Real Estate Terms You Should Know When Buying or Selling A Home: Extended Addition
Real estate is full of confusing vernacular that can be overwhelming in an already stressful process. Whether you’re buying or selling a home, it’s important you’re up to date on the most used real estate terminology.
As promised, we have extended our list of important real estate terms that you should familiarize yourself with to help you better understand the process of buying or selling a home in Panama City, Panama City Beach, 30a and beyond!
General Real Estate Terms
- As-is indicates that the seller is unwilling to perform most if not all repairs. It could also mean that it is priced “as is”, which is typically lower than market pricing in the area.
- Buyer’s Agent, also known as a selling agent, is a licensed real estate professional whose job is to locate a buyer’s next property, represent their interests by negotiating on behalf of that buyer to obtain the best price and purchasing scenario for that buyer as possible. This agent is a fiduciary for the buyer.
- Listing Agent, also known as the seller’s agent, is a licensed real estate professional whose job is to market the seller’s property, and to represent the seller’s best interest by negotiating on behalf of the seller to secure the best price and selling scenario as possible. This agent is a fiduciary for the seller.
- Closing is when the home sale is considered final, which typically includes all parties’ signatures on all required documents, all monies conveyed, and when a lender is involved, with full lender’s approval.
- Closing Costs are an assortment of fees, including fees charged by: a lender, the title company, attorneys, insurance companies, taxing authorities, homeowner’s associations, real estate agents, and other closing settlement related companies. These closing costs are typically paid at the time of closing a real estate transaction.
- Days on market (DOM) is defined as the number of days from the date on which the property is listed for sale on the local real estate brokers’ multiple listing service (MLS) to the date when the seller has signed a contract for the sale of the property with the buyer. A related metric is the average DOM for homes sold in a market during a specified period. A low average DOM indicates a strong market that favors sellers. A high average DOM signals a weak market that favors buyers. Seasonality can also be a factor.
- A Due Diligence period of time might be available in the purchase agreement, which is a time frame provided to a buyer to fully examine a property, often by hiring experts to inspect the property, perform tests, etc., so that a buyer may decide on how to proceed. A buyer might also be afforded an opportunity to renegotiate the contract based on their findings or possibly even to terminate within a specified time period, in order to not be considered in default of the contract. Due diligence allows a buyer to fully understand what they are buying.
- An Escrow Holder is the agent and depositary (impartial third-party) who collects the money, written instruments, documents, personal property, or other things of value to be held until the happening of specified events or the performance of described conditions, usually set forth in mutual, written instructions from the parties.
- A Homeowner’s Association (HOA) is a private association that manages a planned community or condominium. When you purchase a property that is managed by an HOA, you agree to abide by the HOA’s rules and pay its monthly or annual HOA dues. If you fail to pay and/or comply, they often have the ability to file a lien against the property and/or foreclose on the property.
- A Multiple Listing Service or MLS is a database that allows real estate agent and broker members to access and add information about properties for sale in an area. When a home is listed for sale, it gets logged into the local MLS by a listing agent. Buyer’s agents often check the MLS to see what’s on the market and what similar homes have sold for. According to Inman.com, there are over 600 MLS organizations in the United States.
- An actively licensed real estate agent and REALTOR® are often used interchangeably, although not every real estate agent is a REALTOR®. A REALTOR® is a member of the National Association of REALTORS® (NAR). A REALTOR® promises to uphold the Code of Ethics of the association and to hold each other accountable for when serving the public, customers, clients and each other, with a high standard of practice and care.
Listing & Property Information
- A Conventional Sale is when the property is owned outright (has no mortgage remaining) or the owner owes less on their mortgage than what the market indicates the owner could sell their property for.
- Short Sale is when the property is being sold for less than the debt secured by the property. Short sales will require the approval of the seller’s lender(s) as the proceeds of the sale will be just “short” of the amount owed; most lenders’ processes of approving short sales are long and drawn out, requiring more time to close than a traditional sale.
- Probate Sale happens when a homeowner dies without writing a will or leaving a property to someone. In such situations, the probate court would authorize an estate attorney, or other representative, to hire a real estate agent to sell the home.
- Real-Estate Owned (REO) is a designation given to properties which are owned by a lender due to an unsuccessful foreclosure sale at auction. REO properties can sometimes present an opportunity for a buyer to be purchased for below market value as most banks would prefer to reinvest the proceeds, rather than waste time marketing the property for an extended period.
- Land Lease – Traditionally, when you purchase a home, you own the home and the land the property is built on. There are some circumstances that involve a land lease, which means you would own the home while paying rent to the landowner for the land.
- Rent-back, or leaseback, refers to an arrangement whereby the buyer, who is now the new homeowner, agrees to allow the seller, the now-tenant, to stay in the house beyond the close of escrow. The terms are negotiated prior to the situation occurring and will often involve a lease deposit, a daily rental rate, and a length of time allowable.
- A Trust Sale means that the home is being sold by a trustee of a living trust – and not a private party. More often than not this is because the original homeowner has passed away, or has placed their assets in a living trust. The trustee may not be as emotionally attached to the property as a traditional owner, which could translate to them accepting a less attractive offer as the trustee may prefer to offload the property.
- Tenancy In Common describes a type of joint ownership of a property, whether a single family property or a commercial building. The tenants in common all own the property, but in different ratios.
Financial & Documentation
- Adjustable-Rate Mortgage (ARM) interest rates can change after an initial fixed rate period as they adjust based on the interest rate index the ARM is tied to (e.g., LIBOR, COFI, etc.).
