Real estate terminology can feel like a foreign language at first. There are an abundance of terms that end up sounding like the other. When mortgage lenders, escrow officers, agents, and websites are all using these terms it can be frustrating to begin the process. To help alleviate the learning curve for beginners and provide a refresher for proclaimed experts, here is my recommendation of the top 15 real estate terms to know before you begin or continue your journey into real estate:
A very educated guess as to how much your property is worth. Most banks will not provide lending without an appraisal. The appraisal isn’t the same thing as an inspection: the appraiser looks for the value of the home; while the inspector is looking for any defects of the home. An appraisal can take a couple days to as long as a few weeks, and is usually paid for by the seller at closing.
After a foreclosure sale, the property becomes a part of the bank’s inventory and becomes owned by the bank. The bank is incentivized to make up on its losses and sell the home quickly, which accounts for an often discounted listing* price.
Fees associated with your home purchase that are paid at the closing of a real estate transaction (i.e., inspections, appraisals, homeowners’ insurance, underwriting fees, etc). Buyers typically pay 2-5% of the sales price in closing costs. Also, buyers can negotiate with sellers to determine who will pay closing costs.
Before a home goes on the market, I (your agent) conduct a study of current market values of homes comparable to yours. It helps you determine the market value of your home. Market value is what a willing buyer will pay for the home under current market conditions.
A condition that must be met before a contract is legally binding. (For example, a common contingency often says the contract is not binding until the buyers obtain a home inspection report from a qualified home inspector). At the end of the transaction, you will sign a document entitled “Receipt of Reports and Removal of Contingencies” which outlines all contingencies of the sale that were met or waived.
A written document where the title of the home is transferred from a party to another (the official contract version of handing over the keys).
7. Earnest Money:
A deposit made by the potential home buyer to show that s/he is serious about buying the house. It is typically held by escrow. Earnest money can be given back if the sale does not go through, or will be applied towards the closing costs/down payment upon closing. Usually ranges from $1000-$5000.
Technically, this means a neutral third party “to hold something of value” during an important transaction. Most tend to agree a home purchase/sale can be considered an important transaction. Essentially escrow is the middle wo/man that makes sure everyone gets what they signed up for. They ensure all portions of the sales contract are met prior to closing.
9. FSBO (For Sale By Owner):
Just what you think it means. Or maybe not. Either way that’s okay, that’s what this list is for. The homeowner is not using a hired real estate broker or brokerage to represent their them during listing their home, and during a potential transaction.
10. RMLS (Regional Multiple Listing Service):
RMLS is a branch of the Multiple Listing Service (MLS) in the greater Willamette Valley. MLS is not a magical, fictional term you hear only on HGTV. MLS is an organization that collects, compiles and distributes information about homes listed for sale by its members, who are real estate brokers. Membership isn’t open to the general public, but certain MLS data may be sold to real estate listings web sites. MLS branches are local or regional (i.e., RMLS) but not national. That’s why if you find a house on Zillow or Craigslist, give me a call and I’ll let you know what RMLS has to say about it.
The measure of how many months it would take for the current inventory of homes on the market to sell, given the recent history sales. For example, If there are 100 homes on the market and 20 homes are selling each month, there is a 5 month supply of homes for sale). This generally shows whether it is a buyer or seller’s market. A 6+ months supply is typically a buyer’s market; a less than 6 months supply is typically a seller’s market.
12. Pre-approval Letter:
Before you apply for a mortgage (or even start looking for a home), you should get a pre-approval letter from the bank. This will be an estimate of how much they’ll lend you. Most sellers will not accept an offer without a pre-approval letter. A mortgage lender will help guide you through this process. My trusted mortgage lender, Kevin, is who I always recommend to past and new clients. This letter will help you determine what you can afford, and ensures home sellers that you will be able to get a loan when needed.
A report that shows the ownership of a specific parcel of land. It documents ownership, vesting, and details regarding anything recorded against the home, such as liens, encroachments, or easements. It is performed before issuing a title insurance policy. It is a safeguard to attempt to alleviate any potential headaches years down the road.
14. Promissory Note:
A written promise to pay or repay a specified sum of money at a stated time, or on demand, to a specific person. Most typically associated with payment of Earnest Money in regards to real estate.
The legal ownership and the right to use a piece of property. If you are looking to buy, you want this. If you want to sell, you’re looking to give this away.
* “Listing price” is not to be confused with “sales price”. Listing price is how much a seller offers a home for when on the market. Sales price is the price agreed to by the seller and buyer through a sales agreement. The sales price can end up being less than, equal to, or even more than the listing price.
If you have any questions, need any additional definitions, or are interested in buying/selling/investing real estate, contact me below: