Your A-Z Glossary of Essential Real Estate Terms You Should Know
Buying or selling a home can be challenging, but add in a slew of insider’s lingo and it can appear even more so. For sellers, understanding real estate terminology will help inform conversations with your agent, while for buyers, it can give you a leg up when searching for a home and making an offer. Knowing some basic real estate terms can make the entire process smoother for all parties involved. Following is an A–Z glossary of essential real estate terms you should know.
Appraisal. Appraisals are used to determine a home’s market value. They are conducted by neutral third parties during a sale and are often required by lenders to ensure the mortgage amount is aligned with the sale price. Appraisals take into consideration many different factors, including the home’s condition, improvements, location, and more.
Assessed Value. This is the value of a home used to determine its property tax rate. It takes into consider the home and lot size, location, and other factors and uses an established formula to determine the tax rate.
Closing. Closing refers to the home stretch of a real estate agreement between a buyer and seller, leading to the transfer of ownership. Both parties agree on a closing date and see the deal through to its completion. During closing, the buyer will deposit their earnest money in an escrow account, a home inspection is performed, the buyer secures financing to purchase the home, and both parties pay their respective closing costs.
Closing Costs. These are the fees, taxes, insurance payments and other expenses involved in a sale. They may include fees for lenders or attorneys, transfer taxes, recording fees, mortgage insurance premiums. These costs are typically divvyed up between the buyer and seller depending on the agreement.
Comps. Short for “comparable properties,” comps are similar homes that have been recently sold in the area that are used to determine an accurate market value and a listing price.
Contingency. Contingencies dictate what must happen in a real estate transaction for the contract to become legally binding, giving the buyer or seller the right to back out of the contract if their conditions aren’t met. A property listed as “contingent” means that the seller has accepted an offer, but the deal still hinges on the buyer satisfying certain contingencies to continue. Once those contingencies have been met, the sale can go through as planned. There are a variety of contingencies that protect buyers and sellers against the bumps in the road along their journey of buying or selling a home.
Disclosures. Under California law, sellers are required to disclose certain details about a home. The specific disclosures are laid out in law and include information regarding potential hazards and any major defects in a property, among many others.
Escrow. Escrow refers to funds being held in a third-party account to pay for taxes, insurance and other expenses involved in the sale and purchase of a home. The term “in escrow” means the funds have been transferred to this account and are awaiting the close of the sale.
HOA Fees. Some homes are located in communities managed by a Homeowner’s Association, which is a private neighborhood association. Typically, these included gated communities, townhomes or condos. Many HOAs require residents to pay monthly or annual dues to fund shared amenities such as swimming pools, gyms, or private security. These fees should be considered when purchasing a home within such a community.
Inspection. A home inspection takes place during the sale, in which an inspector examines all of a home’s major functions, including the electrical system, plumbing, roof, HVAC, foundation and more. Pest inspections look for signs of infestation by wood-destroying pests such as termites.
MLS. Short for Multiple Listing Service, this is a database used by real estate professionals to provide data to one another regarding properties on the market. Most homes for sale are listed in the MLS, with the exception of “for sale by owner” homes and a few other properties that are sold privately.
Pending: When a home is listed as pending, it means the seller has accepted the buyer’s offer and the sale will most likely be finalized after a successful final inspection and the buyer securing financing. For sellers, reaching the pending stage means the finish line is within reach, but the home is still not officially off the market.
Rent Back. In a perfect world, buyers will sell their existing home at the same time they purchase their new home. But the timing doesn’t always work out. Sometimes, they haven’t yet closed on their new home. In this case, buyers can offer to “rent back” the home to the previous owners until they move.
Staging. Getting your home in great shape prior to listing it for sale will get a buyer top dollar. One way to do this is to stage it. This involves clearing out the clutter, freshening up the décor and cleaning it top-to-bottom. There are also professional companies that will stage a home for a fee.
Title. A home’s title represents the legal rights to a property. In other words, it indicates ownership. It is not a physical document but instead a legal concept. During the sale, these rights are transferred from one owner to the next and recorded with the county.
Title Insurance. This is a type of insurance that protects the buyer and lender in case the seller does not have full lawful ownership of the property.
Title Search. A title search is the process of searching through public records to ensure that the seller of a property has lawful ownership of it. A title search can uncover possible deficiencies or defects in ownership that could greatly impact a real estate transaction.
Under Contract. A home that’s listed as under contract is not as far along in the selling process as a home that’s pending. It means the seller has accepted a buyer’s offer, but there are certain contingencies that must be met before the transaction becomes final.
Zoning. Zoning refers to the allowable use for the property in question. The most common are residential, commercial, agricultural and industrial. Naturally, a home will be located in a residentially zoned area. But it’s also important to consider the zoning of the adjacent properties. Will you be driving past warehouses or factories to get home? Or will you be near farms or ranches? Single-family zones mean low-density residential neighborhoods, while multi-family zones mean apartment buildings. These are important considerations when choosing where to buy a home.
Questions? Your agent will happily explain this terminology to you to ensure your transaction goes off without a hitch.
Post courtesy, in part, of Windermere Real Estate