Whether you are buying or selling real estate you are bound to come across words and terminology that you have not heard before, or you are unfamiliar with. Many real estate terms are universal, however there are certain words that might describe the same thing but are used in different situations. For example, title insurance, which protects your property against hidden liens or potential ownership issues will always be referred to as title insurance. However, a term like “closing,” which refers to the completion of a real estate transaction could also be called a “settlement” elsewhere in the country. Whenever you come across a word that you don’t understand it’s always a good idea to look it up, especially when it comes to a big financial investment like buying or selling real estate. You can easily look up the definition of a word online, ask your real estate agent to clarify what something means, or explore the real estate glossary that we have put together for you in this post. There are many words and terms to be included in a real estate glossary, but in this post, we’ll go over the top 10 phrases that you should understand.
Property Sold “As-Is”
When looking at properties for sale, you may come across descriptions that say the home is being sold “as-is.” This means that when the home is sold the buyer will receive the property exactly as it is, including any structural or cosmetic defects. The seller will not negotiate on price and will not offer concessions or credits for repairs necessary on the property. Buyers who look at properties that are listed “as-is” should still get a thorough home inspection by a qualified home inspector, because if anything major does pop up during the inspection it allows the buyer to back out of the sale if they need to.
Comparative Market Analysis (CMA)
The hardest part about selling a home is locking in the perfect price at which to list – you don’t want to go too high, but you also don’t want to list too low and leave money on the table. A comparative market analysis is a tool that a real estate agent will utilize to help a seller figure out how much your property is worth, and how much it will most likely sell for in comparison to other recently sold properties in the neighborhood. A comparative market analysis, commonly referred to as “comps,” will look at recently sold properties that are similar to your own home – they have to be comparable in square footage, amenities, features, upgrades, bedroom/bathroom mix and can’t be too far away from your own home. A CMA will also only look at recent sales no further back than six months in order to paint a clear picture of what the market looks like in your neighborhood. A CMA is also something that buyers will take a look at when evaluating properties for sale to make sure that they are not overpaying for a home if comparable properties have recently sold for less.
Earnest Money Deposit
The earnest money deposit is an amount of money that you put down, in addition to your down payment, that shows how serious you are about purchasing a property and gives the seller a commitment of your intent to buy. It can also be referred to as a good faith deposit. This deposit is meant to protect the seller in case the buyer backs out of the deal – it’s typically around one to three percent of the sales price and is held in an escrow account until the deal is complete. If all goes smoothly through the close of escrow, then the money is applied to the buyer’s down payment or closing costs.
Closing is the final stage of the real estate transaction – the common phrase you will hear is “close of escrow,” or “closing escrow.” The date is agreed upon when both the buyer and the seller go under contract on the home and when the closing date arrives, the property is legally transferred from the seller to the buyer.
Escrow is a part of the home buying process and it refers to the third party that holds something of value during the transaction. This is most often the earnest money deposit that the buyer submits as part of their commitment to purchasing the property. When the transaction comes to a close escrow will release all funds to the seller, which will include closing costs, down payment, earnest money deposit and any additional funds that were agreed upon by the buyer and seller. Escrow also plays an important role when it comes to paperwork that needs to be completed during any real estate transaction, including documents that need to be notarized.
Buying a home is a very big financial investment, and often times many buyers will seek or receive help from loved ones with the hefty upfront costs of buying a house including the down payment and closing costs. If a buyer receives a generous check from parents or a loved one that is meant to cover a portion of the money necessary to buy a house, they will be required to provide a gift letter. A gift letter states that the funds provided are a gift and there are no expectations for the money to be repaid. Lenders request this letter because they need to account for all money that is being contributed towards a purchase.
Loan Closing Costs
Closing costs can often come as an unpleasant surprise to a buyer, especially after forking over a hefty amount for a down payment. Closing costs include various fees for the services and expenses required to finalize a mortgage – closing costs are something you pay for when you purchase a home as well as if you choose to refinance. Closing costs are split between the buyer and seller and they can run between two and five percent of the loan amount. There is room for negotiation on some of the fees included in the closings costs and you may also have the option to fold these fees into your loan so you can finance them over time versus paying for them upfront.
A loan commitment shows that your lender has preapproved you for a mortgage based on your credit and income. This is a letter that most lenders will issue to verify your approved loan status and it can significantly help a buyer who is up against other buyers on a specific property. Making an offer on a property with a loan commitment shows the seller that they can take your offer seriously because you have the ability to complete the deal.
An off-market listing is a term that is used to define a property that is for sale, or has already been sold, without any public advertising. Off market properties can be exclusive high-end homes or it could be a home that needs to sell quickly. Some sellers see value in maintaining privacy when they look to sell their homes, and some people may see off market deals as very appealing because there won’t be as much competition on price. The best way to access off market listings is to work with a professional and experienced real estate agent who can tap into their network and professional relationships so they can identify these properties.
Private Mortgage Insurance (PMI)
Private mortgage insurance is a type of mortgage insurance for conventional loans that can increase the cost of a loan and is typically included in the total monthly payment. This type of insurance is typically required of homebuyers if they put down less than 20 percent of the home’s purchase price. This type of insurance protects the lender in case the homeowner defaults on the loan, and it also allows buyers to purchase a home even if they don’t have the required 20 percent down payment. The average PMI premium can range from .55 percent to 2.25 percent of the original loan amount, and this is strongly influenced by your credit score and loan to value ratio.
There are many other terms and words in the real estate industry that you may not be familiar with, especially if you have never purchased or sold real estate before. That’s why it is so important to work with a team of experts who can guide you through the process from start to finish, whether you are a first time buyer or a seasoned investor. Our team at Brazos County Realty boasts a wealth of knowledge and expertise in all areas of real estate including 1031 exchanges, finance, appraisals, inspections, contracts, marketing, bankruptcy and so much more. Please contact us today to learn more about our qualifications, services and to see how we can help make your real estate goals a reality.