Real estate agents need excellent communication skills. They must be able to understand and use real estate terminology correctly. But, some real estate agents won't be able to tell when you aren't familiar with a term, which can make your process tricky.
Real estate terms can be confusing, but understanding them is important. Reviewing the basics every once in a while will help you sharpen your skills and knowledge so you're prepared when you're ready to move forward. Here are some of the most common terms you'll encounter:
An adjustable-rate mortgage, or ARM, is a mortgage that has a fixed interest rate for a specified period and then resets at preset intervals. As a result, its interest rate may be higher or lower depending on the market when it resets. Although this type of loan allows borrowers to benefit from lower rates when they are available, it also exposes them to an increased risk that they will rise later.
An appraisal is an estimate of the value of a property. It is usually performed by a licensed professional appraiser, who inspects the property and makes their determination based on comparable sales in the area. Buyers typically pay for this estimate when purchasing a home; sellers usually do not have this done unless they try to sell their home quickly or for more than it is worth.
Amortization refers to paying off debt by making equal payments over time. For example, it commonly refers to paying off mortgages, usually amortized over 15 or 30 years. The prices are made up of both principal and interest.
An agent who represents the buyer in a real estate transaction and the buyer's agent helps the buyer find properties that match the buyer's search criteria, schedules and attends showings, negotiates on behalf of the buyer, and manages paperwork involved in purchasing a home. In most states, both the seller's and buyer's agents are compensated by the seller. Want to learn more about these terms? Find a local expert by filling out this form and starting your home buying journey with SetValue.
Closing is the final step in the home-buying process. When you're closing on a house, many documents are signed and exchanged, money is passed around, and then you get the keys to your brand new home. This process is called "settlement"; however, closing is a better term because it happens when all negotiations are settled between buyer and seller.
Closing costs are fees that you have to pay towards the closing of your property. They are one of the many costs incurred when buying a house or property. Depending on what was negotiated during the initial purchase agreement, closing costs may be paid by the buyer or the seller.
It is the portion of the purchase price that a buyer pays in cash and does not finance with a mortgage. It's typically expressed as a percentage of the purchase price (e.g., 20 percent down). A buyer putting less than 20 percent down may be required to pay private mortgage insurance, or PMI, which protects the lender against losses if the borrower defaults on the loan.
This is the difference between what your home is worth (fair market value) and what you still owe on your home loan. When you buy a house, you use a down payment to finance a portion of the purchase price, and your lender finances the rest. With each monthly fee, you pay back some of what you borrowed. As time goes on and your loan balance declines your equity increases.
The property deed is a legal document that states the property owner. It also says the new owner if it is sold and any liens on the property. Its purpose is to protect against disputes over who owns the property, who bought it, and when and what happens to it after the owner's death. The title is a broader term that encompasses all legal information relating to the ownership of a particular piece of land and any restrictions or liens on that land. In most cases, both terms are used interchangeably.
A method of holding valuable items (such as funds) in trust until an event occurs or a contingency has been met. For example, in real estate transactions, both sides of a transaction (buyers and sellers) put funds into an escrow account held by a neutral third party until the deal closes. All money put into escrow is returned to each party if a deal falls through.
Federal Housing Administration (FHA) mortgages are insured by the government and allow buyers to secure loans with as little as 3.5% down payments. In addition, FHA borrowers pay for mortgage insurance, which protects their lenders from losses if borrowers default on their loans. FHA mortgages typically have fixed interest rates and are available through most traditional lenders such as banks and credit unions. Check out this First-Time Homebuyer Programs article to learn more about FHA loans.
It is an estimate of how much money a buyer would pay for your home if they were searching for a property like yours on their own (without your help or advice) on the open market. The fair market value is determined by comparing it to other similar homes that have recently sold nearby, considering its location, lot size, square footage, age, condition, and amenities.
A fixed-rate mortgage is a type of home loan in which the interest rate remains the same throughout the loan term. In other words, your interest rate will not go up or down based on market conditions. A fixed-rate mortgage is a good option if you plan to stay in your home for more than a few years since it allows you to predict your monthly expenses and avoid any surprises.
A foreclosure occurs when a homeowner cannot make payments on their mortgage, and their lender repossesses their house to sell at auction to recover costs. Since foreclosures are typically sold at lower prices than their market value, they are often attractive to buyers looking for a deal on their next home.
A homeowner's association (HOA) is responsible for managing and maintaining common areas for a community of homes. These areas can include community parks, playgrounds, swimming pools, and other communal spaces. If you buy into a neighborhood with an HOA, you will be required to pay dues for these services.
A professional inspection is an examination of the home you intend to purchase. A home inspection aims to identify defects and determine the remaining life span of major systems, components, and materials in the property. Therefore, it would be best if you always got a home inspection done before buying any property to know exactly what you're getting into.
Internet Data Exchange is a real estate software system that allows agents working for the same broker to share listings. In addition, IDX enables an agent to search the multiple listing service (MLS) database, a database of all properties listed by members of the local multiple listing service. The MLS is managed by a private company and is only available to licensed real estate agents.
A listing may mean several things in real estate. It may refer to any property offered for sale, or it may refer specifically to properties listed with a particular brokerage and available for purchase through an MLS. Listings may also be referred to as inventory, which means properties currently available for purchase.
An MLS is a database that provides information on properties for sale or sold in an area. Every agent has access to this database and can use it to search for properties that fit their clients' criteria. This access is necessary because buyers often don't have the time to scour listings, and they may not know which areas they want to live in, so it's up to their agent to find the right fit.
An offer is essentially a proposal made by the buyer to purchase a home. It includes information such as the amount the buyer would like to spend on the property and other details about their finances, including pre-approval status and down payment amount. This document provides sellers with insights into how serious buyers are about purchasing their homes before negotiations begin between parties involved in transaction negotiations.
A process by which a lender reviews your financial situation to determine whether you are qualified for a home loan. The review considers income, credit history, debt-to-income ratio, and other factors that decide whether or not you'll be able to pay back a mortgage on time. Pre-qualification does not guarantee that you will be approved for a loan; it lets you know if you qualify based on your current situation.
When a lender pre-approves you for a mortgage, the lender has reviewed your credit reports, tax returns, employment history, and other relevant information to determine how much money to lend you for your home purchase. The lender then gives you this amount in writing and lets you know the loan's interest rate and basic terms. This is different from "pre-qualified," where you give the lender some information about your financial situation and then receive an estimate of how much money you are likely to be able to borrow.
A pre-approval is more reliable than a pre-qualification because it is based on actual documentation of assets and debts. Click this link to learn more about pre-approval
A sale of a house owned by someone who's died In probate sales, it may take months for the home to be ready for sale. It is because the executor of the estate (the person responsible for wrapping up the deceased's affairs) will have to get court approval to sell and may have to wait for heirs to agree on a price before it can sell the house.
"Realtor" is a legally protected term—if you want to use it, you have to be a member of the National Association of Realtors (NAR). This organization has rigorous requirements for its members, including ongoing ethics training and education. NAR also has an arbitration process that you can use if you feel that one of its members hasn't acted in your best interest. Check out this article to see the best websites To Find A Real Estate Agent.
The seller's disclosure is required by law in most states. The seller must disclose any material facts about the home that might affect its value. You should pay close attention to this document as a buyer, as some issues may be major red flags. For example, if a seller fails to disclose certain material defects, they could face legal action.
A real estate agent who represents the seller of a property. The seller's agent typically works for a brokerage (or for a real estate company) hired by the seller to list and sell the house. While the listing agent is legally bound to protect their client's best interests, they also want to get the home sold so they can get paid.
A sale in which the proceeds from selling the house fall short of what the owner still owes on the mortgage. If the lender agrees to accept less than the amount due on the debt, a short sale can be an alternative to foreclosure for homeowners unable to pay their mortgages.
A Trust Sale is a sale of real property where the seller is trusted rather than an individual. So, for example, if a person establishes trust and then grants their home to the faith, it can be sold as a Trust Sale when it comes time to sell the house. If you've ever seen one of those signs that say "Trust Sale" in front of a home for sale, this is what it means.
When buying a property, the buyer's title company will perform a Title Search. The purpose of the Title Search is to ensure that there are no "clouds on title." A cloud on title is anything that could potentially prevent you from owning the property outright. For example, it would include liens against the property, easements in favor of other properties, etc. The Title Search will reveal any clouds, and it will be up to both parties to resolve them before closing.
A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The program is for American veterans, military members currently serving in the U.S. military, reservists, and select surviving spouses (provided they do not remarry) and can be used to purchase single-family homes, condominiums, multi-unit properties, manufactured homes, and new construction. It offers advantages over other mortgages, including no down payment requirement and no monthly insurance premiums.
Real estate terms can be quite confusing but it's best to have the knowledge about these terms so that you can get comfortable with the home buying/selling process. If you know someone who’s interested in flipping a home and need minor upgrades to the interior or exterior, check out this quick guide on renovations to raise property value.
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