We all live on a piece of real estate. But unless you make real estate your career, you probably don’t have a great understanding of some of the key terms and phrases that are used when discussing real estate.
For a site like this one, where we buy houses to help home owners, there is a subset of real estate terms that we may mention, but that might be confusing. So, below you will find definitions for many of those terms. Hopefully we cover the terms that you need to know, but if we missed something, contact us so we can help explain what something means.
Appraisal: A non-biased third party known as an appraiser looks at data related to a property to determine a true market price for a subject property. Factors that influence an appraisal include sales of similar properties, neighborhood, local and even regional factors. Appraisers are professionally licensed and regulated due to the critical nature of the reports they produce. in those reports is a determination of property value that will be used by lenders to make lending decisions, as well as by both buyers and sellers during negotiations and for other purposes.
Closing Costs: The costs associated with completing a home purchase. They are normally paid at the time of closing, thus the name closing costs. A long list of items make up the costs, including attorneys fee, transfer taxes, prepaid taxes and insurance, appraisal, inspections, title insurance, HOA dues, loan origination fees, loan points, survey fees, underwriting fees and more. Both buyer and seller typically pay some portion of the closing costs, which can vary from 3% to 5% (not including real estate commissions).
Commission: Real estate agents typically are paid a percentage of the purchase price of a property upon the completion of a sale. This is a real estate commission. While the percentage is not a hard number and is negotiable, it is customarily 6% in most residential real estate transactions. The seller of the home normally pays the commission.
Comparables: Also known as “comps,” comparables are sales of similar properties near a subject property that an agent (or appraiser) will use to create a valuation of the property in question.
Contingency: A contingency is a clause in a real estate contract that states that certain conditions must be met by either the buyer or seller in order to continue the contract. The majority of real estate contracts have contingencies. These contingencies protect both the buyer and the seller.
There are several types of contingencies in real estate contracts. Probably the most common is the mortgage contingency. A stipulation in the contract will state that the buyer must be able to obtain a mortgage loan for a specific amount, and it must be obtained by a specific date. If the loan is obtained by the buyer according to the conditions specified in the contract, the contingency is essentially removed from the contract and the purchase may proceed according to the remaining terms of the contract. However, if the loan is not obtained (the contingency is not met), then the buyer may withdraw the contract without penalty.
Other common contingencies include:
- Home inspection contingency: The house must pass inspection or the buyer can cancel the contract.
- Sale of buyer’s home contingency: The buyer must be able to sell their current home before buying the one in the contract.
- Appraisal contingency: The house must appraise for a price specified in the contract, or the contract may be withdrawn. The appraisal is typically ordered by the lender. If the appraisal comes in lower than the amount required for loan, some buyers may choose to make up the difference in the loan amount and the sale price with their own money. They could also request a price reduction from the seller.
- Title contingency: Clear title to the property must be obtained or the contract may be withdrawn.
Equity: The difference between what you owe on a property and what the property is worth. For example, if you owe $200,000 and the property is worth $300,000, you have $100,000 equity.
Forbearance: When a lender permits a borrower to temporarily stop making payments or to reduce payment amounts. This does not eliminate the amount owed to the lender, and the full amount owed must eventually be paid to the lender. Interest will continue to accrue during the forbearance period.
Foreclosure: A legal process, governed by laws of a particular state or jurisdiction, by which a lender may remove the rights of a borrower or mortgagor to the property they are borrowing against. Foreclosure proceedings are typically started when a borrower falls behind on payments or ceases to make payments on a mortgage. In Georgia, during the process, the borrower will be notified of the intent to foreclose, a sale will be advertised, the borrower may be able to reinstate the loan by satisfying any outstanding payments, but failing that, the property will be sold at auction, and the borrower may be physically removed from the property.
FSBO (aka “fizzbo”): Abbreviation for For Sale Buy Owner. This is the name or term given to homes being sold by the owner, without the assistance of a real estate broker or agent.
Functional Obsolescence: The reduction of a property’s usefulness, desirability and value due to outdated design or other characteristics, not easily corrected or brought in line with current standards and requirements. For example, a 4 bedroom house with just a single bathroom may require a tremendous amount of expense and effort to bring the house in line with today’s current demand for a house to contain 2 or 3 bedrooms.
House Flipper: A person or company that buys properties with the express intent to resell them to someone who will live in the property. See house flipping.
House Flipping: The process of purchasing a house with the intent of reselling the property a short time later at a profit. The re-sale of the property often does not occur until after the property is renovated, sometimes at great expense.
Inspection: The term inspection is normally applied to a home inspection, but may include other specific types of inspections. A home inspection generally implies an inspection of the entire home. These inspections are often requested and paid for by a home buyer to determine the condition of a home prior to purchase. An inspection may uncover defects or problems in the property that may be difficult for someone not familiar with construction to ascertain. This type of inspection is not generally required by a lender.
Other types of inspections include asbestos, foundation, lead, mold, radon and termite.
Power of Attorney: Written authorization to act on another person’s behalf in personal, legal or financial matters.
Purchase Agreement: A binding contract between a buyer and seller that spells out the details of a home sale. The buyer submits the contract with their conditions for the purchase. This contract will include the price and other terms and will include specific details about the property in question. The seller may accept or reject the contract, or send a counteroffer to the buyer. The buyer and seller may send counteroffers as many times as necessary until they either reach an agreement or an impasse. Once both parties agree to the conditions of the Purchase Agreement and sign the document, the agreement is deemed “under contract” and the conditions of the contract must be met or carried out by both parties.
Real Estate Agent: Agents assist property owners in the purchase or sale of property, whether it be commercial or residential. Agents help their clients to find property, list properties for sale, determine pricing, show properties, negotiate contracts and many other odd duties. Agents must take state mandated classes and pass testing requirements to be licensed. A real estate agent technically works for a real estate broker, not directly for a client they may be assisting.
Real Estate Broker: A real estate broker is similar to a real estate agent, but is able to supervise and manage other agents within a real estate brokerage business. Brokers licenses require classes and testing greater than what an agent must meet, in addition to a prior level of experience as an agent. Brokers can buy and sell real estate just like agents, but without the need for supervision. Agents must be supervised by a broker. Brokers contract with clients and agents contract with brokers.
Short sale: When a homeowner gets behind on their mortgage payments, they may opt to sell their home for less than the amount owed to the lender. This sale must be pre-approved by the lender. Any proceeds from the sale go directly to the lender. The shortfall or deficiency may be forgiven by the lender, or a deficiency judgment may be issued against the original borrower. The judgment would set forth the amount the borrower must pay back to the lender.
Underwater: A mortgage that has a balance higher than the value of the property. For example, if the mortgage is $400,000, but the property is only worth $350,000, this mortgage would be considered “underwater” or “upside down.”
Resideum helps homeowners who want to sell their homes quickly and without all of the hassle normally associated with home sales. We buy houses in Georgia for cash, and can typically close in as little as 7 days.
If you have a house you need to sell fast without putting yourself through the typical sales process of getting a real estate agent and having your house shown to dozens of unknown buyers, simply complete the form below or contact us today.
You’ll get a cash offer in 24 to 48 hours. There’s no cost or obligation, so you can make a decision without pressure. We’ve been a part of the metro Atlanta real estate industry for over 30 years. We’re based right here, so we understand the area intimately, and we work extremely hard to present fair offers to homeowners. Your future is worth a 10 minute conversation with us!