When you go through a pre-licensing course, you'll learn at least 3 times the number of terms shown here. However, these are the terms you'll be using in your day-to-day practice:
A
This means the seller of the home has received an offer from a potential buyer. However, there are certain contingencies that need to be met before the sale can be finalized. A purchase contract may include contingencies — such as a buyer’s contingency for a property inspection and negotiating any necessary repairs with the seller before closing. If any of these contingencies are not met, the contract will be null and void, and there may or may not be penalties assessed. Most of the time, the contingencies within a contract can be worked through without any issues. But there are times when a buyer will back out of a deal because an agreement cannot be reached. Once all of the contingencies have been removed and the active contingent stage is completed, the property will show a “pending” status. If a buyer is interested in an “active contingent” home, continue to check back often to see if the status has changed. If you see that the “active contingent” status falls off and the home is not pending sale, this will open the door for the client to place an offer.
An addendum is an additional document that gets added to the purchase and sale agreement. The document will include any additional information or requests that the buyer did not put into the original purchase and sale agreement. The language in the addendum has the ability to override the original terms of the agreement. For this reason, any addendums that are attached can be very powerful. Adding an addendum to a contract is often preferred to other methods, such as striking out clauses within the contract.
An adjustable-rate mortgage is a mortgage that does not have a fixed interest rate. The rate changes throughout the lifetime of a loan based on the movements in an index rate. This type of mortgage usually offers a lower initial interest rate compared to fixed-rate loans.
Amortization is the schedule of a homeowner’s monthly mortgage loan payments. An amortization schedule shows you how much of their monthly mortgage payment goes to interest and how much to principal. Near the beginning of a loan’s term, most of the monthly payment will be applied to the interest and a smaller portion to the principal balance. As the homeowner continues to make payments, the monthly amount going toward interest will decrease and a greater share of the payment will be put towards the mortgage balance.
An appraisal is the estimation of a home’s current market value. A licensed appraiser completes this estimation, which is calculated by comparing the recent sales of homes in the area as to the property that is being appraised. This is required by mortgage lenders to be sure that the money they are lending to a new homeowner or a current homeowner is a fair amount for the home. The lenders want to be sure that the buyers are not overpaying for the property. This is to protect the lender. If the borrower stops making payments on the home and the lender needs to sell it, the lender wants to be sure it can recuperate the amount owed on the loan.
‘As is’ or ‘where is’
When a property is sold “as is” or “where is,” it means the sellers don’t want to perform any repairs on the home prior to closing. There’s no guarantee from the seller that everything is in working condition, and thus, a buyer who purchases a home “as is” is responsible for fixing any problems the home may have or any repairs that may be needed.
B
Back office
Accounting, financial and legal business operations required of brokers to process and distribute commissions, delegate operating funds and generally keep an office running. Back-office solutions are often a part of transaction management products or sold stand-alone.
Blind offer
Though not typically advisable, some homebuyers will purchase a property sight unseen. Known as a blind offer, these types of deals are more popular amongst buyers seeking to flip homes as a business venture.
Buyer concessions
Concessions are benefits or discounted offers by the buyer to help sell a home and close a deal. Usually specified during negotiations, concessions can include covering the cost of new appliances in a home, moving expenses and any repairs needed. Concessions can impact the selling price of a home, so oftentimes, appraisers take concessions into consideration when evaluating the home and comparable properties in the area.
C
Cancellation of contract
According to the terms of the initial contract, the buyer or seller may have opportunities to cancel it. Cancelation can happen when a buyer fails to secure financing for the purchase, or when an inspection turns up flaws that the seller is unwilling to address. Typically the buyer has more opportunities to back out than the seller, but may lose their earnest money or option fee in the process.
Comparative market analysis
A comparative market analysis (CMA) is used by real estate agents to estimate the value of a property by comparing and evaluating the property to similar ones that have recently sold in the same area. CMA is one of the cornerstones of pricing a property well, or making a competitive offer. Agents should familiarize themselves with the various search parameters that can help find similar properties, from number of bedrooms and bathrooms to the home’s square footage, age and more.
A contingency is a clause in a formal real estate contract that states there are certain conditions that must be met, by either the buyer or the seller, in order to continue to the next step in the contract. There are contingencies in almost every real estate contract. They are there to protect the buyer and the seller. If the contingencies are not met, there might be a breach in the contract, and the transaction could fail to close. One of the most important types is a financing contingency. This type of contingency ensures the buyer is able to secure the needed mortgage within a reasonable time period before closing. Contingencies can also be tied to the results of the home inspection, or the timely sale of the buyer’s current home.
