Glossary of Basic Real Estate Terms
Note: These are not legal definitions.
They are descriptive definitions meant especially for new home buyers or
for buyers and sellers who want to be reminded of the home buying or
selling process.
Application
A potential buyer can discuss loans with a potential lender and in a
short conversation can learn enough to get an informal estimate of what
kinds of loans are available to them, estimates of the mortgage
payments, and what price range they should be looking. However,
once a buyer is seriously ready and has chosen a lender, an application
is the first step in the official loan approval process; this form is
used to record important information about the potential borrower
necessary to the underwriting process. This would hopefully lead to
pre-approval, which makes the buyer a stronger candidate when making
an offer.
Appraisal
This is a document prepared by a qualified and knowledgeable
individual (an appraiser who is acceptable to the lender) that estimates
the market value of a particular home. It is a formal and in-depth study
involving a comparison of the prices of recently sold homes which are
similar to a seller's home in terms of location, style and amenities.
An appraisal is generally required by a lender
before loan approval to ensure that the mortgage loan amount is not more
than the value of the property. A CMA is a more informal document
done by a real estate agent to help sellers determine a sales price when
putting their home on the market.
Back-up Offer
This is an offer that has been accepted by the sellers as
second-in-line to a primary accepted offer. Should the offer in first
position fall through, the back-up offer is automatically moved into
first position. A third offer cannot be jumped ahead of the back-up
offer, but could be considered for the new back-up position.
Closing
This has different meanings in different states. Generally, a real
estate transaction is not considered "closed" until the following steps
have happened: final ‘settlement’ documents are signed (usually at the
title company); the closing costs are paid; the loan is funded with the
buyers assuming the new loan obligation; the monies are disbursed
according to the contract; and the new ownership (title) is recorded at
the local recorders office.
Comparative Market Analysis (CMA)
This is a document done to determine the current market value of a
particular home. It involves a comparison of the prices of recently sold
homes which are similar to a seller's home in terms of location, style
and amenities. CMAs are often done by real estate agents to help sellers
determine the asking price when a home is put on the market. An
appraisal is a similar but more formal and more in-depth document,
prepared by a qualified appraiser accepted by the lender, to determine
the worth of a property.
Contingency
A condition that must be met by a certain date that is part of a
legally binding contract. For example, there is usually a contingency
period in the first phase of escrow to allow home purchasers to obtain
inspections and learn all that they can about the property, to see what
the home appraises for, and to make sure that their financing is going
to work for them. Once the home buyers are satisfied with what they’ve
learned and release all those contingencies, the escrow becomes
pending; the buyer risks losing deposit money (or possibly more) if
they were to then back out of the contract.
Counter Offer
This is response to a previously made offer, basically
accepting the offer with the exception of certain conditions which are
specified in the counter offer. If the counter offer is then signed by
both parties, it becomes part of the agreed upon contract and includes
the new conditions put forth in the counter offer. There can be a
counter to the counter offer, and a counter to the counter to the
counter, and so forth. This is all part of the negotiation process
between sellers and buyers.
Escrow
Money, property, a deed, or a bond put into the custody of a third
party (usually a title and escrow company) for delivery to a seller only
after the fulfillment of the conditions specified. For example, the
earnest money deposit that accompanies an offer is put into
escrow until delivered to the seller when the transaction is closed.
Fiduciary Relationship
This means that the agent owes his/her client a duty of the utmost
care integrity, honesty and loyalty. By law, in California, if you are
involved in a listing, sale, exchange, and some leases the agency
relationship must be disclosed. In addition, when an offer is made, the
agency relationships must be confirmed in writing the buyer and seller.
Lender
The person that you talk to about your credit rating, what type of
loans are available to you, what loan would work best for you, what the
mortgage payments would be, and what you’ll need to do to apply for a
loan. Your lender will be an important part of your team as you go
through the home buying process, from beginning to end. Lenders work for
companies that are either mortgage brokers, mortgage bankers,
or both.
Mortgage banker
This is a company that originates its own loans and then resells them
to secondary mortgage lenders, including Fannie Mae and Freddie Mac.
They may have special loan packages that would work well for you.
However, they only process their own loans.
Mortgage Broker
This is a company that processes loans for a number of lenders. They
don’t originate their own loans like a mortgage banker however
they have access to the loan packages of multiple companies. Some
lenders are both bankers and brokers, giving you the most variety to
choose from.
Multiple Listing Service (MLS)
Usually, your real estate agent will belong to the local MLS and can
list your property on that service. This makes it accessible to the most
agents, who closely follow when new homes are listed, when they go into
escrow, and when they’re sold. There are public sites, such as
realtor.com, California moves, and greathomes.org, who pay to have
access to the MLS and who make part of the information available for the
public. Often there is a lag time between a home being listed on the MLS
and when some or all of the information and photos show up on the public
sites.
Multiple-offer Situation
This is a situation in which more than one prospective buyer makes an
offer on the sale of one particular piece of real estate to be
considered and reviewed by the sellers. This usually happens in
competitive ‘sellers market’ and buyers often offer more than the asking
price.
Offer
A specific amount of money and terms put forward, usually in a
written contract, for consideration by the sellers of a particular piece
of real estate. The sellers then have three choices: they can accept the
offer, reject the offer, or counter the offer.
Pending
This means waiting for confirmation or conclusion of the transaction.
The second phase of an escrow is called Pending and generally means that
that the buyer has released all of their contingencies, so the
sale of the home can go forward to its conclusion.
Pre-approved:
This means that a borrower has completed a loan application and
provided debt, income, and savings documentation which an underwriter
has reviewed and approved. A pre-approval applies only to the borrower.
(Sometimes it’s used incorrectly to mean pre-qualified which is a
preliminary estimate based on the information you’ve given the lender.)
Once a property is chosen, it must also meet the underwriting guidelines
of the lender.
Realtor®
A real estate agent, broker or an associate who holds active
membership in a local real estate board that is affiliated with the
National Association of Realtors. A Realtor® is more likely than
a non Realtor® to be active and up to date on the latest legal
and marketing issues.
For additional useful information, you can check out
Information
for Buyers or
Information for Sellers on our Coldwell Banker website.
Please feel free to contact me
with your questions. |
