Real estate has its own share of lingo and some of it is hard to understand. Build your home buyer vocab before you start looking for your dream home.
Before you start spending your weekends going to open houses, its essential to secure a lender, typically a bank or a credit union, and obtain pre-approval for a loan. After all, you don’t want to fall in love with your dream home only to find out you can’t afford it. “Lenders require lots of documentation to provide a pre-approval. It is always best to provide that first so there are no delays when you find the perfect home,” says Veronica Sniscak, realtor and partner at Bob Lucido Team of Keller Williams Integrity.
Shopping for a home can be a daunting process without the assistance of a buyer’s agent; this is your agent who exclusively represents you. “In most cases, there is little to no cost to work with a buyer’s agent,” says Sniscak. (Typically the agent is paid via the seller.) “Buyer’s agents will help you navigate the home buying process and negotiate the best price and terms,” says Sniscak.
A buyer’s agent works with the listing agent, a realtor who represents the sellers of a property. Their role is to work solely to represent the best interest of the person(s) selling the property. “Listing agents are responsible for marketing the listing and negotiating the best price and terms for the sellers. The listing agent is also responsible for negotiating the commission paid to both listing agent and buyer’s agent,” says Sniscak.
Using a dual agent is akin to using the same attorney for both spouses in a divorce. It may not be in your best interest and in some states dual agents are restricted or illegal.”A dual agent represents both the buyer and the seller in the transaction. This can arise if a buyer calls the selling agent of the home. The agent is obligated to disclose the relationship to both parties as this can cause a conflict of interest,” says Michael Trickey, CPA, and author of Finding Home: Everything You Need to Know-and Do-For Home Buying Success.
Real estate attorney
It’s fairly common that a title company or closing agent oversees things like the purchase agreement and closing documents, but a real estate attorney may give you more peace of mind. “They can help you understand the purchase agreement, prepare and process your legal documents, review closing documents prior to you signing them, and ensure you receive a valid registered ownership of your home,” says Trickey.
Real estate broker
You’ll likely interact with the realtor but the real estate broker is the person who runs the business where your realtor is based. “Brokers manage or own the business and are involved in all aspects of running the business. You may or may not meet the broker, as most of your interactions will be with your real estate agent who works for the broker,” says Trickey.
Land is divided into zones for purposes such as residential, commercial, and industrial. If you plan on running a business from your home, be certain you can do so before buying the house. “Check the zoning laws and any HOA rules in the area in which you are considering,” recommends Trickey. “You need to make sure you are allowed to conduct the business activities you are contemplating. Laws and rules vary by locale, so be thorough in your review.”
Your dream home may include a shared driveway, private road, or a portion of property that a local utility must access to maintain elements on poles or buried underground. “When someone is granted an easement, they are granted the legal right to use the property, but the legal title to the land itself remains with the owner of the land,” says Trickey.
“When a homeowner fails to make scheduled payments of principal and interest on their mortgage loan, the loan is said to be in default. The lender, in order to recover the money it advanced, initiates a legal process called foreclosure. Through the foreclosure process, the lender gains ownership of the defaulting borrower’s home,” says Trickey. A lower price tag is especially appealing to DIYers but may need a lot of work to be livable. Hire a professional inspector to examine the home and keep in mind the sale may take several weeks or even months to close.
When you’re ready to make an offer on your dream home, your realtor will write the offer, outlining the price and terms you wish to offer. Hopefully, the seller accepts the offer but it can be rejected or tossed back to you with a counter-offer. “Once all details are agreed by both parties and signed you have a fully ratified contract,” says Sniscak.
It’s time to show how serious you are about buying the house with earnest money, also known as a good faith deposit. “This money shows that a buyer is willing to sacrifice money to put toward a home’s down payment thereby hoping to secure the purchase of a property,” says Trickey. The money is credited to the balance due at closing when certain conditions have been met, or refunded in the event the offer is not accepted.
Inspectors dig a little deeper into the key elements of the home and check specifics including plumbing, electrical, bugs, and foundation. “Inspections are performed by trained and certified professionals and should not be confused with an appraisal,” says Allen Shayanfekr, CEO and co-founder of Sharestates, an online real estate investment company. “Home inspections consider the condition of the home while appraisals consider value.”
An appraisal is the home’s value, based on an independent third party. “The appraiser looks at the worth of the home by examining the recent sales prices of comparable homes in the area and making adjustments for the unique aspects of the home being appraised,” says Trickey.
“This is a monetary gift, deal, or some other agreement that benefits both buyer and seller. A seller concession can be applied towards closing or repair costs,” says Shayanfekr. A concession is most likely the result of a finding in the inspection report, such as a damaged roof or problems with electrical wiring.
