10 Real Estate Terms You Should Know
I know buying or selling a home can be stressful, which is why I never want clients worrying about real estate terms they don’t know or don’t fully understand. And even as a realtor, I know there are some terms that just seem muddy. To help you go into the housing market with a better understanding of the language, here are the 10 terms I get asked about most frequently. I hope this helps with your house hunt!
Buyer's Agent/Listing Agent
A 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.
The 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.
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. Legally, there can only be one backup offer.
Active with Contingency
Many buyers have to sell their current home in order to buy a new home. Sometimes, a buyer can negotiate on their new home with a seller, but in order for it to become pending, the buyer's current home must also go under contract. Active with Contingency means that the seller has come to an agreement with a buyer and a signed contract is in place. However, the home is not considered pending until the buyer's previous home is also under contract and a closing date has been set.
It’s also important to know that homes with an active with contingency description can still be shown and receive offers. In fact, if a more appealing offer is presented to the sellers, they can provide notice to the first buyers that they have 72 hours to proceed with closing or the sellers can work with the new buyers.
Back on the Market
Occasionally, a buyer and seller cannot agree to inspection repairs or a buyer's financing falls through. When this happens the buyer and seller sign a mutual release voiding the original contract and allowing the home to go back on the market to new buyers.
Seller Concessions/Closing Costs
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.
A buyer can ask the seller to pay a portion of their closing costs or sometimes all of them. Closing costs are an amount added on top of the buyer's down payment. For example, if the buyer is putting down $5,000 toward their mortgage, and their closing costs are $4,000, they would need to bring a cashier's check to closing for $9,000.
Earnest Money Deposit
An earnest money deposit (EMD), sometimes referred to as a “good faith deposit”, is the initial funds that a buyer is asked to put down once a seller accepts the buyer’s offer. It shows that the buyer is serious about buying, and that they are also willing to put their money where their mouth is. In our market we see EMD's range from $500 to $2,000.
As-Is
A property marketed in “as is” condition usually 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.
Property Data Period
Also known as buyer's remorse, this contingency was added to the Missouri Real Estate Contract in 2019. Since homes were selling so quickly, buyers were not able to spend time checking out school zoning, sex offender registries, covenant and restrictions, etc. before writing an offer in fear of missing out on the home. Once under contract, the buyer now has up to five calendar days to check everything surrounding the home that could not be fixed like in a general inspection.
HOA/COA/CC&R's
A homeowner’s association (HOA) or COA (Condo Owner Association) 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 annually 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.
Covenants, Conditions & Restrictions (CC&Rs) are limits and rules placed on a group of homes or condominium complex by a builder, developer, neighborhood association, or homeowners association. When living in a home or condominium that is restricted by CC&Rs, an owner gives up certain freedoms in order to be part of a shared community. For example, most condominium building associations have smoking restrictions, parking and noise level rules, aesthetic guidelines for paint color, height restrictions, and minimum and maximum square footage requirements. Sometimes buyers can get access to the documents before making an offer, but in most cases, buyers get a complete list of CC&Rs and community restrictions promptly after signing the sales contract.
Pre-Qualification versus Pre-Approval
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.
Getting pre-approved 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. The letter will usually indicate both the buyer’s estimated down payment along with the potential interest rate. Because it is much more thorough than a pre-qualification letter, most sellers prefer to see a pre-approval letter with an offer.
