Top Real Estate Terms to Know
1. Listing Agent vs. Buyer’s Agent
Most real estate transactions will involve two agents. The listing agent represents the sellers. The buyer’s agent represents the buyers. There is also such thing as a dual agent, who represents both the buyer and the seller. Having dual agency should be avoided; it’s near impossible for an agent to truly act neutrally in that situation.
2. Pre-Qualified or Pre-Approved
There is a difference between a pre-qualified letter and a pre-approval letter. While often used interchangeably, they are actually very different. Pre-qualified means that based on basic criteria, a financial institution has qualified a buyer up to a certain dollar amount. Pre-approved means that all or most requirements have been met by the buyers for the loan. Pre-approval letter is superior.
Buyers will be asked to submit a pre-qualified or pre-approval letter from the bank as part of an offer. For sellers, this helps verify that the offer has substance; it shows buyers can afford the home. For buyers, this helps bolster the offer. It is possible to submit an offer without providing a letter, but it is not recommended as it can weaken an offer against the competition. All things equal, would you accept an offer with a pre-approval letter or one without? Probably with.
Real estate agents commonly refer to homes for sale and available on the market as listings. This term comes from the fact that homes for sale are usually “listed” on websites, in information booklets and the like.
4. Multiple Listing Service (MLS)
The MLS is the most important marketing resource agencies have. Agencies who are part of a regional realtor association — every agency in Ketchikan is part of the Southeast Alaska Multiple Listing Service (SEAMLS) — upload and post homes for sale with a central database called the Multiple Listing Service. This central database then “feeds” all the listing information such as photos and details to various searches. It includes national searches, like on Zillow, Trulia, Realtor.com and hundreds more, as well as all local searches. If you’ve ever wondered why each agency website shows each others listings, it’s because of the MLS. Every home available for sale is shown there.
Once a home has an accepted offer, the buyers will hire a licensed inspector to perform a home inspection. This allows buyers to perform due diligence and inspect the home for any defects. The inspector will go through all areas of the home and review things like plumbing, electrical, foundation, walls, heating and appliances.
Tip: The inspection may uncover repairs that a buyer can request be completed as part of the transaction, or ask that the price be reduced. This is done using a Repair Addendum. Sellers can choose to have a pre-sale inspection performed to uncover any potential problems in advance, helping to avoid any unpleasant surprises during a transaction. Inspections usually range from $500-$1000.
If a home is being purchased using a lender, an appraisal will be required. The appraisal is different from an inspection. A licensed appraiser will estimate the homes value based on features, condition and comparable home sales in the area. If the appraisers estimate comes in below the sales price, additional negotiations may occur or buyers will need to come up with additional cash to cover the difference, as a lender will not allow buyers to borrow over the appraisal estimate.
Tip: Real estate agents and appraisers use a lot of the same techniques to determine home values through what is called a Comparative Market Analysis (CMA). Listing agents should always share the CMA with sellers. If the agent did their job correctly, appraisals usually aren’t an issue. Sellers can also choose to just have a pre-sale appraisal. It typically costs between $800-$1200.
Every purchase contract includes contingencies — conditions that have to be met before a deal can be completed. They are part of a contract to purchase and often just require checking a box. For example, buyers have to be able to get lending to be able to purchase (financing contingency), buyers will want time to inspect and make sure nothing terrible is wrong with the property (inspection contingency), and the value will need to meet what the buyer is willing to pay (appraisal contingency.) Those are just a few of the most common in transactions.
Tip: You can read our related article about contingencies here.
8. Purchase Contract and Addendums
The purchase contract is often referred to as an, “offer”. The purchase contract lines out the specifics of the agreement. It includes the purchase price, earnest money amount, the lender, the escrow agency, and proposed closing date. An addendum is an “addition” that is not part of the original contract but that is added. In Ketchikan, a common addendum is requiring a passing water test (cisterns) or septic test (septic systems). But there are a variety of reasons an addendum may be needed. Your agent will cover any addendum with you if the need arises.
9. Earnest Money
Earnest money is an amount of money that buyers must put in escrow as a “good faith deposit”. If the contract is fulfilled, the earnest money is applied to the transaction. If the contract is terminated, sellers may be entitled to the full amount of the earnest money as compensation for time and effort lost. There is no standard amount.
10. Escrow Period
The escrow period is the time between when a purchase contract is agreed to, to when the closing documents are signed and ownership transfers. It is typically between 45-60 days. During this time, both parties of a transaction will be working diligently to meet all the contingencies.
Questions? Ask away!