“There are many contingencies that can be placed into the closing documents such as the buyer having the ability to terminate the contract if the property is not appraised for the expected price, or, if the seller cannot provide a clear title to the property, the seller can terminate the contract or the buyer could accept the condition of the title,” says Robert R. Pellegrini, Jr., Esq., president of PK Boston, a real estate law firm specializing in Title Curation.
Usually in planned communities, condos, and subdivisions, homeowners’ associations (HOAs) make and enforce rules for the homes in the association. The fees may range from as little as $100 a month to $700 or more a month. “HOAs also collect monthly or annual dues to pay for upkeep of common areas like parks, tennis courts, elevators, and swimming pools, and can levy special assessments on homeowners when needed to pay for unexpected costs and repairs,” says Trickey
The term “mortgage” or “mortgage loan” is used loosely to refer both to the lien and the loan. In most cases, they are defined in two separate documents: a mortgage and a note, says Trickey. Conventional loans, such as a fixed rate mortgage, ARM (adjustable rate mortgage), or hybrid ARM are not back or insured by the government are the most common. An FHA (Federal Housing Administration) is a mortgage that’s insured by the Federal Housing Administration. “Qualified borrowers may be able to obtain FHA insured loans up to approximately 96.5 percent of the value of their homes,” says Trickey.
You’ll probably see this term most often in foreclosure sales, where the bank owns the home or if the seller doesn’t have the funds to fix up the house before selling it. “It’s a legal disclaimer that indicates the buyer is purchasing a home as it is—with any and all faults whether or not they are immediately apparent,” says Shayanfekr. The price of the house will probably be significantly reduced, but you could blow your budget on repairs.
Nothing kills the excitement of owning a new home like a furnace going out in a cold snap. A home warranty can be purchased by the buyer but often a seller will offer a free warranty. “If the seller offers the warranty, it will actually cover the seller during the listing period,” says Sniscak. “The warranty then transfers to the buyers for one year and all other details are the same except its free to the buyer. Buyers can also ask the seller to pay for a warranty as part of the negotiations.”
A title is a historical record of transactions of the property that include sales, purchases, liens, and tax issues. A title company will perform the search and make sure the seller actually owns the property. If an issue comes up with the title, you won’t get your money from the bank to purchase the house. “Unfortunately, ‘checking title’ is often handled at an advanced stage in the buying process when parties are often quite vested in the transaction,” says Pellegrini. “Each party should monitor its process and ensure that terms are included in the Purchase and Sale Agreement that account for how most effectively to react if a problem is discovered in the eleventh hour,” cautions Pellegrini. Look for these red flags in the final walk-throughbefore you sign on the dotted line.
If an issue is found in the title, such as a prior foreclosure on the property, but the foreclosing party is not the same as the holder of the Promissory Note, it doesn’t necessarily mean the deal is dead. “It is important that you make sure an attorney who specializes in “Title Curation” is involved. It is best to proactively involve a title curation specialist immediately after a defect is discovered,” advises Pellegrini.
This term involves acronyms on top of acronyms, previously the TILA (Truth in Lending Act)/RESPA (Real Estate Settlement Procedures Act) Integrated Disclosure Rule, the TRID is a new lending regulation to help borrowers fully understand the terms of their loans. “It is an effort to help borrowers better understand the actual costs of borrowing and has strict disclosure timelines on utility readings and when the financing terms must be disclosed to the borrowers/buyers,” explains Pellegrini. “Most Purchase and Sale agreements should discuss TRID and what will happen if one of the deadlines is not met. Otherwise, the buyers could default on the agreement and lose their deposits at the last moment,” says Pellegrini.
A walk-through gives the buyer time to inspect the property before closing to ensure it’s in the same condition as it was when they made an offer. If repairs or replacements were part of the contract, it’s also a time to check the repairs and replacements are to your specifications. “Once the settlement is complete, the home and any issues and concerns you previously had are yours now,” says Sniscak.
A third party will hold your escrow funds (including the earnest money deposit) in an account until all the documents, deposits, and other loose ends are tied up to the satisfaction of parties involved. Escrow also applies to mortgage terms. “It is an agreement whereby the borrower adds a specified amount for taxes and hazard insurance to their regular monthly mortgage payment. The money goes into an escrow account out of which the lender pays the taxes and insurance when they come due,” says Trickey.
Three business days prior to closing, you’ll get a five-page form with all the details and fine print about your mortgage loan, including the loan terms, projected monthly payments, and other fees and costs involved to get your mortgage. “This three-day window allows you time to compare your final terms and costs to those estimated in the Loan Estimate that you previously received from the lender. The three days also gives you time to ask your lender any questions before you go to the closing table,” explains Trickey.
The final step in the home buying process! “In most jurisdictions, ownership is officially transferred when a deed from the seller is delivered to the buyer. Lenders providing a mortgage loan will often require title service, including title search and title insurance, appraisal, land survey, and attorneys to be involved,” says Trickey.