10 Real Estate Terms Every Homebuyer Should Know
Buying a home can be confusing as is — and adding difficult-to-understand real estate lingo to the mix only seems to make things worse!
Many real estate agents forget that not everyone is taught to understand terms like earnest money, escrow, underwriting, and more. Here at The Redbud Group, we know it’s not your job to understand all the real estate lingo that comes with buying a home — it’s ours! We do, however, want to make sure you’re aware of these terms so that you and your real estate agent are on the same page.
We hope you find our dictionary of real estate terms useful for all of your current or future home-buying needs. Let’s get started!
Real Estate 101: Defining Common Real Estate Terms
1. Appraisal
An appraisal is an unbiased, professional opinion of your home’s value that is necessary whenever a mortgage is involved. To determine the property’s appraisal value, an appraiser will perform a visual inspection, analyze current market trends, and utilize data from comparable properties in the area. During this process, the appraiser will also take other aspects of the home — such as amenities, floor plan, and square footage — into account.
2. Buyer’s Market vs. Seller’s Market
A buyer’s market occurs when the number of homes for sale outnumbers the number of buyers actively searching. This gives potential buyers more negotiating power and usually makes it easier for them to purchase a home for a lower price. A seller’s market, on the other hand, occurs when there are more buyers than available homes on the market. This makes the market more competitive and allows sellers to list their homes for a higher price.
3. Buyer’s Agent vs. Listing Agent
In a real estate transaction, there are typically two agents involved — the buyer’s agent and the listing agent. As the names suggest, the buyer’s agent represents the person buying the home, while the listing agent represents the person who is selling the property. The buyer’s agent will aid the buyer in all aspects of purchasing a home — from finding listings and sharing their knowledge of the area to advocating for the buyer and their unique needs.
Meanwhile, the listing agent is responsible for putting a home on the market. Their top priority is selling their client’s property fast and for the right price. Whether you are buying or selling a home, a real estate agent has valuable industry expertise and can guide you through the entire process.
4. Comparables (Comps)
Comparables, otherwise known as comps, are similar homes in the area that have been sold in the past six months. When you work with a real estate agent, they’ll perform a comparative market analysis (CMA) to evaluate recently sold homes that are similar to the one you’re trying to sell.
This report shows the prices of comparable homes that were recently sold, are currently on the market, or were on the market but not sold. Knowing this information can help a real estate agent determine the best-asking price for your home — so you can have the best chance of selling it fast!
5. Closing
The closing process involves a meeting between the buyer, seller, both real estate agents, and the lender to officially transfer ownership of the home. Many first-time homebuyers forget to plan for closing costs, which are due at the end of the transaction and usually cost around two percent to five percent of the home’s value.
Another step in the closing process is the closing disclosure, a five-page document given to the buyer three days before closing. This covers the amount of the home, interest rate, monthly payment, mortgage insurance, monthly escrow amount, and all closing costs.
6. Down Payment
The down payment is a portion of the home’s purchase price that the buyer must pay upfront. Depending on the loan type, a buyer may be able to pay as little as three percent of the home’s price. However, a down payment of 20 percent will help you avoid private mortgage insurance (PMI). Additionally, your loan provider may have their requirements for a minimum down payment.
7. Earnest Money
Earnest money is a check written by the buyer to the seller that confirms their intent to purchase the home. Before closing on a house, the earnest money is used to show the seller that a potential buyer is serious about moving forward with the purchase. This money not only represents the buyer’s good faith to follow through with the sale but also protects the seller in case the buyer backs out.
8. Escrow
Also known as “under contract,” escrow refers to funds that are held by a third party before closing. In real estate transactions, being held in escrow marks the period after the contract has been accepted by the seller and the buyer. During this period, the home is inspected and appraised, among other pre-closing processes. The escrow agent is responsible for the closing of escrow, which is the final and official transfer of property from the seller to the buyer.
9. Pre-Approval vs. Pre-Qualification
Before making an offer on a home, a buyer will need a letter of pre-approval or pre-qualification from the lender. During the pre-approval process, a lender will take a thorough look at the buyer’s income and assets to determine their eligibility for a loan, as well as the amount they would qualify for. To determine what loans a buyer might qualify for, a lender will give a basic assessment of a buyer’s income and assets to pre-qualify them for a loan.
Learn More: How to Apply for a Mortgage
10. Underwriting
To finalize the approval of a home loan, it will need to be reviewed and approved by an underwriter. Here, the lender assesses the buyer’s income, assets, credit, and any risk that may prevent the lender from offering the buyer a mortgage. Although this process may seem overwhelming, The Redbud Group has preferred lender partners that can help you every step of the way. Contact us to be connected!
Buying Your Home With The Redbud Group
Now that you understand some of the most common real estate terms, it’s time to find your real estate agent! For access to our printable personalized guide on real estate terminology, click here!
No one understands the Carolina market quite like we do. It’s our job to make the home-buying process as easy as possible for you — and we plan on doing exactly that. Click below to get in touch with a Redbud Group REALTORS®!
