Most industries have their own particular set of jargon, allowing insiders to, for lack of a better phrase, speak their own language. And real estate is no different. For those who are new to the industry, or for those who are new to buying or selling a home, this real estate jargon can tack on added layers of confusion to an already confusing transaction.
For this reason, it’s important to make sure that you understand the most common real estate terminology, to not only educate yourself to help eliminate confusion but to also help ensure a smoother and easier real estate transaction.
Here’s a list of some common real estate terms that you should know…
An appraisal is a required part of the real estate transaction and is designed to estimate the total value of the property. During the sales process, the mortgage lender will send out an appraiser to inspect the property and give their professional opinion on what the property is worth. This key piece of information helps the lender decide if the property is worth the loan amount the potential buyer is requesting.
A buyer’s agent is a licensed real estate agent tasked with the job of finding buyers their dream home, as well as representing them and their interests at all points of the transaction. Typically, buyer’s agents earn a 2 to 3 percent commission on the sale, most often paid by the seller.
The closing is simply when the sale of the home is finalized. The closing date is set in advance, giving the buyer time to conduct their due diligence, including having the home inspected, allowing the lender to complete the underwriting process, and a home appraisal. During the closing, both parties typically finalize and sign all of the paperwork, and keys are given to the buyer.
Given that the closing is when the sale of the home becomes final, it comes as no surprise that closing costs are costs that you pay at closing. Typically, closing costs include taxes, the home appraisal, title search, loan fees and processing, and more.
Earnest money is essentially a deposit, paid by the buyer to the seller once his or her offer has been accepted. Usually, the earnest money is paid in a total of 1 to 3 percent of the contract price, and it is held by the escrow company. This money is designed to protect the seller, in case the buyer decides to walk away from the sale. Of course, the buyer can always get their money back if a contingency allows them to cancel the contract. Once the sale is finalized, the earnest money is most often applied to the down payment of the home.
Similar to a buyer’s agent, a listing agent simply represents the sellers’ interests during the transaction, helping to prepare the home for sale and marketing the property. Typically, listing agents earn a 2 to 3 percent commission on the sale, most often paid by the seller.
Multiple listing service
The multiple listing service, or MLS, is a database that allows both real estate agents and brokers to access and add information about all properties that are for sale in an area. When a home is listed for sale, it will be logged into the MLS by the listing agent. Buyer’s agents frequently use this service to see the properties that are available for sale at any given time, as well as to see what similar homes have recently sold for.
A loan pre-approval is simply a lender’s written guarantee to extend a loan up to a specified amount to a potential buyer. Having pre-approval for a loan can go a long way toward strengthening a buyer’s negotiating position with a seller.