- Debt-to-income, or DTI, ratio is a number used by mortgage lenders which is determined by the total of your debt expenses, plus your monthly housing payment, divided by your gross monthly income and multiplied by 100. This helps lenders determine affordability based on their available loan programs and allows them to estimate how much you can afford to pay monthly for a mortgage.
- Equity is the investment a homeowner has in their home. To calculate equity, take the market value of the home and subtract any mortgages or liens against the property. The amount leftover is the amount of equity you have in the home.
- Fixed-Rate Mortgages, your interest rate stays the same for the duration of the loan. They are often available as 10, 15, 20 & 30-year loans.
- Purchase and Sale Agreement (PSA) is commonly referred to a written contract between the buyer and seller, which outlines the terms of the parties to sell and purchase real property.
- A Seller’s Disclosure is a disclosure by the seller of information about the property, or which could affect a buyer’s decision to purchase the property, all of which to the best of the seller’s knowledge.
- FHA loans are part of a group of loans that are insured by the federal government. This means that instead of actually lending money, the FHA insures banks and private lenders that they will cover losses they might incur in the event that the borrower does not repay the loan in full or timely.
- Hard money loans are a way to borrow without using traditional lenders. Hard money lenders finance the loan based on the property in question, not on your credit score, and typically require a large down payment and short repayment schedule.
- Getting a Mortgage Pre-approval Letter is important because it gives home buyers an idea of what they can afford. A mortgage pre-approval letter is issued by the lender and identifies the terms, loan type and loan amount the buyer qualifies for after checking the buyer’s debt-to-income ratios along with cash on hand and credit history.
- Pre-approval requires home buyers to fill out an application that allows a lender to determine their financial situation, including their debt-to-income ratio, ability to repay and credit-worthiness. Once this is in hand, the lender can give the buyer a letter stating the exact loan amount they have been pre-approved for along with the total sales price they are approved for.
- A Preliminary Report reveals any issues with a title that need to be dealt with by the seller in order to deliver a clear title. It gives details such as ownership history, liens, and easements. The title company gathers this report by searching existing property records at the county recorder’s office.
- A Pre-qualification is a lender’ estimate of the amount a home buyer can expect to be approved for during the loan process. Getting pre-qualified is a quick assessment by a lender of the buyer’s financial situation based solely off of what a buyer tells a lender, and not based on any proof or verifications.
- A VA loan is a loan guaranteed by the government (Department of Veteran Affairs) and available to the military, active and retired, and even for some eligible spouses, at low-to-no-down payment scenarios with competitive rates and fees.
Offers & Contingencies
- Appraisal – required to gather the estimated value of a piece of real estate. During the home sale, the mortgage lender sends out an appraiser to get a professional opinion of the value of the property. This helps the lender decide if the property is worth the amount of the loan the potential buyer is seeking.
- An Appraisal Contingency is a clause that allows a buyer to dissolve a purchase agreement if a home’s appraised value is less than the sale price. An appraiser hired by the buyer’s lender evaluates the value of the home to ensure that the loan is secured by an appropriate home value. Lenders want to ensure they are not “over-paying” for a property.
- Blind Offer – When a buyer makes an offer on a property they haven’t seen, even when it was possible to see it, that offer is considered a “blind offer”. It is most commonly used in a highly competitive area and/or circumstance and used as an attempt to be first and win quickly.
- Backup Offer – When a buyer is interested in purchasing a property that is already under contract with someone else, that buyer has an opportunity to submit a “backup offer”, in case the first transaction falls apart. A backup offer must still be negotiated and any monies, such as earnest money, submitted, to confirm it is the next offer in line. There can only be one backup offer legally, as you cannot have a backup to the backup.
- A Loan Contingency is a clause or addendum (also known as a mortgage contingency) in an offer contract that allows a buyer to back out of a deal and keep their deposit if they are unable to secure a mortgage with specified terms during a fixed period of time.
- A Home Sale Contingency is for a buyer to indicate to a seller that part of their condition to purchase the seller’s property relies on the buyer’s ability to finalize a close on their current property. This is often negotiated with a clause in a contract or with an addendum to a contract. An example of how such a contingency can be used would be if a buyer needs to sell their property in order to have the down payment required on the purchase of the new property, or would rather use their sale proceeds instead of their savings to make the down payment.
- An Inspection happens when buyers pay a licensed professional inspector to visit the home and prepare a report on its condition and any needed repairs. The inspection often happens as part of the due diligence period, so buyers can fully assess if they want to buy a particular home as is, or ask the seller to either complete or pay for certain repairs.
- Seller Concession – Sellers may offer concessions to incentivize buyers to purchase the home, or sweeten the deal.
- A Title Search examines public records for the history of the home, including sales, purchases, tax, and other types of liens.
- Offer / Counter Offer – Buyers make a formal offer on the home they want to purchase. The offer can be the full list price, or what you and your agent deem a fair market value. The buyer’s agent puts the offer in writing, asks you to sign it, and then submits it to the seller’s agent. The seller might immediately accept it, in which case it becomes the parties’ purchase contract, or may make what’s known as a counter offer.
Real Estate is an ever-growing and changing industry! Our team at Coldwell Banker Carroll Realty has the most up-to-date information to better serve you no matter if you are in the process of buying or selling property. Our local agents will make sure you are in the know when buying or selling a home with us. We have experienced real estate professionals throughout 30a, Panama City, and Panama City Beach ready to help! Contact any of our Coldwell Banker Carroll Realty offices to get started today.