The Real Estate ABCs
The real estate is one of the largest and influential markets in the United States. Thousands of people each day participate in real estate transactions where hundreds of thousands of dollars are traded and that number is growing every day. Thanks to this large growth of an already immense market, there are more jargons, phrases, and technical words traded back and forth than ever before. Now, unless you are a real estate agent, broker, or investor, you don’t need to have a deep understand of the market, nor do you need to even master this new vocabulary. However, in order to stay afloat when you do venture into the real estate world, here are the ABCs of real estate. If you have any questions about these phrases or jargons, contact one of our licensed real estate agents and they will be happy to help you.
A is for Appraisal
You have probably heard the word appraisal before when talking about jewelry or a vehicle, but what does it mean when it comes to real estate? Well, simply put, the appraisal of a home is when an appraiser comes into the home and determines how much it is worth. They will inspect just about every nook and cranny of the home and come up with a fair price for how much to sell it. This is good for both buyer and seller because, if you are buying the home, you can rest assured that you aren’t paying too much for it. However, it also helps the seller because it can help them price their home more correctly.
B is for Bankruptcy
Bankruptcy is a sad thing to have happen to you, but it is important to know what it is and the differences between it and other forms of financial decimation. Bankruptcy, much like a foreclosure, means that your home will be repossessed; unlike a foreclosure, it means that all of your debts are put back in order and you receive a fresh start. Both are to be avoided if possible, but, with bankruptcy, there is more hope for the rebuilding of credit and for again buying a home, whereas, with a foreclosure, the recovery time is much longer much more arduous.
C is for Credit
Credit was mentioned earlier, but what is it? Why is it talked about so often in real estate? Your credit, or credit score, is much like a report card. In school, kids are given a report card at the end of a term or semester that scores them on how well they know the material. In the world after school, instead of a report card to worry about, you have a credit score. Essentially what it measures is how trustworthy you are with money. Any money you borrow, whether it is from a credit card, for a car loan, or a home loan, is monitored, and how long it takes you to pay it back and whether you break any contracts that are associated with that loan is translated into your credit score.
The usual range for a credit score is somewhere between 300 and 800— although they can be higher and lower than these. If you are responsible with your borrowed money (i.e. you make all your monthly payments, pay the loan off in time, don’t borrow too much, etc.) then you will have a higher score. In retrospect, if you are not responsible with your borrowed money (i.e. you make your payments late, don’t pay off the loan in the allotted time, or anything else for that matter) you will have a lower credit score. Usually, to be considered to have good credit you will have a credit score of 700 or higher— again, the scores can go higher than 800.
D is for Down Payment
Down payments are used in almost every real estate transaction, or any transaction that involves large sums of money really. Essentially, a down payment is a predetermined sum of money that you pay the bank upfront in order to secure a loan. Usually, it will be about 10% of the total price of the home. So, if you are buying a $100,000 home and the bank is requiring a 10% down payment, you will need to give the bank $10,000 up front in cash and then they will lend you the rest of the money ($90,000).
A bank or lender will require a down payment as an insurance practice. Let’s say you get the loan and there is no down payment required, then you find out that you can’t pay for the home like you thought you could. The bank or lender will then repossess the home and will then have to sell it, and will most likely lose money on it. If they have a down payment, however, they will have some sort of cash up front to compensate having to repossess and resell the home.
E is for Earnest Money Check
The earnest money check is kind of like another down payment, the only difference being that it is for the seller, not the bank. How it works is like this: if you want to buy a home, you will write a check for a couple thousand dollars and give it to the escrow account (the holding company that makes sure all things are done in order during the real estate transaction). The escrow account will then hold on to that check and it will be given to the buyer if you back out of the deal. If you don’t back out, however, that money will be added to your down payment to the bank.
The earnest money check just makes it so that if a person comes and makes and offer on your home and then backs out, you will be compensated for that time and energy wasted.
F is for Fair Market Value
The fair market value of a home is much like a car’s MSRP. It is how much a buyer should expect to pay for that property (or one of similar features and amenities) in the current market. It also shows a seller how much they can expect to sell their home for. This is different from an appraisal in several ways, the most notable being that your real estate agent can determine it on their own. The only problem being that it is not an official appraisal making the agent determined value, not a guarantee.
G is for Grantor
At face value, the word grantor sounds much more intimidating and formal than it really is. To be honest, however, it is not that complicated. A grantor is simply the legal term for the seller of a piece of property. The grantee, in retrospect, is the buyer of a piece of real estate. The reason for this different word in the legal realm is for when a business or other entity acts as buyer or seller.
