The language of real estate and contracts can be intimidating at the beginning, and to be honest, us real estate agents sometimes forget that most people don’t speak the language like we do. Here I have outlined twenty terms that you may run into in your home-buying process.
Real Estate: Land and improvements (buildings and other structures). Also called Real Property.
REALTOR®: A REALTOR® is a member of a REALTOR® association. Generally, the word REALTOR® refers to a real estate agent who is bound by the morals, ethics and rules of their association.
Listing: A house for sale.
Multiple Listing Service(MLS): In it’s essence, an MLS is a group of realtors working with each other under a set of agreed upon rules and ethics. Usually when an agent uses the term MLS, they are referring to an online database which is where most of the property listings are posted when the seller is using a real estate agent.
Pre-approval: Once someone gets more serious about purchasing a house, they can get a real pre-approval letter from their lender. Their lender will run a credit check, and get a good number to the buyer so they can find out what price range they can actually purchase at.
Earnest Money Deposit: A sum of money submitted in a check or promissory note(IOU) to the agent representing the buyer when a buyer puts an offer in on a property for sale. An earnest money deposit is like any other deposit, it says that you (the buyer) are intending on purchasing the house, and you are willing to put up some of your own money to get the ball rolling. This money will be deposited into escrow once an offer has been accepted.
Mortgage: In it’s essence, a mortgage is a loan on a property, with the property in question being used as collateral.
Short Sale: A short sale is a type of “distressed” property where it is being sold for less than what is owed on it. For example: Someone buys a property and gets a loan on it for $100,000. If the market value of the property drops to $50,000, and they still owe $90,000 they are “short” on their mortgage. If they try to sell their house, they(and their agent) will have to negotiate with the bank to deal with the other $40,000 deficiency. These are complicated, and usually take far longer than a “happy sale,” but as a buyer with an agent, you should have nothing to worry about.
Foreclosure: A foreclosure is where someone has defaulted on their loan, and the bank has taken it back, and the property now becomes a “Real Estate Owned” or REO property.
Contingencies: Contingencies in real estate are things that are built into the purchase contract, that have to be carried out before the sale will be final. Examples of this are inspections, financing, and due diligence.
Appraisal: When you go to a bank and ask for a loan to purchase a property, they are going to want to make sure that property is worth what you are asking them to loan. The lender will send someone out to do an appraisal, which will give them that dollar amount.
PMI: Institutional lenders like to lend at 80%. That means that if you have a 5% down payment, the bank will be lending out 15% more than their comfort zone. They will sometimes require that the borrower have an additional insurance premium added to their loan payments. That insurance is called Private Mortgage Insurance.
Title: Title is really just another way to say that you own the property. If you hold title to a property, you own it.
Escrow: Escrow can be thought of as a third party who holds onto all the moneys and facilitates the terms of the contract. They are impartial to transaction, and make sure all of the T’s are crossed, and the I’s are dotted. The third party holds onto the funds until all obligations have been completed and once all obligations are completed, the home will change to the new owner and escrow is closed. Escrow also prepares all the documents (excluding the loan documents) for transitioning title from seller to buyer.
Closing Costs: This is a general term that describes all of the monetary costs of doing real estate. A few of these include prorated taxes, escrow fees, and title insurance. Talk to your real estate agent and lender about what is included in closing costs, and what you can expect as a dollar amount.
Due Diligence: A due diligence contingency in a contract allows the buyer to get information like repair costs, permit information, etc. If the buyer finds out that the costs will be prohibitive, they can back out of the contract inside that due diligence time frame without losing their earnest money.
Contract: A legal written agreement between two parties.
Commission: The money paid to the listing and selling agents as their compensation for bringing the buyer and seller together as well as working the deal and making sure all the paperwork is in order.
Assessment: Like an appraisal, but done by the county, to determine how much to charge in taxes.
Zoning: Zoning is a type of classification by the county or city to establish what is (and what is not) allowed on a given type of property. Types of zoning include (but are not limited to): Farm & Ranch, Residential, Commercial, Rural Residential, Industrial, etc.