Regardless if you’re buying or selling a home having a clear understanding of the terminology used during real estate transactions is a good idea. The more knowledge you’re armed with, the better chances of success! Yet another reason as to why having a Realtor on your side through the process can help tremendously.
Basic Real Estate Terms
Addendum: Additions to a contract.
Appraisal: An expert opinion or estimate of the value of real estate as of a given date
Closing costs: Expenses that buyers and/or sellers pay in order to complete a real estate transaction or transfer of ownership. The costs are in addition to the purchase price of the property.
Conventional: A type of home mortgage loan with a fixed rate that requires buyers to meet certain standards for qualification, generally more stringent than the government backed mortgage programs but they do offer many benefits to those that qualify.
Commission: Money paid to real estate agents or brokers by the seller as compensation for the sale of a home.
Contingency: A condition placed upon a contract.
Example- The seller of a home needs to find a new home to purchase before they can close on their current home.
Counter Offer: A response to an offer that includes a new offer.
Example- Sally is selling her home for 55,000. Bob offers to buy Sally’s home for 50,000 and wants Sally to pay 3,000 towards closing costs. Sally makes a counter offer which states she will sell the house to Bob for 52,500 and pay the 3,000 towards closing.
Disclosure: A seller must complete a disclosure for the buyer that states any known issues with their home including but not limited to- known damage, lead paint, pests, floods, and so forth.
Earnest Money: Deposit money given to the seller from the buyer after both parties have signed a purchase agreement. The deposit is a gesture to show that the buyer is serious about purchasing the home. Once the sale goes through, the money is put towards the down payment.
Escrow: Money that is paid from one party to another to hold until a specific event requires use of the funds.
An example: Joe purchased a home with an FHA mortgage. For this type of mortgage, part of Joe’s monthly payment includes his property taxes and home insurance. This portion of his payment is put into the escrow trust and held there until time for his taxes and insurance to be paid which in turn is paid for by the agent out of those funds.
FHA: FHA Loans are a type of mortgage that is guaranteed by the Federal Housing Administration. Meaning, if a homeowner defaults on an FHA backed mortgage, the FHA will help the FHA approved lender that originated the loan recoup its loss. This type of loan is geared towards some first times homeowners and offers a low 3.5% down option for home buyers that meet the required standards.
Home Insepection: A home inspection should occur soon after a purchase agreement has been signed by both parties. The buyer of the home pays out of pocket for the inspection. The inspection is not the same as the appraisal. The inspection is performed by a licensed inspector of the home buyers choice. It serves as a safe guard to the home buyer as well as a tool of knowledge to learn more about the systems of the home they are purchasing. If something major is found wrong, the buyer can try to reach an agreement on repairs with the seller.
Listing Agent: The real estate agent that lists a home for sale and represents the seller.
Multiple Listing Service: Also known simply as MLS. A computerized database of all homes listed by real estate agents.
Principal: The principal balance of a loan is the amount that interest is paid on. In other words, it is separate from the interest and each mortgage payment includes both. Some people like to pay extra towards the principal of their loan so that they pay off their house faster.
Purchase Agreement: A detailed document that includes the terms between a buyer and seller of a home including the agreed upon purchase price and any other terms or conditions.
Real Estate Agent: A licensed person who works under the direction of a broker selling and renting real estate.
Real Estate Broker: Real estate brokers help clients buy, sell, and rent properties. Although brokers and agents do similar work, brokers are licensed to manage their own real estate businesses. Sales agents ( real estate agents and Realtors) must work with a real estate broker.
Realtor: A real estate broker holding membership in a real estate board affiliated with the National Association Of Realtors.
Walk-through: A final inspection of the property before closing to see that all agreed to repairs, etc. have been completed and that the property is in the condition the buyer expects.
VA loan: VA loans are a type of mortgage loan backed by the Dept. of Veterans Affairs to assist US veterans and their surviving spouses with obtaining a mortgage.
This list is not all inclusive as there are many, many real estate related terms. These terms are some of the most frequently used terms during the home buying or selling process.