So you’re thinking about buying a home – congratulations! You are embarking on a journey that many hail as one of the cornerstones of the American Dream.
However, as you start the process, you quickly realize that real estate is a whole other world. You start hearing words being used like “CMA” and “Escrow” and you’re like – WTF???
Before I started working in the Real Estate industry I was confused by all of the new terms I had to learn. It was like everyone was speaking a new language.
I’m not going to let you struggle as I did – I’m going to be your personal real estate translator.
21 REAL ESTATE TERMS THAT WILL TURN YOU FROM A REAL ESTATE NEWBIE TO A TOTAL REAL ESTATE BADASS
Table of Contents
- Real Estate
- Real Estate Agent
- Listing Agent / Selling Agent
- Buyer’s Agent
- Agency Contracts
- Short Sale
- Due Diligence
- Earnest Money
- Down Payment
- FHA Loan
- VA Loan
- Conventional Loan
- Closing & Closing Cost
When people think of Real Estate they are most likely envisioning a house.
However, Real Estate is so much more than a house. The term also refers to land. The most common types of real estate are residential, commercial, industrial, and land.
Real Estate Agent
A Real Estate Agent is a person who helps people buy, sell, manage, and invest in real estate.
A Realtor is a real estate agent with a higher standard of ethics.
The term Real Estate Agent and Realtor are often used interchangeably because people don’t know the difference. While, all Realtors are Real Estate Agents, not all Real Estate Agents are Realtors. If that’s a little confusing keep reading.
In order to practice real estate, you MUST have a license. However, you DO NOT have to become a Realtor.
Listing Agent / Selling Agent
The listing agent, also called the selling agent, is the agent representing the seller in the real estate transaction.
The buyer’s agent is the agent representing the buyer in the real estate transaction.
Agency contracts help establish the relationship between the real estate agent and the people who employ them as well as outline terms and conditions.
Here are five common types of agency contracts used in real estate transactions are:
- Listing Contract: Contract between the seller of a home and a real estate agent/realtor that outlines terms and conditions for selling a home.
- Buyer Agency Contract: Contract between a buyer looking to purchase real estate and a real estate agent/realtor that outlines expectations for both the buyer and the agent.
- Contract to Procure Tenant: Contract used when a property owner enlists the help of a real estate agent to locate a tenant for their property.
- Property Management Contract: Contract used when a property owner enlists the help of a real estate agent to locate a tenant for their property. This contract also outlines how the real estate agent will perform ongoing services connected with the operation of the rental property.
- Tenant Representation Contract: Contract used when a tenant wants to use a real estate agent to help them find a property to rent.
MLS – Multiple Listing Service
MLS stands for Multiple Listing Service. It is a big nationwide database Realtors use to exchange info on properties in their market.
The MLS is actually comprised of around 800 small MLSs. This means that it has access to hyper-local information about your housing market.
Nothing makes a realtor’s eyes roll harder than someone saying, “…but Zillow said my house is worth..”. The truth is, is that we don’t care what those other sites are saying. The MLS is one of the best resources for accurate up to date information for a property which is vital when it comes to crafting a selling price or creating an offer to present to a potential seller.
I had a client that started their search online which is great because she found a condo that she was interested in buying. Online the house stated the price was around $110,000. When I went into the MLS to do a little research the price was actually listed as $100,000, not $110,000.
In this situation, the change in price hadn’t updated on the online site she was using when she did her search. If my client at the time would not have been using my services and instead called the agent that was listing the property, he would have been under no obligation to tell her about the $10,000 reduction.
Foreclosed homes are also known as Real Estate Owned (REO) or bank-owned properties.
Foreclosures happen when someone defaults on the loan for their home. In this situation, the lender makes the decision to take back the property and put it up for sale to the public.
A short sale happens when someone is trying to sell their home but the amount they owe is more than what the house is worth.
In this instance, the lender has agreed to let them sell the house for the lower amount.
Like a foreclosure, the short sale process can be long and stressful. Make sure your agent has experience when dealing with short sales and foreclosures.