Conversion
Conversion is a term for turning a lead into a client. Marketing software products, vendor-provided drip campaigns, CRM funnel structures and all forms of paid lead generation systems should be measured largely by conversion rates. Conversion's second meaning is illegally converting trust funds to personal funds.
Counter offer
When a buyer’s offer doesn’t live up to a seller’s expectations, the seller can submit a counteroffer. This typically amounts to a rejection of the original offer. Sellers who do this put the original offer at risk, and give the buyer a chance to walk away without going under contract. If the buyer accepts a counteroffer and makes the up-front payments required, both parties are under contract.
D
When you are transferring the ownership of a home, whether through a home purchase or an inheritance, you will need a deed. This is the legal document that transfers the property ownership from one person to another. The deed to a home is also known as a title and is the written proof of who owns the home. The homebuyer signs the document on the day of closing. Once it has been signed and the deal is completed, the new homebuyer will receive a copy and the original copy will be filed with the appropriate county offices.
A “default” occurs when a borrower does not make his or her mortgage loan payment and falls behind. When this happens, he or she risks the home heading into the foreclosure process. Usually, the foreclosure process is started within thirty days after the due date is not met. When a mortgage loan goes into default, the agency that is the loan holder has the option of taking over the property.
Depreciation is defined as a decrease in the value of a property over time. While the main driver of depreciation is usually a sustained downturn in home prices, other factors can also play a role, such as the amount of wear and tear on the home and any changes in the neighborhood. At the end of the day, the home is only as valuable as the price sellers will pay for when the homeowner is ready to sell.
Depending on where the home is located, the seller may have to disclose various known issues with the property. These can range from damage or recent repairs to roofing or pipes, to known local hazards such as earthquakes or fires.
A down payment is the amount of money that a buyer has saved to help fund the purchase of a home. This amount is usually given as a percentage of the total of the home’s purchase price. For example, a common down payment amount is 20 percent, which means the buyer will be paying 20 percent of the total purchase price upfront. The remainder of the purchase price over and above the down payment is typically covered through a mortgage loan.
E
Earnest money deposit (EMD)
The earnest money deposit is a portion of the sales price that is typically held in escrow until buyers complete a purchase transaction or cancel a contract. Depending on the reason and timing for backing out of a contract, the buyer may lose this earnest money amount, and could also be the target of a legal dispute. Buyers write contingencies into their offers to maintain their right to back out of the deal while protecting their earnest money.
An easement is defined as someone’s right to use a piece of land — someone who is not the owner of the land. There are many easements that can affect the value of land, but oftentimes there is nothing a homeowner can do about them. An easement is usually put into place to serve a purpose and is limited to this particular type of use only — such as for utility companies to access underground infrastructure. Easements are why it is important for homebuyers to order a land survey. This survey will let them know if there are any easements that are associated with the property they are purchasing.
When you own a home or you are preparing to purchase a home, you do not want anyone to have their personal property on what is supposed to be your property. But boundary issues happen, and they can be ugly. There is a term for this battle of land: “encroachment.” An encroachment happens when a fence or another piece of your neighbor’s property crosses the property lines. Other examples of encroachments could involve trees, parts of a building, fencing or any other fixtures located on both pieces of property.
Equity is the market value of real property, minus the amount of any liens — including mortgages — that may exist against the property. For a client who has $280,000 in mortgage debt against a home that could sell for $400,000 on the market, their equity in the home is generally the difference between the two amounts, or $120,000.
Escalation clause
An escalation clause, oftentimes referred to as an escalator, is a clause in a real estate contract that lets homebuyers increase their offer by a pre-determined amount over other offers in case the seller receives another offer at a higher price point. Escalation clauses are typically reserved for when a buyer is confident there will be multiple offers or if the buyer expects to pay an increased price for the property.
Escrow is a term that homebuyers, sellers and real estate agents should be very familiar with and have a complete understanding of before buying or selling a home. Escrow is a term that refers to a third party hired to handle the property transaction, the exchange of money and any related documents. Escrow comes into play once both parties have reached a mutual agreement or offer. The escrow officer handles the transfer of the buyer’s loan documents and property taxes, as well as working with the lender for the buyer to be sure that the title does not have any liens on it before the transfer of ownership is completed. “Being in escrow” is a legal procedure that is used when real property requires a transfer of title. An escrow account is opened by the listing agent when the sellers of the property and the buyers of the property have come to an agreement on the selling price, the terms and any other contingencies that they may have and are ready to close the deal. The parties on both sides will sign all appropriate documents, and then escrow is ready to be opened. The escrow officer will order a title report from a title company. This step ensures that there are no outstanding liens against the property. Outstanding liens could hold up the closing procedures.
