Homeownership is an important milestone and quite possibly the biggest purchase of your life. Before…
Buying a home? You’re bound to come across some unfamiliar terms in the process. The home-buying process is complex and can be filled with a number of real estate terms that often cause homebuyers to become confused. While your realtor can help you understand any terms that are unfamiliar along the way, for your reference, we have put together a list of key real estate terms to know when buying a home:
Appraisal: If you are getting a loan to purchase a home, the lender will require an appraisal before the loan can be approved. The lender will send a third-party, licensed appraiser to the home to determine the value. They will look at the home’s overall condition, check for safety features like smoke detectors, and sometimes will check for termites. They will then compare the home you’re buying to other similar recently sold homes to determine a value. Since a lender will not approve a loan for more than the house is worth, you and your real estate agent must do your own research on the home’s value before agreeing to a purchase price.
Backup Offer: If a home receives several offers, the seller may accept an offer, but then keep a backup offer on the line just in case the approved offer falls through. If you are the backup offer, you’re essentially in second place and waiting in the event that the accepted offer does not go through with the purchase.
Contingency: Most homebuyers will include some sort of contingency into their purchase agreement. This can include financing, home inspection, appraisal, or the sale of your own home. This means that an event must successfully occur before you can proceed with the real estate transaction. If the contingency was unable to be completed, you could walk away from the transaction without penalty. Contingencies typically favor the buyer, so it is wise to include them in the purchase agreement. However, it’s important to note that while making your purchase contingent upon selling your own home is an option, in a seller’s market this is not advantageous and likely not the best choice.
Disclosure: After a purchase price and all other terms of the real estate agreement have been made, the seller will provide you with home disclosures. This can include the CC&Rs (covenants, conditions & restrictions), environmental concerns, or insurance claims history. They will let you know of any defects in the home or an area of the home. The buyer should thoroughly review these documents to understand everything the seller is disclosing about the home being purchased and ensure there’s nothing unexpected.
Earnest Money Deposit (EMD): After negotiating the price and terms of the home, you will need to make an Earnest Money Deposit or EMD. You may also hear it referred to as a Good Faith Deposit. This is a portion of your down payment used to show that you are committed to the transaction. The money is held in a third-party escrow account, and in the event the transaction was to fall through, the escrow officer would decide who the money gets returned to. If you, the buyer, were at fault for the transaction being canceled, the seller would get to keep your deposit.
Title Report: A title report displays all critical information pertaining to a home. This can include the property description, names of titleholders, tax rate, mortgages or liens, how the title is held, and any real estate taxes owed. Your lender will need to have a copy of this report before they can approve your loan. Your title company or escrow company will prepare this and hand it over to the lender in accordance with your purchase agreement.
These are just a handful of terms that are involved in the home buying process. Your realtor can help you understand these and any other unfamiliar terms that may come up during the process of buying a home. With over 400(approx.) moving pieces along the way, navigating the home-buying process may seem overwhelming, but with the help of an experienced real estate professional guiding you through the process, you’ll come out on the other side a proud homeowner with a new place to call home!