H is for Homeowners Association
A homeowners association— or HOA as they are commonly called— is an organization of homeowners from a certain neighborhood who come together to uphold that neighborhoods specific standard of living (or, in some cases, enhance it). Typically they make rules like noise ordinances, run the neighborhood watch, and much more. There are, however, some homeowners associations that are so strict and involved that they have rules as to the height of your grass or how many cars you are allowed to have parked at your house. A lot of homeowners associations are also involved in putting together block parties so the neighbors can get to know each other better and have some fun. Others put together community yard sales and so forth.
Since the homeowners association is made up of people from your own neighborhood, if you do not like a rule that they have, get involved and change it.
I is for Inspection
The inspection of a home is one of the most important things that has to happen during a real estate transaction. The inspector is separate from an appraiser or any of the parties involved in the transaction and their main goal is not to determine a home’s price, but rather to make sure that it is safe to live in and that there are no faults that could be threatening to the buyer or seller. They will check for mold, mildew, cracks in the foundation, gaps in the walls, and more. They will also check the roof to make sure it is in tip-top shape, and so on and so forth. If the inspection comes back clean, then the transaction can go through without a hitch.
J is for Joint Ownership
Joint ownership is just like what it sounds— it is when more than one person owns a piece of property. They have ownership of, the right to use, and responsibility for the property that is directly proportionate to how much of it they own. There are several different scenarios that can come into play during a joint ownership so a legal advisor should be consulted if you plan to do any investing in a joint ownership property.
K is for Kindness
Now, this may seem a little strange, but it is actually a very important part of real estate. When buying and selling homes, pieces of property, and other items of such monetary and intrinsic value, tensions can run high. Everyone involved has their own needs, wants, agendas, budgets, and more. This wide range of expectations makes it hard for everyone to walk away happy, and there are some people that end up getting the short end of the stick and end up with a terrible deal. For this reason, alone, it is important to find compromises in all deals so that they all end up as win-wins. This is also a wise stance from a business standpoint as well. If you make a win-win situation out of every deal you make, the people you deal with will be much more likely to want to do business with you again.
L is for Lien
A lien, in essence, is just a way of saying that the owner of the home owes someone else money and the lien must be paid before ownership can be transferred. Simply put, whoever you owe money to will need to either paid off with the sale money of the home, or they need to be paid off before the sale. For more information about liens, talk to your banker or real estate agent.
M is for Mortgage
Mortgage, is a commonly used word in real estate and, to put it simply, it is just a fancy word for a loan to buy a home. They are structured differently than smaller loans too— like those for a car or boat. When you go to buy a home, chances are that you will not have enough money to buy it outright, so you will need to go to a bank or lender to borrow the money. When you borrow the money they right you a mortgage. These usually are for 15 to 30 years and will have interest rates that about the same as a car loan. However, your credit score will help determine your interest rate, and how much the bank is willing to loan you for the mortgage.
N is for Notes
Notes are formal documents and the most well-known note in real estate is the promissory note. They are, in essence, a sort of receipt that is written prior to the transaction. Much like a contract, the promissory note promises that person A will pay a, b, and c for person B’s x, y, and z. These notes are legally binding and can be enforced in court.
O is for Owner Financed
Now, owner financing doesn’t happen much in real estate, but when it does happen it is normally because either the seller is desperate to get rid of the home, or the buyer can’t get a normal type of financing. The way it works is like this: instead of getting a large check from the bank when the sale of the home is final and they buyer pays the bank over the next 15 to 30 years, the buyer will pay the seller directly until the sale is complete. This cuts the bank or lender out of the transaction, but can be a little dangerous for the seller as they may have to wait to get the money for their home.
P is for Pre-Approval
Preapproval is not a mandatory part of the real estate game, but it can give any buyer a leg up. Essentially, the pre-approval means that the bank has gone in, examined your finances and have already agreed to lend you a specific amount. This is different from the usual process because usually people go find a home that they like first and then ask the bank for the money. However, if you are pre-approved you will know exactly how much the bank is willing to give you, that way you won’t waste your time looking at homes you can’t afford. There are some homes, however, that require a pre-approval to even look at them. Most $1,000,000+ homes require that a bank pre-approve you for the cost of the home so they don’t waste their time showing a home to a person who won’t even be able to buy it.
Q is for Qualifying Ratio
When the bank goes back to the back room and crunches all those numbers to decide how much money they can lend you, what kind of stuff are they looking at? The answer: your qualifying ratio. When you want to get a loan— especially one as hefty as a mortgage, the bank will go back and look at your monthly income to monthly budget ratio. This will allow them to know how much you will be able to pay each month and if the type of mortgage you are applying for works with that payment limit.
