Ever wondered what a home appraisal is, or how the option period works? Some terms used during a home purchase or sale can be hard to understand, so we’ve put together brief explanations of common terms used in real estate. Check out our list below for definitions of ten common real estate terms:
Appraisal- An appraisal is an evaluation of your home to determine its value. The appraisal takes into account all aspects of your home to determine value, including the property size and the condition of your home, inside and out. An appraiser will also factor in market data as factor during the appraisal of a home. If you are buying a home with a loan, your lender will require an appraisal of the home.
Contingency- A contingency is part of a real estate contract that states the contract will be withdrawn if certain provisions are not met. Common contingencies are for mortgages, appraisals, and home inspections. A property for sale is listed as contingent until those provisions have been met.
Deed- A deed is used to transfer ownership of a home or property from the seller to the buyer. The deed of a home is typically signed and notarized during closing, and is kept on file at the county clerk’s office in your area.
Earnest Money- Earnest money is a deposit put down on a home a buyer is interested in purchasing. Submitting earnest money with an offer shows the seller that a buyer is serious about purchasing their home. The earnest money is held by the escrow firm during the transaction. If the home sale is successful, the earnest money typically goes toward the buyer’s down payment or other fees like closing costs. If the sale falls through for a failed contingency, then the buyer gets the money back as long as they meet all requirements and deadlines listed in the contract. If the buyer backs out for a reason not covered by contingency, the seller receives the earnest money.
Equity- Equity is the difference between how much your home is worth and how much you owe on your home loan. As you pay down your home loan, the equity in your home generally increases. In some situations, the equity you accrued in your old home can be applied toward the purchase of a new one.
Escrow- Escrow begins when a buyer and seller sign a purchase agreement and the buyer deposits their earnest money. The earnest money is held in escrow during the transaction by a neutral third party, like an escrow or title company. Escrow closes when all the terms laid out in the contract are met. After closing on the home, the escrow company will disburse the funds to the appropriate party. Escrow can also refer to an impound account where your lender holds your monthly property tax and insurance portions of your mortgage payments until annual amounts are disbursed.
Closing- Closing is the final step of the home buying and selling process. This is the time when all the final paperwork is signed and ownership of a home is transferred from the seller to the buyer. Once the seller receives funds, the home officially belongs to the buyer.
Option Period- The option period is the amount of time in which the buyer can cancel the contract for any reason. The option period is negotiated in the contract and is typically 10 days long. The buyer also pays a nominal fee to include an option period in the contract, which is usually credited to the sale at closing. Buyers typically conduct inspections during this time before they fully commit to the home purchase.
Survey- A survey is an evaluation of a property to ensure the home lies within its legal boundaries and is within all zoning restrictions and limitations set on the property. A survey will also reveal if there are any easements on the property, which gives certain people specific access to parts of a property. While it’s not required, its a good idea for buyers to request a home survey to make sure there are no issues with the property before they complete the purchase.
Title- Title is the legal right to own a home or property. During a home sale, the title company will conduct title research to make sure the title is clear for transfer from the seller to the buyer. A title is not considered clear if there are any outstanding mortgages, liens (a claim to a property until a debt is settled), unpaid taxes, or restrictions on the home or property. The title will be transferred to the buyer at closing.
We hope these explanations help you understand parts of the home buying and selling process. If you have any questions, our agents are familiar with every one of the terms on our list. Contact us with your buying or selling questions today!