Real estate transactions can be full of obscure terms, acronyms and abbreviations. To the first time buyer (and sometimes the seasoned vet!) these terms can be a little intimidating, but fear not, we’re going to decipher five key real estate terms and help you understand why they’re important. Next time you see or hear these terms, you’ll know what they mean and you’ll be a smarter buyer and smart buyers make good deals! Without further ado, here’s our TOP FIVE COMMON REAL ESTATE TERMS
- Broker, Agent, REALTOR: Often these terms are used interchangeably but they mean very different things. In Oregon, holders of a real estate license used to be called agents. Nowadays, they hold a Broker’s License and are managed by a Principal Broker. The term REALTOR denotes a member of the National Association of REALTORs, whose members are not just licensed Brokers but members of a powerful professional organization that demands high standards of ethics and training for Brokers. Only members of the National Association of REALTORS are allowed to use the designation REALTOR and that familiar symbol:
A Broker is much more than just someone who shows you property. As your representative, I personally watch out for your best interests personally and financially throughout the whole process. When you choose me as your Broker, I take that responsibility personally and understand that you are entrusting me to watch out for your two greatest assets: Your family and your home. A professional Broker will help you understand the process from start to finish and will give you their expert recommendations along the way. There are many aspects that need incredible attention to detail. In fact, finding the home is often the easiest part! Negotiating the offer, coordinating with lenders, appraisers, inspectors and escrow all require an experienced professional to keep the deal on track and making sure YOUR needs come first! I will walk you through the process from the initial offer up until I hand you the keys! In fact, we are still there to support you after the sale if questions arise.
Another common question I’m asked is “How does the Broker get paid?”. In most transactions, the Broker’s commissions are paid by the seller through their contract with the selling Broker. What a bargain! I’m doing all the work on your behalf and the seller is paying bill! In rare instances, like some FSBO’s (See next topic) the owner doesn’t want to pay a Broker so you are responsible for the Broker’s fee and that amount is usually added to your loan amount.
- FSBO For Sale By Owner: Simply put, this is a homeowner who is selling their property themselves, rather than engaging the services of a Real Estate Broker. There’s nothing wrong with adding FSBO’s to your property search, just remember that just because they don’t choose to be represented by a professional, YOU SHOULD! Most people average one real estate transactions a year, where a qualified Broker may handle dozens of them. A professional Broker will be well versed in current laws, regulations, lending requirements and forms to help protect your interests in the transaction. If any FSBO tells you they won’t work with your Broker, it’s probably best to walk away.
- MLS or Multiple Listing Service: The Multiple Listing Service is the data hub for licensed Brokers to share information about their listed properties with other Brokers. When a Broker takes a for sale listing from a homeowner, he or she inputs all the relevant information, like square footage, age, room count, etc. into the MLS. They also upload photos and a brief description of the property. Every subscribed Broker can access that information while searching for properties for their buyers. That’s thousands of Brokers seeing those listings every day! In addition, the MLS syndicates that listing data to other sites like MLS.com, REALTOR.com, etc. There’s a couple things to realize about MLS listings though. 1) Unlike Zillow, Trulia or other mega-sites, the information from the MLS is current. Subscribing brokers are required to immediately update any changes to the listing data, like pending sales, price drops, expired listing, etc. Brokers face fines for not listing accurate information or keeping it updated. On the other hand, often times the mega-sites gather their data from inaccurate sources so you may find properties that have long since sold or expired. 2) Although there is public access to view MLS listings, there is data that is only available to subscribed Brokers. This can be very important in your home search!
There is nothing more fun than cruising the Net looking for your future home. To make sure you are getting accurate and current information, choose a website that has a direct MLS feed in your area. Do a Google search for multiple listing service in your region or search on REALTOR.com.
You probably won’t see FSBO’s or off-market listings on the MLS so don’t be afraid to look “outside the box” in your search. I’ve searched expired listings, Craigslist and even knocked on doors in the neighborhood my buyers liked to find them homes that aren’t even listed for sale!
- Comps or Comparables: Comparable properties, or “comps” as they are better known, are similar properties that are on the market or have sold that help support or discount the listed price of a property. For example, let’s say Mr. Buyer finds a great home in a neighborhood he really likes. The seller is asking $150,000 for the home. Before we just rush in and offer the seller full price, a Broker should provide you comps in that area to help decide what a fair offer price is. Let’s say that homes in similar condition, size and style have sold on average of $125,000 over the last six months. If my buyer offered full list price for this home, they could be over paying by $25,000! Armed with this information, my buyer can make an informed offer and have the data to back it up! Comps should not be confused with a Comparative Market Analysis, or CMA.
- Comparative Market Analysis or CMA: A Comparative Market Analysis is an extensive report compiled by a listing Broker to help a seller price their home in the market. The CMA examines comparable homes that have sold, usually within the last six months, as well as active and pending sales and often homes that expired without a sale. Usually this report is accompanied by a thorough walk through of the property and it’s features which helps the Broker recommend a listing price. Often these reports will help the seller identify areas of the property they can change to improve marketability.
- Inspections and Appraisals: Often buyers confuse these terms and they are not interchangeable. An Inspection is a thorough examination of the property by a Licensed Home Inspector. These inspections are paid for by the Buyer and usually occur within 5 or 10 days after an offer has been accepted. Inspectors are impartial parties whose only job is to give you an accurate report on the condition of the home and recommend any repairs which should be addressed. These reports are very in depth and may be shocking to the potential buyer but don’t worry! You are paying the Inspector to nitpick the property so you have complete knowledge of your future home. After the report is done, you and your Broker will review it and decide if there are repairs the seller should address. An inspection is paid for out of the buyer’s pocket, usually at time of inspection. On an average city home, whole house inspections usually cost between $400-600. An Appraisal, on the other hand are reports compiles by licensed Appraisers on behalf of the lender to protect their investment. While the Appraiser will take into account the general condition of the home, they do not do in-depth inspections of the structure. The Appraisal also looks at comparable sales and active listings in the area and factors in the remaining life of the structure to determine if the amount the loan is in line with the fair market value of the property. Obviously a lender would not want to loan more on a property than it is worth…and you wouldn’t want to pay more for one either!
So there you have it, five common terms laid bare before your eyes! As you move along in the process you will doubtless come across more terms like LTV, APR, HUD or even DMBWAIT. Don’t worry! If you’ve chose an experienced REALTOR and mortgage professional we will explain it all in easy to understand language and you’ll soon be texting teens to say “OMG TIL about RE!” (Oh My Gosh Today I Learned about Real Estate!)