Expired Listing
Expired listings are properties that were on the market but failed to sell before the listing's expiration date. Agents can get expired listing leads by identifying or purchasing them and then contacting them directly or through email, text, and direct mail lead nurturing campaigns and advertising
F
“Fiduciary” is a term that refers to a legal relationship that is confidential between two parties. This relationship gives one party the right to act and make important decisions for the other party. In the world of real estate, the real estate agent and his or her clients (buyers or sellers) participate in a fiduciary relationship. The two parties enter into a signed agreement in which the client puts trust in the real estate agent to work with their best interests in mind. The duties that are required in a fiduciary relationship will vary from state to state, but all require confidentiality. The real estate agent’s responsibility is to protect the privacy of the client and to keep all of the client’s information confidential. Throughout the entire process, including negotiations and closing, the real estate agent should keep all of a client’s information (personal and financial) private.
One way to sell a home is “For Sale By Owner” (FSBO). This means that a real estate agent will not be involved in the sales process. The seller of the home has decided not to involve a real estate agent and will handle the transaction completely by his or herself. The owner of the home will be involved in every part of the process, from showing the house to handling the negotiations. Usually sellers decide to do this because of the potential to save money. But many who try to list a FSBO home end up hiring an agent to complete the transaction.
Foreclosure is the legal process by which the right of homeownership is transferred from the person or persons who occupy the home to the bank or lender that holds the mortgage loan. The foreclosure process will usually begin when homeowners stop making payments on mortgage loans. Lenders will begin the foreclosure process after two or three months of missed payments. If the homeowner receives the notice of default but the owner does not contact the lender, the lender will proceed with further action. The homeowner will receive notice that he or she will have 90 days to bring the outstanding balance current. During those 90 days, if the balance is cleared, the lender will stop all actions of a foreclosure and the property will remain the property of the owner. However, if the owner does not pay the outstanding balance within the designated time period, the property will be auctioned.
Funnel
The process of taking a person from prospect to formal client, usually involving a series of interactions that collect an increasing amount of personal information and increased permission to deliver marketing messages. Usually starts with an email newsletter sign-up and ends with formal buyer or listing agreements.
I
When you receive a loan of any kind, it is more than likely you will pay interest. The term “interest” can be defined as the cost of borrowing money and is usually expressed as a yearly percentage that is paid as part of your monthly loan payment. Mortgage loans come with an interest rate. Interest rates change on a daily basis depending on what the current market looks like. However, once a borrower has “locked in” an interest rate on a fixed-rate mortgage loan, that interest rate will not change. It will remain the same for the entire length of the loan.
L
Leaseback
If the seller needs additional time to get their affairs in order before moving, they can ask for a leaseback in the buyer’s offer. This can allow the transaction to close quickly — even before the seller is ready to move. It also allows the seller to use money from the first transaction on their next home. Eventually the seller will have to move out according to the terms outlined in the contract.
When there’s a “lien” on a home, that means the home is being held as collateral until a certain debt is paid. The most common types of lienholders are the mortgage companies, but other examples can include utility companies, or even contractors. Basically, if the borrower owes money to anyone, that person or company can file a lien against the property. When it comes to selling a property that has a lien or liens placed against it, the seller and the purchaser will find that it is next to impossible to complete the transaction until the liens have been cleared. However, there are some situations — such as the homeowner not paying their mortgage or other debts — where the lienholder will ask for the sale of the property in order to collect the money that is owed.
M
The letters “MLS” stand for “multiple listing service.” This is a service that is either local or regional that gathers real estate listings — homes that are for sale. The MLS will have detailed information on it that brokers and agents can access online. There are many different searches that can be completed on the MLS. These searches can be customized — you can search by any given ZIP code, by using a certain distance radius from a location that you enter, by street name, subdivision name, property size and more.
P
When a home is listed as “pending,” it means that there is a closing date set and that all contingencies have been met or waived. At this time, the lender and the escrow company are busy working with the loan and title documents to be sure that everything will be ready by the closing date. The seller has not sold the property until it has closed and the deed has been recorded. Sometimes, the original buyer will encounter an emergency and will need to back out of the contract. This leaves the door open for a new buyer to walk through.