CMA – Comparative Market Analysis
CMA stands for Comparative Market Analysis. CMAs are done to help sellers know how to price the home and to help buyers figure out how much they should expect to pay for a home.
Real estate agents look for properties that have sold within the last 3-6 months that are of similar size, number of bedrooms, number of bathrooms, etc and then work out the averages to come up with a price for the home.
HOA – Home Owner’s Association
An HOA is made up of the people who live in your neighborhood. Some people love them and others hate them.
The purpose of the HOA is to make sure that the standards of the subdivision are being upheld by every homeowner.
They can govern things like what type of grass you can have in your yard, the type of fences you can put up, and so much more. They also maintain common amenities of the subdivision like playgrounds or pools.
HOAs have a fee that you pay monthly or yearly. When you are buying a home, make sure you know if there is an HOA and ask to see the HOA bylaws and guidelines.
You want to see what the HOA covers and allows in your neighborhood. For example, let’s say you raise chickens. If the HOA has a restriction against homeowners for that subdivision raising chickens, you will not be allowed to do it.
If you do not adhere to the rules and regulations, you will most likely be subjected to warnings and/or monetary fines. It’s easy to ignore these fines but you must take them seriously. An HOA has the authority to place a lien on your property which can hurt you later on when you try to sell your property.
A lien is a claim against a property for payment of a debt.
When you are buying a house you should get a title search done to uncover potential issues like liens against your property. A title company or real estate attorney can help you do the title search.
In NC we have what is known as a due diligence period and a due diligence fee (I’m not sure what other states have this).
The due diligence period is a specified amount of time in which the house is taken off the market so that buyers can do their inspections/research. During this time frame, the buyer has the right to opt-out of the contract for any reason.
There is a fee associated with the due diligence period and it is nonrefundable. While this fee is not required, it helps to show sellers that you are serious about the home and helps compensate them a little for taking the home off the market.
There is no set amount you have to give for the due diligence fee. If you are the buyer you are trying to give as little as possible and if you are the seller you want a reasonable amount to compensate you for taking your home off the market.
This is money that the buyer gives to the seller in good faith.
Earnest money shows that you are serious about buying the property. Unlike the due diligence fee, the earnest money deposit is refundable if the buyer decides not to go through with the transaction within a specified time period (the due diligence period).
The down payment is the amount of money you put down (give to the lender) upfront when purchasing a home. This money is held in escrow until you close on the property.
“Earnest money” and “down payment” are not the same thing and the terms can be a little confusing.
Remember, the earnest money is money that you give to the seller and the down payment is money paid to the lender as part of the loan.
Having an escrow means that a third party will hold monies in an account for you until a specified time.
The escrow account helps protect parties involved in a transaction because no one side has access to the money. It also ensures that the money needed for things like property taxes are available when needed.
FHA Loan – Federal Housing Administration Loan
This is a loan backed by the Federal Housing Administration. It is a popular type of loan because it allows people to buy or refinance a home with a low down payment and has flexible guidelines.
A government-backed loan for veterans or people serving in the military. This is a flexible type of loan with great guidelines like lower Annual Percentage Rates (APRs).
This type of loan is not government-backed. The requirements for this type of loan are a lot stricter and you will have to come to the table with a larger amount for your down payment.
However, the payment terms for Conventional loans tend to be a lot better than FHA so the trade-off may be worth it.
PMI – Private Mortgage Insurance
Private Mortgage Insurance (PMI) is insurance that lenders place on a mortgage.
It serves as protection for them in case you default on your loan. The amount of PMI you pay will depend on many factors such as your down payment amount.
Closing & Closing Cost
Closing is the last activity that happens in the home buying and selling process.
Buyers and sellers are given a settlement sheet at closing. The settlement sheet shows the costs (closing costs) associated with the sale of that home. Some of these costs may include but are not limited to the following:
- prorated property taxes
- lender’s fees
- appraisal cost
- homeowner’s insurance
You, my friend, are a Real Estate newbie no more
So there you have it – a list of the most commonly used real estate terms. Please keep in mind, that some of these definitions can vary from state to state. If you are confused about some of these terms or have questions about buying or selling a home, I encourage you to reach out to a local Real Estate Agent.