The real estate process can be incredibly hard to navigate, even for experienced veterans. Beginners have their work cut out for them in understanding all of the rules, regulations, and best practices ahead. No matter which side of the home buying process you’re on, the best thing you can do is to educate yourself about the terms and vocabulary that come up. The better you understand these basics, the less likely you’ll have problems along the way
Here are 12 real estate terms you should know, whether you’re a buyer or seller on the open market or considering selling your house for cash to an investor.
Common Terms To Know When Selling Your Home In Texas
If you’re buying or selling a house on the open market, you’re almost certainly going to be dealing with real estate agents. But do you know there are different types? The buyer’s agent represents the party trying to buy the property. Meanwhile, the listing agent represents the party selling the property.
It is entirely possible that one or both sides will not work with an agent, but it’s not usually recommended unless you are an expert. There are so many aspects to a real estate transaction on the open market that require someone with the knowledge needed to navigate them. It’s also important to note that an agent should never represent both parties in a transaction as that presents a conflict of interest.
An appraisal is how you determine a piece of real estate’s value. Unbiased appraisals happen in almost every real estate transaction and will help to determine whether or not the final sale price is appropriate given the condition of the property and state of the housing market. If the appraisal varies wide enough from the sale price of the home, it can force the deal to be renegotiated or even canceled. While the buyer or buyer’s lender will almost always require an appraisal, a seller can pay for one as well in order to provide unbiased data.
If a seller thinks their property isn’t attractive enough to sell as-is, they might offer concessions to make the property feel more appealing to buyers. Concessions vary but often include loan discount points, closing cost help, deductions for necessary repairs, and insurance to cover any potential problems. A buyer may also make a request for concessions as part of the negotiation if they feel like they can get a better deal.
Whether it’s referred to as a purchase and sale contract or purchase contract, this is the document that outlines the terms of the sale for the property in question. Once the buyer and seller agree on the terms of sale, a property is considered “under contract.” Contracts are often dependant on an appraisal, inspection, and financing approval, amongst other things. Contracts can also be amended after the results of inspections or contingencies in order to appease both parties.
Closing costs are the name given to any fees paid at the completion of a real estate transaction. Both sides will usually need to pay closing costs, but it depends on the state, city, and county. Common closing costs include an application fee, escrow fee, FHA mortgage insurance premium, and origination fee. It’s not uncommon for closing costs to be part of the negotiation, especially in a buyer’s market. Once closing costs are paid, the property title is then transferred.
Every contract has contingency clauses. Contingencies are conditions that must be met in order for the sale to be completed. They may include a home appraisal, financial requirements, specific timeframes, and other buyer-related requirements. If contingencies are not met, the buyer may be able to opt-out of the sale without losing their earnest money deposit. The seller can also opt-out if the buyer fails to live up their contingency requirements.
When the two parties are under contract, the buyer will put down a deposit. This is known as earnest money. Specifics vary but it usually comes out to 1-to-3 percent of the sale price. Earnest money protects the seller in case of the buyer walking away although the contract is still valid. If the buyer backs out without cause, the seller gets to keep that money. If the seller doesn’t meet the contingencies in the contract, the buyer usually gets their money back.
Escrow is the name given to a third party who acts as an unbiased control on the transaction in order to ensure both parties remain accountable. This often includes holding onto financial deposits and contract documents until closing. Escrow ensures that everything that is supposed to happen in order to fulfill the contract does happen. Once the contracts are signed, escrow will disperse the funds and transfer the title or deed.
Both the seller and buyer have a good reason to get inspections. A licensed, unbiased inspector will visit the property and document the property’s condition. They will also make note of any necessary repairs needed to meet the contract requirements.
A buyer will do their own inspection as part of the contingencies in order to make sure the home is being delivered as promised. If they are working with a lender, they will require an inspection as well. The buyer can ask the seller to cover the costs of any repair needs found or ask the seller to reduce the price. They may also decide not to move forward and they will likely get their earnest money back.
When a buyer decides that they want to purchase a house or property, they make an offer on it. The offer can be at the price the seller asks but it doesn’t have to be. If they think they can get the house for less than asking price, they may make a lower offer. However, if there is a lot of competition, they may make a higher offer in order to beat out other buyers. If the seller accepts the offer, the house is under contract. It is the seller’s right to reject the offer without penalty beforehand.
Real Estate Investor
For many reasons, some sellers don’t want to list their property on the open market. It could be because the house comes with conditions that make a sale hard (financial problems, mold damage, hoarders living there). Or they might need to sell their home quickly due to a work relocation or lifestyle change.
A real estate investor, or direct home buyer, can purchase houses for cash without the need for inspections, agent commissions, or listing fees. They can also buy the house as-is, which means no need for repairs or renovations. They also often allow you to set the terms of how quickly the transaction takes place, sometimes as quickly as the same day.
Title & Title Insurance
The title is the document that provides evidence of the lawful owner of a property. Whoever’s name is on the title currently is the rightful owner of the house or property. Title insurance is what protects the owner of the property (as well as any lender on that property) from loss or damage that could come from the discovery of liens or defects. While most insurance protects against the unknown, title insurance protects against what may have happened in the past but was unknown to the current owner until now.