Top 10 Real Estate Terms Sellers Should Know
Real estate terminology can be confusingâbut it doesnât have to be. If youâre selling your home soon, here are the top ten terms you should know to feel confident during the process.
1. Buyerâs agent vs. listing agent
Letâs start with an easy one! Typically, buyers and sellers have different real estate agents. A real estate agent who works with the home shopper or buyer is called the buyerâs agent. A real estate agent who works with the home seller is called the listing agent because they are listing your home for sale.
Itâs possible to have one agent representing both sides, which is called âdual agency,â but itâs not very common. Why? There is a potential conflict of interest in the case of dual agency, because real estate agents should always negotiate in their clientâs best interestâwhich is hard to do when youâre representing both parties. For this reason, dual agency is actually illegal in some states.
2. Contingency
A contingency is a clause in a real estate contract that allows one or both parties to back out of the deal if certain conditions are not met. Some common contingencies include:
Appraisal contingency: allows the buyer to back out of the deal if the property appraises for less than the agreed-upon purchase price.
Home inspection contingency: allows the buyer to back out of the deal if the home inspection reveals major problems.
Mortgage contingency: allows either party out of the deal if the buyer is unable to obtain financing.
Home sale contingency: allows the buyer to back out of the deal if they are unable to sell their current home.
Seller's purchase of replacement property contingency: allows the seller to back out of the deal if they are unable to find a suitable replacement property in time.
Contingency clauses can be a valuable tool for both buyers and sellers, but they can also slow down your real estate transaction. By their nature, contingencies make it easier for either party to leave the dealâwhich can leave you back at square one. But that doesnât mean you should turn down all offers that include a contingency. Instead, talk to your real estate agent about the offer, and they can offer expert advice based on your market and your specific situation.
3. Due diligence period
This is the period between when you accept an offer and when the deal closes. During this time, the buyer is to do their âdue diligenceâ and investigate the property thoroughly. This includes the home inspections, appraisal, title search, and property surveyâand itâs also a good time for buyers to start comparing homeowners insurance quotes. This period is meant to allow the buyer to find out everything they need to know about the property to make an educated decision about the purchase. All of the above have deadlines and it's up to the seller's agent to be mindful of each deadline.
4. Equity
Equity is the difference between your propertyâs current market value and how much you still owe on the mortgage. For example, if your property is worth $500,000 and you owe $300,000, then you have $200,000 in equity.
Typically, the more equity you have, the better, because this is the amount of cash youâll make from your sale (minus any transaction fees). More equity will make it easier to purchase your next home, or you can use it for saving, investing, retirement, education, and more.
Did you know? A report from CoreLogic shows that the equity homeowners have in the U.S. recently hit a record highâmaking it a great time to sell your home.
5. Seller concession
A seller concession is something offered by the home seller to the buyer to incentivize the purchase. These can encompass a variety of closing costs typically paid by the buyer, including appraisal fees, origination fees, interest rate buydowns or points, real estate tax service fees, and moreâbut they canât include other purchase costs like the buyerâs downpayment.
Should you make a seller concession? That depends on your market. In a sellerâs market where houses move quickly and receive multiple offers, seller concessions are usually unnecessary. But in a buyerâs market where available homes outnumber buyers and take a while to sell, a seller concession is a good way to stand above the competition and attract attention. Ask your real estate agent for their advice on your specific situation.
6. Purchase and Sale Agreement (P&S)
A purchase and sale agreement (otherwise known as a P&S) is a document that is written after a buyer and seller have finished negotiations and replaces the offer to purchase. It includes details like the agreed-upon sale price, closing date, earnest money, and both partiesâ contingencies. This is the official agreement on the terms of the real estate transaction, and when itâs signed, it moves the process forward toward closing.
7. Covenants, conditions & restrictions (CC&Rs)
CC&Rs are a set of rules that govern what you can do with a certain piece of property in a given area. You may be familiar with Homeownerâs Association (HOA) rules in your neighborhood, which are a type of CC&R, but theyâre also common in planned communities, condominium buildings, and industrial parks.
What are the purpose of CC&Rs and what types of things can they govern? These rules can apply the following:
Home maintenance like keeping your flower beds weed free, your lawn mowed, and your home in good repair
Home appearance like the color of your exterior paint or the type of trash can or mailbox you can have
Parking such as where youâre allowed to park or whether you can add a sunshade or carport for your vehicle
Pets such as breed and species restriction
And more!
Usually, the idea behind these rules is to keep an area aesthetically pleasing, safe, and to improve and maintain home values. Why is it important for you, a home seller, to understand the CC&Rs in your area? Buyers typically want to know this information before making an offer, and if you live somewhere with HOA rules and fees, youâll have to disclose those in advance.
8. MLS
The Multiple Listing Service or MLS is the database in which all real estate listing information is stored. There are separate MLSs for states, regions, and even individual citiesâand they donât all have the same rules. MLS organizations in different areas require different information to be disclosed in a listing before it can go live in the database. Some basic information required by most MLSs include the number of bedrooms and bathrooms, the square footage, the price, and the name of the listing agentâbut thereâs a lot more!
9. Rent-back
A rent-back is an agreement between a buyer and a seller that allows the seller to stay living in the home after closing in exchange for making rent payments. Why would a seller want a rent-back? In very competitive markets, it can be difficult to find a new home after youâve sold the old one. In this case, if the buyer is able, they can offer a rent-back to the seller in a written agreement that gives you more time before you have to move out.
10. Closing
Closing is when the home sale has been finalized. When does this happen? A sale is considered closed when the contingencies have been met, all the paperwork has been signed, and all the money has exchanged handsâand in some areas, when the deed has been recorded with the county clerkâs office. When these steps are completed, youâll hand over the keys, and the buyer will be the new homeowner.
At that point, youâll be on to your next big dream!
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