Back To School: Your Real Estate ABCs (Or Confusing Terms and What They Mean)
A KlopasStratton blog by: Bridget Chambers, Life Coach, Writer
Let’s get real about some real estate facts. According to The Close, there are approximately 120 million homes and apartments being inhabited in the United States. What’s even more, is that the number of homes sold in 2021 was up by nearly 10% over 2020 to 6.9 million in yearlong sales. What does this mean? Everyone, everywhere, has real estate on the brain. Whether they’re buying it, selling it, thinking about it, or talking about it, “real estate” is a buzz term that hasn’t lost its momentum since the first days of the Covid19 pandemic. And while things have cooled off in real estate since those initial and chaotic days, the market is still lively.
In the fury of making moves in a thick market, things often move quickly. There isn’t time to hem and haw like there once was – for neither buyers nor sellers. Outside of hiring the most educated and dedicated agents (try Sophia Klopas and Jason Stratton if you’re in the market now), a homebuyer or seller is often tasked with being knowledgeable – or at least well-informed – on the processes that occur during a sale transaction.
With all the niche market language, that task can feel unachievable, making a change that should feel exciting and invigorating… feel completely untenable. So, how are we to help without asking buyers to take a real estate crash course? Look no further than this curated list. Here are our “Common Real Estate Terms and What They Mean!”
The Multiple Listing Service (MLS) was developed by realtors to make the home transaction process more efficient. The MLS is a real-time collection of regional databases of homes currently for sale. Sellers’ agents post properties that are for sale, while buyers’ agents share links to these properties with their clients. Having these listings in one accessible place makes the process manageable and well-organized for buyers, sellers, and realtors.
Pre-Approval to buy a home involves an across-the-board analysis of your finances – and is one of the most leveraging moves a buyer can make. Once you are preapproved, you will receive a letter indicating your status to sellers. According to Aly J. Yale, a home buying expert for The Balance, “Sellers are often more confident in a bid when they see that a buyer is pre-approved. In some cases, it may even help you win out over other buyers.”
The amount a buyer borrows under a mortgage is referred to as the principal amount. However, no lender is going to provide a buyer funds without any profit on the backend. Hence, they add a specific interest to the loan that a buyer must pay over a certain amount of time. This will be a certain percentage of the total borrowed amount that gets paid in a buyer's equated monthly installment.
Contingent versus Pending Offer –
When a property is contingent, it means the owner has accepted an offer—but certain contractual expectations must be fulfilled (or the offer will be void). If all contingencies are met, the property changes its status to “pending.” While contingent offers are still considered active listings, pending offers are removed from the market; other offers will not be considered.
This one seems simple until you get down to its myriad definitions. Conventional loans include “fixed-rate” and “adjustable rate” mortgages. A fixed rate mortgage has a predetermined interest rate throughout the life of the loan; the most common being 30 years. An adjustable rate mortgage has a variable interest rate; the most common are for five, seven, or 10 years.
One of the most significant opinions in a buying and selling process is what a property is worth, and why. Luckily, that isn’t all left up to chance. When purchasing a home through a mortgage lender, there will be a real estate appraisal. (Lenders want to know a property’s fair market value if they are granting a mortgage.) Lenders hire appraisers, who are considered a third-party, and not considered to be weighted on either the side of the buyer or the seller. The appraiser reviews public records of other similar properties sold to determine the current appraised value, and analyzes current housing market conditions to determine whether home values are increasing or decreasing. All of this makes for a solid and fair sale.
Deeper than the dictionary
Some language, especially when it comes to home listings and their descriptions, are meant to be confusing. Juan Diaz, a real estate investor in Oakland, California, contends that some terms can be positive or negative depending on how they’re used or what they refer to. He told Yahoo Finance, “Some ads include things like ‘tastefully decorated’ which I used to think didn’t matter because I’m not buying the decor. But then I realized in some cases, you are buying the decor when it includes things like crazy paint colors on the walls, wallpaper, old carpeting, vinyl flooring, or ‘70s wood paneling.”
The same goes for “fixer-upper,” “remodeled” or “home with potential.” Those words cannot be defined by Merriam-Webster. If something feels ambiguous, it usually is. Utilize your broker, your research, and your gut to make a sound next move.
Catch us back here bi-weekly as we bring you curated and Chicago-based real estate content (with a life coach’s twist). Next up: Want to “make a move” but not sure it’s the right time? Start here... Feel Your Way Through Fall: Making A Move That Makes Sense