On all sides of the real estate market, there are hundreds of terms that are important to the process, whether having to do with finance, listing, or purchasing a property.
Here are ten essential terms to know within the real estate industry, as a buyer, seller, or curious window-shopper.
Be sure to check in next month with another ten-term list. (If you missed the first installment, you can read it here.)
Homeowner’s Association (HOA)
Common to the Roaring Fork Valley, a homeowner’s association is a private organization that manages a community. HOAs come with a range of rules and dues (either paid monthly or annually), that often depends on how active they are. In some cases, HOAs take care of all the lawn work; in other, less active HOAs, they might be there to set and approve aesthetic standards and changes.
Home Sale Contingency
When a home is contingent, it means that the sale will only go through if the buyer is able to finalize a close on their current property. This is often used when a buyer needs to sell their property in order to have enough money for a down payment on the new property.
One of the first steps after going under contract with a home is for the buyer to set up a home inspection with a licensed professional. This is done to assess the condition of the home—allowing the buyer to decide to continue with the sale, and whether they’d like to ask the seller to fix any damages.
Following the inspection, this is a clause sometimes offered that allows the buyers a predetermined amount of time during escrow to perform any necessary inspections. This is also called a “due diligence contingency.”
Though most buyers purchase both the home and the land that it’s built on, there are some cases where the land is instead leased. You’ll own the home, but pay rent to the landowner for the land itself.
A loan or mortgage contingency is when a buyer is able to back out of the deal and keep their deposit if they are unable to secure a mortgage during a fixed amount of time. This is included as a clause in the offer contract.
Mortgage Pre-Approval Letter
When buyers begin the home-shopping process, one of the initial steps is to meet with a lending company and go through the pre-approval process, involving debt-to-income ratios, cash on hand, and credit history.
Once pre-approved for the mortgage, the lending company will write a pre-approval letter that says what kind of loan (how much) the buyer qualifies for. In many cases, this is a required step for sellers to ensure that the seller can acquire the money for the sale.
Multiple Listing Service (MLS)
An MLS is a database that your real estate agent has access to, that has extensive property information about homes on the local market.
When buyers make an offer on a property, they submit a formal contract through their agent, called an offer. They offer to purchase the home for a specific price (whether it’s below, above, or at the listing price), based on market value and their agent’s expertise.
The seller can do three things: accept the offer, reject the offer, or submit a counter offer.
The counter offer can include slight changes to negotiate the offer to better suit the seller’s needs. It can have adjustments to price, time frames, contingencies, etc. It’s negotiation, on paper. The buyer then has the option to accept, reject, or again counter.
The pre-approval process for a mortgage is like pre-qualifying, but more in-depth. It will look very similar to actually applying for a mortgage later on—supplying your lender with bank statements, tax records, credit history, and employment information. This can also lead to a letter breaking down the exact loan amount and sales price they can afford.
Be sure to keep an eye out for the next update of terms!