“Per diem” is a Latin term that means “per day.” When someone enters into a contract on a home, there is a date entered into the contract, which is known as a closing date. Per diem charges may occur if the loan is not approved for some reason by the date that the loan was scheduled to be completed. During closing, these charges will be payable to the lender and will appear on the Closing Disclosure.
Planned unit developments are housing developments that are not subject to the standard zoning requirements, but instead work with the local government to develop criteria that will determine common areas, private areas and building guidelines. The homeowner community will be operated by an association and will be designed to offer certain amenities and features that are not typically found in a traditional type of subdivision. There will generally be association dues assessed to help cover the amenities, maintenance and any other fees associated with living in a PUD.
R
Off-Market Listing (Pocket Listing)
· A pocket listing is an off-market listing, or a property marketed to potential buyers through private channels rather than on the multiple listing service (MLS). These non-public listings are therefore kept inside a metaphorical “pocket.”
The term “REO” stands for “real estate-owned home” and commonly grouped together with “bank owned.” These are homes that have been foreclosed on by banks or lenders. The banks or lenders now own and wish to sell the home. Once the home has gone through the foreclosure process, the bank has two options for selling it. The first option is to put the home on the market with a sign that states “bank-owned.” This will alert potential buyers that the owner is the bank, and it wants to sell the home sooner rather than later. If the home fails to sell through this method, the bank may decide to put it up for auction. REO homes can sometimes be purchased for less than their typical market value.
Homeowners with a mortgage loan have the option to refinance, a process that involves obtaining a new loan to pay off a current one. Usually with a refinance loan, the goal is to have a better interest rate and better terms than the current loan. When mortgage rates are low, homeowners have an incentive to refinance and lower their monthly payment.
S
Seller concessions
Seller concessions are closing costs agreed to be paid by the seller. At times, you can ask the seller to contribute toward certain closing costs, and other times, sellers may just pay a percentage of the total. Examples of closing costs that are typically covered by the seller include prorated property taxes, title insurance, city and county transfer taxes and any HOA fees.
In real estate, “settlement” is a less commonly used term for the closing of a purchase contract. This is the final stage in the home transaction. This is when the ownership of the property will be transferred from the seller to the buyer. The funds will be distributed in the form of a check to the sellers, the real estate agents that were involved in the sale will receive a check for the commissions that they earned, and the buyer will need to have a cashier’s check in the amount of the closing costs if he or she has not already wired the money to the title company.
A short sale occurs when a home is sold but the amount of the sale is not enough to cover what is owed on the seller’s mortgage loan, as well as closing costs, taxes and the commission owed to the real estate agent. In a short sale, the seller is not willing to make up the difference. Oftentimes, a short sale is happening because the owners are behind on their mortgage payments and are heading down the trail to foreclosure.
T
A title gives the person the right to or ownership of a certain piece of real estate property. One next thing that often confuses homebuyers is why they need to purchase title insurance. This is something that should be purchased whether you are obtaining a mortgage loan or paying cash for your home. Title insurance will help the homeowner deal with any issues that were not discovered when the preliminary title report was completed. This could be anything from liens to claims on the property that were not yet recorded. During the closing process, the buyers will receive a final copy of the title policy. This title will show their names as the new legal owners and will be recorded with the appropriate government agencies. Other information recorded on the title is the principal loan amount and who holds the mortgage loan. Once this information is recorded, it becomes public record for the county.
U
The term “under contract” means that a buyer has made an offer on a home and the seller has accepted it. This does not mean that the sale is final. There are still several things that need to happen, and it is possible that the sale could fall through. It’s estimated that about 20 percent of “under contract” sales do not end up closing, and those homes will be back on the market. A real estate contract is only valid if it’s been offered by the buyer and accepted by the seller, and the initial payments outlined in the contract have been made.
W
Taking buyers on a final walkthrough of the property helps ensure that the repairs the seller agreed to have been made, and that the property is still in good condition before the sale. If a client has an issue after the walkthrough, it’s possible it can hold up the closing date and complicate the process of completing the purchase.
Warranty
A home warranty helps a new homeowner cover the costs of an appliance or system issue in the first year after the purchase. These warranties can provide buyers with peace of mind, and protect sellers from accusations that they must have known about future issues that might arise.
Source: Inman Agent Dan Houston
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