you can stay informed and out of the dark. A good agent will take the time to sit down with you and explain all of these terms, and more, as they appear throughout the process of buying or selling. Brice is a well of information on all things real estate and would love to answer any questions you may have about the buying or selling processes. Contact Brice today for all your real estate needs!
Manhattan, KS: Brice Ebert of Resource Real Estate Group was featured in the Kansas Edition of Top Agent Magazine in January 2021. Top Agent Magazine is the premier real estate magazine featuring the ....