Uncomplicating Real Estate Jargon
We know buying a home comes with a mix of emotions. It’s exciting, nerve-wracking,and confusing all at the same time. That’s why it’s important to plan and prepare ahead of time, so you feel confident, not chaotic, when the time comes.In this guide, we’ll break down industry jargon in terms you can understand, share a helpful timeline for your home purchase, and provide advice for every step of the way! We hope you walk away from reading this feeling comfortable and confident to start buying your next (or first!) home.
Now, lets get started:
The real estate process is already overwhelming and daunting enough, you don't need complicated jargon thrown on top of everything else. That’s why the first step in preparing to buy your home is to know and understand industry jargon.While you definitely want an agent who explains everything to you in terms you can digest, there are times in the process where proper industry terms have to be used. In those scenarios, you’ll want to understand what's being talked about.So, here are some of the most common real estate terms and what they mean.
PRE-QUALIFICATION
This is an early step in your home buying process and it essentially gives you an estimate of what you might be able to borrow from the lender. This estimate is based on information you provide like annual income and savings,and in some cases a soft credit check. Pre-qualification also allows you to learn about different mortgage options and talk to your lender about which one is best for you and your situation. We highly recommend it for first time home buyers!
PRE-APPROVAL
This comes later in the process, but it can give you a crucial advantage over other buyers. Alender uses pay stubs, transaction history, and a hard credit pull to determine exactly how much you are pre-approved to borrow. Pre-approval also lets sellers know that you have already been approved for a mortgage loan, which increases the chances they select your offer
Earnest money
Is a deposit you make on a home you want to buy.When you want to purchase a home from a seller, you both will go into contract. The contract doesn't mean you have to purchase the home, but it does require the seller to take the house off the market while it’s being appraised and inspected. So, to prove that your offer and intent to purchase is made in good faith, you make an earnest money deposit. This is also called a good faith deposit. The amount is usually 1-5% of the sales price, depending on market interest, and is delivered when the sales contract is signed. Once the money is deposited, the funds are typically held until closing where the deposit is then applied to your down payment and closing costs. While earnest money isn’t always required, sellers usually favor these good faith deposits because they want to make sure the sale won’t fall through.
OPTION MONEY
Option money isa fee you pay to the seller that allows you to terminate the contract made with the seller for any reason within a fixed, stated period of time(see below). This money can be applied towards closing costs if agreed upon in the contract. The option fee is typically given in the form of a personal check, either directly to the seller or to the seller's agent. This money must be delivered to the seller within 3 days after the effective date on the contract or you will lose your right to back out during the option period.
OPTION PERIOD
Option period isa specific number of days, negotiated between you and the seller, during which you have the right to get the property inspected and cancel the contract for any reason.This period will follow the signing of a purchasecontract.As mentioned above, the option period is negotiable, but it should be long enough to allow the property to be inspected and you to negotiate repairs with the seller.Notices regarding negotiation of repair items or termination of contract must be delivered by 5:00PM (local time) on the last day of the option period.
INSPECTION
A home inspection is an examination of the current condition and safety of a property, from foundation to roof.This usually takes place after you sign the contract with the seller (during the option period).A qualified home inspector will assess the condition of the property,including its heating and cooling systems, plumbing, electrical work,water, sewage, and some fire and safety issues. He or she will also look for evidence of insect, water or fire damage, or any other issue that may affect the property’s value.Inspections will flag any item that could be a cause for concern, ranging from a loose outlet cover to a non-functioning AC unit. Surprisingly, even new builds will have a handful of items flagged. It’s important to have an agent to help you decipher the best way to address items found in the inspection. Depending on the market, you can ask the seller to do repairs, negotiate the terms of purchase, or maybe a little of both!
APPRAISAL
A home appraisal is an unbiased, professional estimation of the value of a home ordered by the lender after the option period.Once you are under contract on a home, an appraisal is one of the first steps for closing. In an appraisal, a qualified appraiser creates a report based on visual inspection (different than above), recent sales of similar properties, current market trends, and aspects of the home (floor plan,square footage, amenities) that determines the property’s appraisal value. If the appraisal value is at or above contract price, the transaction continues as planned.But when the appraisal value comes in below the contract price, it can delay or derail the transaction. You can use the low appraisal to negotiate with the seller to lower the price as the bank won’t lend you more than the home is worth. However,the seller might see it as too low and backout completely. A good agent will bring creative solutions to help you continuewith the purchase or know when it’s time to move on to the next property.
CLOSING
Closing is the FINAL step of your real estate transaction and process.This is the time where money and documents are transferred so that ownership of the property is officially transferred from the seller to you. Yourclosing date is the date that you become the legal owner of your new home. Cue the celebration!
It’s okay if you still don’t 100% understand the nitty gritty details of these terms.But if you can walk away from this guide having now heard these words andgained a better awareness of what people are talking about when they use them,that’s a win for you! Plus, your real estate agent is experienced with all of this and can help you understand these details along the way—it’s their job after all!
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