Real Estate Vocabulary
Real Estate has its own vocabulary, and sometimes agents and lenders use forget that most people don’t talk ‘real estate’ every day. Vivian Olkin understands that how intimidating it can be to feel like someone is speaking a different language, especially when you’re discussing something as important as buying or selling a home. Here’s a list of terms that are unfamiliar to lots of people, with definitions that hopefully will make things easier to understand. If you’re still stumped, don’t worry. Call Vivian and ask her for help!
Pre-Qualification The first step in buying a home is finding out how much you can afford by being ‘pre-qualified’ for a loan. When you are pre-qualified, you know how much money you’ll be able to borrow to buy a house. You’ll start by visiting a bank or other lending institution, and talking to a loan officer. He or she will ask you a lot of questions about your income, your debts, and things you already own. You’ll have to provide documentation for some of your answers, and the loan officer will run a check of your credit to verify things further.
After reviewing all your information, the loan officer will give you an estimate of how much money you can spend on buying a home. You’ll probably get a prequalification letter that you can show buyers and real estate agents so they will know that you are serious about purchasing.
There are online mortgage calculators that can give you an estimate of how much home you can afford, but there is no substitute for getting prequalified.
Real Estate Agent/REALTOR® - After being pre-qualified for a home, most people shop for a real estate agent. A real estate agent will help you find the home you will buy, looking at all the properties in the area – not just ones for sale by his or her own agency. When you find a house you like, your agent will help you submit an offer and go through all the other steps leading to closing.
Most people think that a real estate agent is the same thing as a REALTOR®, but that’s not the case. A real estate agent simply hold a license from their state to sell real estate. A REALTOR® is a member of the National Association of REALTORS®, and has a strict code of ethics that he or she must follow.
Making an Offer. After you decide on a home, your Realtor® will help you make an offer. The homeowner’s ‘asking price’ is what they want paid for their house, but you can offer less – or even more. Your offer consists of what you are willing to pay for the house, and any conditions that you place. (See below.) Sometimes, your ‘initial purchase offer’ is accepted. At other times, the seller will make a counter offer. Your agent bargains back and forth until an agreement is made – or until it is obvious that no agreement will be reached.
Earnest Money. When you offer to purchase a house, you usually also make a ‘deposit’ on the house – usually one percent. This is called earnest money, and it shows that you are truly interested in purchasing the house. The money is held ‘in escrow’, which means the REALTORS® are holding the money. If your offer goes through, the money is applied to your closing costs.
Very often, there are conditions to the offer you make. Here are some of the most common:
Concessions. These include things you want the seller to help pay for, like closing costs.
Conveyances. Any personal property that you want included in the sale – like appliances – are called conveyances.
Home Inspection Contingencies. You won’t have a home inspection until after your offer is accepted. If the inspection reveals major problems, home inspection contingencies give you room to negotiate – or reject the home altogether.
Under Contract. Once the seller finally accepts your offer, it becomes a contract. A contract will usually include the legal description of the property, your agreement about price, details about closing, and any further contingencies – such as home inspection or mortgage concerns.
Amortization – Paying your mortgage off. An amortization table shows – payment by payment – how much you still owe on your mortgage, how much of of the payment goes to the principal, and how much goes to interest. Here’s an example of an amortization table.
Appraisal – A statement of a home’s value. A professional appraiser will look at the the home’s condition and the prices of similar homes nearby. They take these and other things into consideration, and then assess how much the home is worth. An appraisal is often confused with an inspection, but they aren’t the same thing. An appraisal is about the home’s monetary value; the inspection is about the property’s condition.
Homeowners Insurance “Homeowners” is an insurance policy that will protect you after you own a home in case of fire, vandalism, some accidents (like burst pipes) and some natural causes. A lot of time homeowners insurance will also have other coverage included, like personal liability or theft away from home. Sometimes homeowners is called hazard insurance. Before they’ll loan you the money for your house, you’ll have to prove to your lending institution that you have homeowners insurance.
Closing – The official end of the sale, where you pay for the house, and leave with a set of keys. Unless you’re paying cash, you’ll sign all (and there are lots of them!) the mortgage papers at closing, and pay all the closing costs. Sometimes closings are held at the lending institution and sometimes at a lawyers office. There will be a representative from the seller at the closing, but usually the sellers are not there.
Closing costs – The extra services that you have to pay for when you buy a home. This could include homeowner’s insurance, the cost of credit reports, mortgage insurance courier fees, and appraisal fees. There are also lots of costs associated with the title – title search, title insurance, and title recording fees. By law, all closing costs must be listed on your HUD-1 settlement form, a document that is required to be filled out before your sale is finalized.
Absorption rate – The rate that houses sell in a given area during a certain time period. For example, let’s suppose there are 1,000 homes for sale in your hometown, and every month, 100 houses are sold. That means that if the pattern of 100 houses selling each month continues, it would take 10 months to exhaust the supply of houses.