Buying a home can be a daunting task, and there’s a lot of real estate jargon that can make it easy to get confused. Most of these terms are specific to real estate, and if you’re new to the industry, you may only have a vague idea of what they mean. That’s why we’ve compiled 15 of the most common real estate terms with simple definitions to help make the process just a little bit easier.
1. Pre-Approval/Pre-Qualification
More often than not, these terms are used interchangeably. Before you start seriously looking for a home, you’ll want to get pre-approved. This simply means you give a lender some information about your financial situation so that they can calculate what kind of loans you would qualify for. This process varies lender to lender and there is a subtle difference between pre-approval and pre-qualification, but generally all this means is what your lender estimates you can afford for a mortgage.
2. Open House
An open house is when a specific home is open for the public to tour. It’s a scheduled period when potential buyers can walk through the home without having to make a specific showing appointment with the REALTOR®.
3. Showing
A showing is a scheduled appointment to view a home. The REALTOR® will accompany the buyer while they view the home.
4. Under Agreement/Under Contract/Sale Pending
These terms are often used interchangeably, but all mean the same thing: a seller has accepted an offer from a potential buyer, but the home has not closed yet. Until the home closes, there is a small chance the sale could fall through.
5. Appraisal
Lenders want to make sure the mortgage they are giving for a home matches the actual value of that home. They don’t want homeowners to over-borrow on a property. Once an offer has been accepted, a qualified appraiser will go through the home and estimate its value. If it matches or is above the sale price, the transaction can proceed. However, if the appraisal is below the sale price, it could delay or stop the sale entirely. A lender will not give out a loan for more than what a home is worth.
6. Financial Commitment
A financial commitment is when the lender has committed to giving a loan to fund the purchase of a home. Since a financial commitment is made on a particular property after an offer has been accepted, it’s a much stronger commitment than a pre-approval.
7. Home Sale Contingency
A home sale contingency may be included in the contract when a home is being purchased. It’s a condition in the contract in which the buyer must successfully sell their current home before they can purchase the new property. Sometimes a buyer plans to use the profit from the sale of their home as a down payment on the next, which is why a home sale contingency may be helpful. However, a home sale contingency could hinder negotiations in a competitive market.
8. Financing/Loan Contingency
A financing contingency is a clause in the contract in which the sale of the home is contingent upon the buyer’s ability to secure financing. If the buyer is unable to secure financing within the specified time period, they are able to back out of the sale without fault.
9. Earnest Money Deposit (EMD)
An EMD refers to the initial funds a buyer puts down on a home, often to show the buyer is serious about the sale. This often allows the buyer extra time to secure financing and goes toward the down payment and closing costs. The money should go to the title company or real estate broker, and if the deals fall through, the buyer could get most or all of the money back depending on the circumstances.
10. Due Diligence
When an offer on a home has been accepted, the buyer is expected to do their “due diligence.” This most often means hiring a home inspector to thoroughly examine the home and report any problems in the home, no matter how small. While a seller has the option to not negotiate on every issue a home inspector finds, serious problems may lead to renegotiation or forfeiting the contract.
11. Escrow
Escrow is a legal term which refers to assets or money being held by a third party while a transaction is being completed. More specifically, it may refer to escrow fees managed by agents until the home has closed or certain contractual obligations met. This ensures that if the sale falls through, the money will be returned to the appropriate party depending on the contract and specific circumstances.
12. Settlement Statement
The settlement statement is a document given to the buyer at closing that itemizes all services and fees associated with the sale, whether they are being charged by the lender or broker. This is an estimate and will be finalized one day before the closing.
13. Closing Disclosure
The closing disclosure is the final document you will receive before signing a mortgage. It includes the final numbers for interest rate and fees, closing costs, mortgage payments and the grand total of all payments and charges.
14. Closing
Closing is when the ownership of the property is transferred to the buyer and is the final step in the home buying process. This means all the necessary documents have been signed, money exchanged, and the lender’s approval completed.
15. Back On Market (BOM)
This is a common abbreviation used in the real estate industry and refers to when a listing goes back onto the market after a prior offer or contract falls through.
Whether you’re buying your first home or your fourth, buying a home is an intricate process best navigated with an experienced REALTOR®. Feel free to reach out to us at The Gove Group with any questions you may have.
