When you sell a home, you’ll encounter all sorts of real estate terminology that can make you wonder if you should just stay where you are. It can be overwhelming and confusing.
Some of the terms may sound familiar, but what do they actually mean? And how do they affect your ability to sell your home fast?
You don’t have to understand all the technical details. That’s what your real estate agent is there to handle. But going into any real estate transaction with a little background knowledge makes the process less scary.
Brush up on the basics to prepare yourself for the process. Don’t be afraid to ask your real estate agent for explanations on other real estate terms you come across that aren’t familiar.
It’s tough to narrow down the huge number of real estate terms, however the following definitions are some of the top things you need to know as a seller.
1. Buyer’s Agent, Brokers Agent, Listing Agent, and Broker
You can buy and sell a home on your own, but using a real estate agent makes the process much easier. Agents understand all the confusing terminology and the procedures for properly handling a real estate transaction because they do it every day.
In most transactions, there’s a buyer’s agent or a brokers agent working with the buyer, and a listing agent working with the seller.
The buyer’s agent represents the buyers and looks out for their interests. This agent will have a contract with the buyer, and owes them a fiduciary obligation (confidentiality, care, loyalty, accountability, obedience, disclosure). They work exclusively for the buyer. This agent shows them homes, helps them negotiate, and guides them through the process through closing, and it is their responsibility to represent their clients needs.
A brokers agent works with buyers as well, but this agent will represent the best interest of the listing broker and seller. While this may seem strange, that someone who is showing you 5, 10, 20 different homes, and developing a relationship with you, doesn’t actually represent you, but they represent each of the owners of the homes that you are seeing. Beware, that this agents fiduciary responsibilities is to the listing agent, and the home owner. They are obligated to provide you with reasonable care, but not necessarily confidentiality or any of the other 5 fiduciary responsibilities.
As the seller, you’ll have a listing agent to help you and represent your interests. Your agent helps you prepare your house to put on the market and come up with a listing price. That person should also be able to provide you with an aggressive, but strategic marketing plan to help find buyers to speed up the selling process.
A dual agency happens when the same real estate agent represents both the buyer and seller. This can get complicated! It’s usually better to have your own agent.
All real estate agents work under a broker. Real estate brokers have to go through more difficult testing and should have more knowledge and experience. Brokers often own brokerages that hire real estate agents, although some brokers work on their own with no additional agents on staff.
Once you choose your agent, you sign a listing agreement. It’s essentially a contract saying you give that agent and their brokerage the right to be your agent for the sale.
The agreement may require you to list your home with that brokerage for a certain amount of time along with any other terms and conditions. It lists the commission the brokerage will receive if/when your home sells. Commissions vary from agent to agent, and company to company, so make sure that your agent and broker provide you with a detailed list of not only what they will do for you, but what you can expect from them as far as services. The brokerages for the buying agent and listing agent usually split the commission.
2. Comparative Market Analysis (CMA)
As you get your home ready to sell, you’ll work with your real estate agent to determine your selling price. Part of that process is a comparative market analysis. This is a process used to calculate the fair market value of your home.
Your real estate agent does the comparative market analysis by looking at other homes in your area. They’ll look for houses that have sold recently with similar features and amenities that are similar in same size. You might hear your agent refer to those homes as comparables.
Your home isn’t exactly like any other home, so your agent will take into account the differences and make adjustments accordingly.
If lots of similar homes have sold in your area recently, your real estate agent has plenty of data to use to calculate the analysis. If recently sold homes are limited, the agent might look at other homes that are on the market.
Using homes that are still on the market can be less effective.
Since they haven’t sold yet, there’s no way to know for sure what the final selling price will be. The seller may be asking for more than what they can actually get.
3. Offer and Counteroffer
As a seller, you want to be very familiar with offers and counteroffers. An offer means someone is interested in buying your home. It’s the amount they want to pay you to buy the house.
An offer is always in writing with the buyer’s signature. If you’re using real estate agents, the buyer’s agent submits the offer to your agent.
It is not uncommon for buyers to come in with below asking price offers, unless it’s a hot market where bidding wars are common. When you receive an offer, you have to evaluate it to decide what you want to do.
If you think the offer is fair and you’re okay with the terms, you can accept it.
If the offer is too low or you don’t agree with all of the conditions, you have options. You can outright reject the offer, but many people counteroffer instead.
Your counteroffer is your turn at the negotiation. You can counter with a higher sale price or remove some of the extras the buyer wants. The counteroffer goes in writing back to the buyer’s agent.
The buyer can then agree to your terms or counteroffer again. This process continues until both parties agree or one party walks away from the deal.
In some markets, you may get multiple offers on your home, which you can compare to help you choose. A bidding war happens when two or more people both want to buy your home and submit higher offers to try to outbid one another.
4. Sale Contingency
A home sale contingency is any condition included in the offer that has to happen to finalize the purchase. It’s a list of things the buyer has to meet in order for the sale to happen. If not, the buyer can get out of the offer.
