Navigating the real estate market can sometimes feel like deciphering a foreign language. From industry-specific acronyms to complex legal terms, there is a collection of real estate vocabulary that can leave even the most seasoned homebuyers or sellers scratching their heads.
To help simplify the process, Team Endrich has compiled a list of the top real estate terms and created easy-to-understand definitions. So, let’s dive in and decode the jargon!
Appraisal From a Real Estate Professional
An appraisal is a professional estimate of a property’s value. These are performed by a licensed appraiser that is based on factors such as a property’s condition, location, size, and recent sales of comparable properties in the area. Appraisals are typically required by lenders to determine the amount they are willing to offer for a loan.
Comparative Market Analysis (CMA)
A Comparative Market Analysis (CMA) is a report prepared by a real estate agent or appraiser to determine a property’s market value. (Like a book report for your home!) It compares the property to similar recently sold properties in the area to estimate a fair and competitive listing price. CMAs provide valuable insights for sellers to set the right asking price and for buyers to make informed offers.
Covenants, Conditions & Restrictions (CC&Rs)
This one can be a little intimidating, so let’s break it down. Usually, there are rules and regulations placed on a property by a homeowner’s association (HOA) or possibly by a PUD or city. The CC&Rs share what requirements and limitations there are for the homeowner of that property. So, consider CC&Rs the real estate commandments for your particular property.
Closing Costs
Long story short, these are fees that you have accrued over your buying or selling journey. Closing costs include charges like title insurance, attorney fees, appraisal fees, inspection fees, and loan origination fees.
Pro Tip: In a “Buyer’s Market,” many sellers will pay a percentage of the closing costs. However, in a “Seller’s Market,” buyers are typically expected to cover them on their own.
Down Payment
This one is simple. A down payment is the initial upfront payment made by a buyer toward the purchase of a property. It is usually a percentage of the total purchase price and is paid in cash. The remaining amount is typically financed through a mortgage loan, and the size of the down payment affects the loan amount, interest rates, and the buyer’s eligibility for a loan.
In addition, the size of the down payment also plays a significant role in determining the buyer’s financial stability and the overall affordability of the property. A larger down payment indicates a higher level of commitment and reduces the loan-to-value ratio, which is the proportion of the property’s value that is financed through the mortgage. By lowering this ratio, buyers may be eligible for more favorable loan terms, such as lower interest rates and reduced monthly payments.
Furthermore, a substantial down payment demonstrates to lenders that the buyer has the financial means to handle homeownership responsibilities, instilling confidence in their ability to make regular mortgage payments. Ultimately, carefully considering the down payment amount is crucial for prospective buyers as it can greatly influence their financial situation and long-term investment in a property.
Due Diligence
It is time to roll-up your sleeves and start your detective work. Your due diligence is the period where buyers roll up their sleeves and do some research before really committing to their new home purchase. They perform inspections and tests on the property—and based on what they find, some buyers will attempt to renegotiate the contract. Or they can walk away altogether.
Earnest Money
Earnest money—sometimes known as a “good faith deposit”—is a certain percentage that buyers will put down when writing an offer to show the seller that they are serious about purchasing. (Think of it this way: If buying a house were a game of poker, this is when you decide to throw in some chips, so the other players know you’re ready to throw down.)
Earnest money can be refunded before a specific deadline if the buyer chooses to back out for any reason. But once you hit that deadline—or you offer hard earnest money (meaning, no refund whatsoever)—then the money belongs to the seller. These funds can add up to 1-5% of the listing price.
Equity
The magic word in any growing market. Equity is the difference between the market value of a property and the outstanding balance of any loans or mortgages. As homeowners make mortgage payments or as property values increase, equity grows. It represents the owner’s financial interest in the property and can be used for future borrowing or as a measure of net worth.
Escrow Holder
“Escrow” is a fancy term for “safety deposit box”. This is a process where a neutral third party, typically an escrow agent or company, holds funds and important documents related to a real estate transaction. It ensures that both the buyer and seller fulfill their contractual obligations before the property is transferred. The funds are held in escrow until all the agreed-upon terms and conditions are met.
Foreclosure
Ah yes, the f word. When a homeowner can no longer make their mortgage payments, foreclosure is the process where a lender typically repossesses the property and attempts to sell it. This is a last resort to pay back the amount that the homeowner can no longer maintain as a source of collateral.
Home Sale Contingency
This is when a buyer lets the seller know that the purchase of the seller’s property relies on the sale of the buyer’s own home. That is not really a big problem in a seller’s market, but it can be in a buyer’s market.
However, there is a similar contingency for sellers as well—if a seller cannot purchase a home in a given amount of time, then they can back out of their sale. This is SO important in a seller’s market, so let’s break that down:
If you—the seller—do not want to sell your home until you have found one to purchase, you can include a “home sale contingency” in your contract that will indicate to potential buyers that YOUR sale completely depends on whether you can find your next home.
Pro Tip: A lot of people worry about selling their home in this market because they do not think they will find a new one in time. Add this clause to your contract and—boom—you are covered.
Listing
A listing refers to a property that is officially on the market and available for sale or rent. It includes key details like the property’s price, size, features, and other relevant information. Listings can be found on multiple platforms, including real estate websites, brokerage databases, and multiple listing services (MLS).
Multiple Listing Service (MLS) for Real Estate Agents Brokers
The Multiple Listing Service (MLS) is a comprehensive database used by real estate agents, brokers, and prospective buyers to share information about properties that are on the market. It provides a centralized platform where real estate professionals can access and search for listings, view property details, and cooperate with other agents in buying or selling properties.
Seller Disclosure
This little document discloses all a seller’s knowledge about the condition of their property to the prospective buyers. It should include any recent updates, previous repairs, and any other work that might have been done on the home. It is like doing an ancestry test but for your future home!
Understanding real estate vocabulary is crucial for anyone entering the market. Remember, if you ever have questions or need assistance, don’t hesitate to reach out to Team Endrich. We are here to educate you on how to successfully navigate the housing market!
Conclusion From a Real Estate Agent
In conclusion, familiarizing yourself with key real estate terms is essential for both buyers and sellers to navigate the market with confidence. Understanding terms such as appraisal, comparative market analysis (CMA), covenants, conditions & restrictions (CC&Rs), closing costs, down payment, due diligence, earnest money, equity, escrow holder, foreclosure, home sale contingency, listing, multiple listing service (MLS), and seller disclosure can empower individuals to make informed decisions and negotiate effectively. By decoding the jargon and grasping the nuances of real estate terminology, buyers and sellers can engage in transactions with greater knowledge and understanding.
Remember, Team Endrich is always available to provide guidance and support throughout the process, ensuring a successful journey in the real estate market.