R is for Real Estate Agent
Real estate agents are the underappreciated backbone of the real estate market. They know the ins and outs of the local market, they know what it takes to sell, to buy, and everything in between. They are an irreplaceable part of real estate world, acting as guides to buyers and sellers through the webs of jargon, paperwork, and red tape.
Thanks to their training, real estate agents know what it takes to achieve their client’s goals. They also know how to save you time and money throughout the process. There are many people who think that they can navigate the market themselves without a realtor, but when they do that they are giving up a valuable resource.
For a great real estate agent, contact us at the Hughes Group and we’ll get you in touch with some of the best agents that we know.
S is for Subdivision
After the home itself, the subdivision in which it is located is the most important part of the decision-making process. A buyer needs to feel comfortable in the subdivision their new home will be built in, or is already located in. For this reason, it is important to know now what you want in a subdivision before you start looking for a home.
Subdivisions are full of different amenities that their residents can enjoy. For instance, there are subdivisions with parks, clubhouses, hot tubs, playgrounds, community centers, event centers, sports equipment, basketball courts, tennis courts, and so forth.
The location of the subdivision, especially in relation to shopping centers, entertainment establishments, downtown, and other such places is another big deciding factor.
U is for Underwriter
When you go to the bank and apply for a loan, who is the person who actually crunches the numbers? Who comes up with the qualifying ratio? The loan officer? No, it is a person called an underwriter. The underwriter is someone that is designated by the bank to run all their calculations and all the possible scenarios to figure out exactly how much money they can trust you with. So, if you are trying to get more money on a loan, you have to figure out what exactly the underwriter will be using to make his or her equations then, do what it takes to convince them to lend you the money.
V is for VA Loan
VA loans are a special mortgage that is set up for qualifying veterans by the United States Government. These loans are designed to make it so veterans can more affordably buy a home and get the housing that they need. It is a way for the government to say thank you to them for their service. However, not all banks are authorized to issue VA loans. The Department of Veteran’s Affairs decides which banks are qualified to issue these loans.
W is for Water Rights
Now, water rights don’t really concern you unless there is some sort of water on your property. But if you have any water on your property that is more than a pool, then you need to understand them. Water rights are concerned with streams, lakes, canals, ponds, etc. If your property has any of these on it, then you will want to inquire who has the water rights to it. The water rights, in short, are the rights to use the water. This can be for any purpose-- assuming the area is zoned for it.
The best example of water rights in Boise are the canals that make their way through the city. These canals are owned by the state and the use thereof is leased out to farmers and communities to water their crops and lawns.
X is for Xing
Xing is an abbreviation for the word crossing. In real estate there are several different kinds of crossings that you need to worry about, railroad crossings, crosswalks, bike baths, animal crossings, school zones, and so on. The reason these are so important is because, depending on the kind of crossing that are near a home or neighborhood, the price can go up or down. For example, if there is a railroad crossing nearby, the home’s value will go down as it will be noisy, when the trains go by, they will impede traffic, and can do damage to your car if driven over too many times. However, crosswalks can increase the value of a home because it allows for better walkability and convenience.
Y is for Yard
When it comes to curb appeal, there are hardly any parts of the home’s appearance that attract people inside than the yard. A well-groomed yard makes for a well-kept home on the inside. If a yard is messy and unkempt it will be hard to lure people inside, however, if the yard is well-kept, it will make the home look much nicer, and bring people inside right and left.
Z is for Zero Down
Zero down has reference to the down payment of a home. Simply put, if a mortgage, or whatever kind of financing a buyer acquires, offers zero down it means that there is no down payment required. This will most likely result in a higher interest rate, however. These kinds of mortgages, though hard to find, can be great for people with little to no capital.
And there they are, the real estate ABCs. With these simple 26 words and phrases, you will be able to better navigate the real estate world. For more information about how real estate works, or to find more information about the above jargons, contact a member of the Hughes Group of Silvercreek Realty Group— they will be happy to help you. They will not only be able to help you understand the real estate world, but they will also be able to offer you services so you can achieve your goals. Whether you are looking to invest in real estate, or just need a new home, these agents at the Hughes Group can help you. For those looking to sell a home, ask about our 59-day guarantee and get set up with our best salespeople.
The Hughes Group of Silvercreek Realty Group is one of Idaho’s top real estate companies, facilitating thousands of real estate transactions every year. Their elite training and amazing resources—like their state-of-the-art websites, make them some of the most respected and most successful agents in the Treasure Valley.