Real estate is a complex industry with its own unique vocabulary. If you’re thinking about buying or selling a home, it’s important to familiarize yourself with some of the most common real estate terms. This will help you understand the process and make informed decisions.
Now there are many terms to know in real estate, and a may forget a few, but I will try to list the basic or most common terms that are most frequently used.
Buyer’s Agent: Agent who represents the buyer in a real estate transaction
Listing Agent: Agent who represents the seller in a real estate transaction
Comps/CMA: Comps, also known as a Comparative Market Analysis (CMA), are similar properties that have recently sold in an area. Comps are used to determine the fair market value of a property.
Earnest Money/ Down payment: Earnest money is a deposit (like a promise) that is from the buyer made to the seller. The buyer is simply saying I have interest in this property, and this is my promise. Earnest money can be used with anything of value that has collateral for satisfaction purposes. You can use cash, jewelry, or anything the lender deems worthy. If the buyer backs out of the deal, you may surrender your earnest money deposit. A down payment is similar, the buyer promises to put down an amount toward the mortgage loan. Quick example, if you buy a $100k house, and want to put 20% down or $20k, you will have a mortgage loan of $80k.
Closing costs: Fees associated with the purchase or sale of a property. Closing costs typically include things like title insurance, appraisal fees, and recording fees.
Appraisal: An estimate of the fair market value of a property. Appraisals are typically required by lenders before they will approve a mortgage.
Home inspections: A professional inspection of a property to identify any potential problems. This is typically conducted by a licensed home inspector.
Contingencies: Conditions that must be met before a real estate transaction can be finalized. These can include things like a buyer obtaining financing, a home passing a home inspection, sellers being able to sell their home before they finalize on buying their next home and so on.
Cl0sing: This is the final step in a real estate transaction. The title transfers over from seller to buyer, and everyone involved in the process gets paid.
Property Disclosure: Seller discloses all known property defects to the buyer
HOA: The Homeowners Association (HOA) is a group of homeowners who are responsible for the maintenance and upkeep of common areas in a condominium or planned community.
Equity: Is the amount a homeowner has in a home. For example, if you bought a home worth $250k for $240k, you would have $10k in equity. See how that works?
Escrow: Think of this as the middle man. There is normally what is called an “Escrow Agent” who manages the money between the buyer and seller during a real estate transaction. This money held in escrow can only be withdrawn within the guidelines in the agreement.
MLS: Also know as Multiple Listing Service, this is a tool that Real Estate Agents use to help their clients. Agents use this to help their buyers search for homes, and list homes on here for their sellers.
DTI: This is Debt-to-Income ratio, also known as DTI. This is one of many measurements lenders use to deem a buyer worthy of a mortgage loan. For example, if you make $10k/month and have debt or expenses that total $3k/month, you have a 30% DTI. Most lenders will still lend to you up to about 35%, this is about the average. I’ve had a lender tell me before they would lend up to 40%. These numbers fluctuate with the market. Higher the DTI, higher the risk for the lender!
As I said earlier, I probably will forget some other basic terms, but do believe these are some of the basic terms that everyone should know. Real estate is very complex, and people that work in the real estate sphere spend a lot of time educating themselves.
I’ll leave you with a joke you can tell your friends or family.
Question: What did one ocean say to the other ocean?
Answer: It just waved
Alexander Kroening- REALTOR 