Most Common Real Estate Terms
If you’re purchasing your first home or otherwise diving into the world of real estate for the first time, you’ll find yourself confronted by a lot of unfamiliar terminology. Don’t let real estate jargon scare you away from your dream home — we’ll walk you through the terminology you’re most likely to run into.
Real Estate Agent: This is probably who you’ll be talking to about buying or selling a home — they’ll walk you through the process and help you navigate the paperwork. Real estate agents are licensed by the state, though state licensing requirements vary. Typically, there will be a real estate agent representing the buyer (buyer’s agent) and another representing the seller (listing agent) to represent the interests of each party in the transaction. Real estate agents are paid by commission, usually a percentage price of the final home sale.
REALTOR®: Though “REALTOR®” and “real estate agent” are sometimes used interchangeably, a REALTOR® is a real estate agent who is also a member of the National Association of REALTORS®. Members of the NAR are required to follow a strict code of ethics, which gives you an additional guarantee that your agent is working in your best interests.
MLS: Though you may not realize it, this database of real estate information will be probably be the start of your endeavor to buy or sell a home. The MLS (or multiple listings service) is a searchable listing of homes for sale, with detailed information on each. A real estate agent can add your home to the MLS or help you search the MLS to find your dream home — though many online searches allow anyone to browse the MLS for property.
Listing Status: When browsing MLS listings, you’ll find properties listed with a number of different statuses.
- “Active,” the most common status, means the home is on the market and available for purchase.
- “Closed” or “Sold” means a home has been sold and is no longer available.
- “Contingent” or “Under Contract” means that the sellers have accepted an offer on the home, but it’s not a done deal yet — whether the deal goes through could depend on the house passing an inspection, the buyers being approved for financing, or any number of other things. The sellers may still accept backup offers on such properties in case the deal falls through.
- “Pending” means that a property is set to close soon. An offer on the property has been accepted and any contingencies have been cleared.
Offer: When a homebuyer has decided on a property, they’ll make an offer to the seller explaining what they’re willing to pay as well as any terms. The seller can accept the offer, make a counter-offer, or reject the offer outright.
Acceptance: When an offer or counter offer is accepted, then both parties enter into a contract to purchase the home, as outlined in the accepted offer.
Earnest Money: Also sometimes known as a good faith deposit, this money — the exact amount should be defined in the offer — is put into escrow by the buyer after an offer has accepted. Putting down earnest money shows a seller you’re serious about buying and when the transaction is completed, it can go towards closing costs or a downpayment. If the buyer backs out of the sale for reasons not covered by contingencies in the offer, the seller typically gets the earnest money.
Contingencies: When making an offer or counter-offer, you’ll probably want to include provisions to cover yourself in case the deal doesn’t wind up working for you. For example, you might have a contingency that says the purchase of a home will be dependent on being able to sell a current home, obtaining the necessary financing to purchase the home, or the home passing an inspection. Your real estate agent should be able to help you make an offer or counter-offer that suits your needs, with the appropriate contingencies.
Appraisal: Though a home may be appraised for many reasons, the most common reason to appraise a home during a real estate transaction is to secure a mortgage to pay for it. Lenders will require an appraisal of the property to determine its value before agreeing to lend the money to purchase it — and may not be willing to lend beyond the appraised value of the property.
Inspection: A common contingency is the home passing an inspection, in which an inspector will thoroughly examine the home for any damage. If any damage is found, the buyer and seller may renegotiate the cost or other terms of the original offer.
Closing: The purchase is finally done at the closing, which is when the title is transferred, paperwork is signed, and money changes hands. A day or date range for closing may be specified in the offer.
Closing Costs: There are a number of costs in addition to the purchase price of the home that come with closing a real estate transaction — these are often lumped together as “closing costs.” These cover all additional fees required to complete the transaction, the cost of an appraisal, attorney’s fees, lender’s fees, title fees, and more. You should get a good faith estimate of closing costs but you’ll get a final HUD-1 statement outlining all costs shortly before closing.