A common contingency is being approved for a loan. The offer stands and the home sale will happen if the buyer gets approved for financing. If they fail to secure financing, they can get out of the deal.
If the buyer currently owns a home and is trying to sell it, their offer on your home may be contingent upon their home selling by a certain date.
Some buyers also add a contingency based on the results of the inspection.
If the contingency conditions aren’t met, the buyer or seller can step away from the offer. This protects buyers in case they face difficulties that would make closing on the house impossible.
Are Contingencies Good or Bad?
For the seller, contingencies can be a burden. You may have to wait longer to close on the house if the buyer who is also selling has a certain period to sell their home. The sale may also fall through if the conditions aren’t met, which means you have to start over finding a new buyer.
As the seller, you decide if you agree to those contingencies that the buyer wants. If it’s a seller’s market, you might reject offers with a lot of contingencies assuming you have other offers on the table without those clauses.
If your buyer is financing the home purchase, your home has to go through an appraisal. Since 88% of buyers finance their homes, there’s a good chance an appraisal is in your future.
The appraisal is an unbiased evaluation of your home to determine its value. The purpose is to ensure the bank doesn’t lend more money than the home is worth.
A professional appraiser handles the process. The appraiser is a third party to ensure an accurate and unbiased value estimate. Similar to the comparative market analysis, an appraisal uses similar properties in the area as well as the features of the house to determine the value.
If the appraiser comes up with a value that’s less than what the buyer wants to borrow, the buyer may need to cover the difference. The buyer may put an appraisal contingency in the purchase agreement that releases the buyer from the contract if the appraisal comes up short.
The appraised value of your home is different than the assessed value. The assessed value is what the local taxing authority uses to determine the home’s property taxes. Those numbers may not be the same.
6. Closing Costs
The closing of the transaction is when you finalize the sale and the ownership changes from you to your buyer. Both you and the buyer sign the necessary documents. The buyer typically pays their own closing costs.
Closing costs include all of the fees that it takes to complete the sale. This usually includes fees for loan processing, title search, title insurance, appraisal, and taxes. They usually total between 2% and 5% of the loan’s principal.
The buyer is typically responsible for paying the closing costs. Sometimes the buyer will ask the seller to cover the closing costs or at least a portion of the costs. Being aware of what the closing costs are and how much the buyer will have to pay can be useful in your negotiations.
7. Earnest Money
When a potential buyer puts in an offer on a property, they usually put down earnest money. Think of it as a deposit to go with the offer to show that the person is serious about buying your house. The money can go with the offer or when the parties sign the sales contract.
There’s no set amount the buyer has to offer, but it typically falls between 1% and 10% of the offer amount. Buyers might offer earnest money closer to the upper end in a competitive market.
If the sale ends up going through, the earnest money goes toward closing costs or the down payment.
If the sale doesn’t happen, the buyer may get the money back. This usually happens if a contingency in the contract isn’t met.
The buyer loses the earnest money and the seller gets to keep it if the buyer simply decides not to go through with the purchase.
8. Purchase Agreement/Contract
The purchase agreement is the document that shows that the buyer plans to purchase your home and that you intend to sell the home. It may be called a purchase contract, agreement of sale, or sale contract. When both parties sign the purchase agreement, both are legally obligated to meet the terms and conditions listed in the document.
The purchase agreement includes the selling price that you and the buyer agree to. It also spells out any terms or conditions of the home sale.
If you back out of the purchase agreement, the buyer may be able to take legal action. The only exception is if one of the conditions in the purchase agreement allows you to get out of the contract for a specific reason.
9. Seller Disclosure Statement
When you sell your home, you have to complete the seller disclosure statement or a property condition disclosure form. The documents cover a wide range of issues that could affect a potential buyer’s decision.
It outlines any damage or defects to the home and surrounding areas. These can be things that have already happened or things that have the potential for problems.
Some things that need to be disclosed include:
- Any type of repairs, including those done without permits
- Mold problems
- Any type of hazards
- Pest infestations, including termites
- Property or neighbor disputes
- Deaths on the premises
- Surrounding noise issues
- Mechanical malfunctions
Be honest with these disclosure forms and include all the information you have to the best of your knowledge. It benefits you to be honest because it can protect you from potential lawsuits from the buyer. If the buyer fails to read the disclosure fully, they won’t likely be able to take legal action against you if you disclosed the problem on the form.
If it’s a buyer’s market, you may want to offer concessions to encourage buyers to choose your house. Seller concessions are little incentives you give to the buyer, usually monetary incentives.
An example is offering to pay part of the closing costs for the buyer. This appeals to buyers because they don’t have to come to the table with as much cash at closing. They can use that money toward home improvements or simply have more in savings.
Get Help With Real Estate Terminology
Real estate terminology can get confusing, especially if you don’t do a lot of real estate transactions. Understanding key real estate terms and working with your real estate agent to understand the rest helps you navigate the sale of your home easily.
Are you preparing for an upcoming real estate transaction? Contact us for help every step of the way.