Every industry speaks it's own language of vocabulary words that aren't typically used in general conversation. Here's a quick guide of some of those terms thrown around in the real estate industry.
Appraisal- An estimated value of the property
In most cases the value of an item is determined by how much a buyer is willing to pay for it. In real estate, it is determined by how much money a financial institution will agree to lend a buyer to pay for the property. The appraiser will consider only such criteria as square footage, amenities, updates, and comps... they do not consider the fact that it's the perfect home and the buyer is willing to pay every penny of the asking price. The buyer and seller may agree on a sale price, but the lender has to agree that the property value meets their criteria.
Certificate of Title- A document that ensures the property is legally owned by the person who claims it
The title company confirms that the chain of ownership from the first purchase of the property is documented, properly executed, and clear for transfer. Any unrecorded sale, improperly recorded death or land contract can interrupt the transfer of title and delay or cancel the closing.
Closing Costs- All the fees and expenses associated with closing on a property
There are taxes to be paid along with fees that lenders, title agencies, and real estate brokerages charge for their services. Those taxes and fees are paid at closing and can sometimes be negotiated into the sale price of the property.
Comparative Market Analysis (CMA)- A study of recent sales of the comparable local homes that help determine a reasonable asking price for a property
Typically a seller will have a professional real estate agent perform a CMA prior to listing their home. The seller determines the asking price, however the agent can recommend a sale price that will be comparable to the appraisal to ensure financing. (See Appraisal)
Contingencies- Conditions that must be met in order for the sale on the property to proceed
Contingencies typically occur when a buyer needs to sell their current home prior to closing on their new home. An offer with contingencies is typically less desirable to a seller than one without.
Earnest Money Deposit- Payment made to the seller with the offer to show serious intention
The earnest money deposit is applied to the sale of the home upon closing. There are contingencies built into every agreement to outline circumstances for which the deposit can be refunded, as in a failed inspection or appraisal.
Good Faith Deposit- Payment made to the lender to show serious intention
Also known as an application fee, the deposit usually covers the cost of the appraisal and is not typically refundable.
HOA (Home Owners Association)- The organization that determines community rules and standards
The HOA can complicate a home sale with regulations against certain breeds of dogs, or rules against fencing off yards. It's best to find out in advance any rules and regulations that could pose a threat to the completion of the sale.
Mortgage- The loan for the property
Unless the buyer has enough cash to cover the entire asking price and transaction fees, they will require a mortgage. The seller will get all of their money either way. The major benefit of not requiring a mortgage is the absence of the appraisal and other steps required to secure financing.
Occupancy- Period of time that the seller remains in the home after closing
Occupancy terms can be negotiated during the offer acceptance period. The seller will typically agree to pay a per day dollar amount for an agreed upon number of days.
Prequalification- The process to determine if a borrower is qualified for a loan, the amount being approximate
Every buyer should go through the process of prequalification to determine the price range for which they should be shopping properties. Real estate agents typically require this process prior to scheduling showings for a client.
There are numerous terms you may hear while home shopping or listing your home for sale. There is no reason to fret, your real estate agent can walk you through any topic that is relevant to your specific circumstances.