Buying a home is complicated enough without feeling like your real estate agent is speaking a foreign language. Learning the real estate lingo is an important part of feeling in the loop while you're purchasing your home. These 10 definitions of commonly misunderstood real estate terms will help you be on your way to being an informed home buyer.
1) Appraisal
An appraisal is an assessment done by a certified appraiser justifying the purchase price for a property. The appraisal is usually based on an analysis of comparable sales of similar homes nearby.
2) Commission
Commission refers to the money that is paid to real estate agents after the closing of the transaction. They are a percentage of the purchase price (usually 3% or 6%). This is how real estate agents make their money.
3) CMA (Comparative Market Analysis)
A CMA is a professional report that real estate agents give to their clients. The report is an analysis done on the values of similar homes in the neighborhood or area that have sold or that are for sale at the same time. This report helps give a realistic listing and selling price.
4) Earnest Money
Earnest money is a deposit made by the potential home buyer to show that he or she is serious about buying the home. When the transaction is finalized, the funds are put towards the buyer's down payment.
5) Escrow
To place something in escrow means to place it in the hands of a third party until certain conditions are met. For example, earnest money deposits are often put into escrow until they are delivered to the seller when the transaction is closed.
6) Equity
Equity refers to a homeowner's financial interest in a property. Equity is the difference between the fair market value of the home or property and the amount still owned on it's mortgage and other liens.
7) Lien
A lien is a legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed are both considered liens.
8) REPC (Real Estate Purchase Contract)
The Real Estate Purchase Contract is a contract between parties for the purchase and sale of real estate. They are legally binding and are written down and signed by both parties.
9) Short Sale vs. Bank Owned Home
When a homeowner defaults on his mortgage, the lender may allow the home to be sold in a short sale. This means that the bank has agreed to let the home be sold for less than what the current owner owes on the property. A bank owned home is simply a home that has been foreclosed but the lender has not agreed to sell the home for less than what is owed on it.
10) Under Contract
If a property is "under contract" it means that the seller has accepted the buyers offer to purchase the property. Generally, the buyer is given a time period in which the sale can be finalized. During this time period, the seller cannot accept or entertain any other offers from other buyers.
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