REAL ESTATE DEFINED: A GUIDE TO KEY TERMINOLOGY
Entering into the world of real
estate can be very exciting, but often times, understanding the terminology can be complicated. To help consumers better understand real
estate terminology, We have prepared a short summary to assist
home buyers and sellers in navigating their way through the housing marketplace.
The following is a list of 10 common terms or phrases associated with the real
estate process.
The Canarecci Group with Coldwell Banker Roth Wehrly Graber have been representing both buyers and sellers in northern Indiana since 1997.
Coldwell Banker Roth Wehrly Graber is the 3rd largest real estate Company in Indiana (#1 in NE Indiana) and in the top 1% of real estate companies nationwide. We utilize our experience and success to provide our clients the most extensive real estate services available.
1. Appraisal: A home appraisal is a survey of a home by a licensed professional for his
or her opinion of the property‘s value (i.e., what a home will likely sell for
on the open market). In most cases, an appraisal is done for a bank when a home
buyer is applying for a loan for the home. The home appraisal is a detailed
report that looks at such items as the condition of the home, the neighborhood
and what similar homes in that neighborhood are selling for. An appraisal is not a home inspection (see #7 below).
Appraisers only look for major concerns; they do not examine the home's full
condition (i.e., examine the roof, appliances, etc.). An appraisal also differs
from a Broker's Price Opinion (BPO) or Competitive Market Analysis (CMA), which
provide an estimate of a home’s value by making comparisons to similar
properties in the area and what they were listed and sold for. This is usually done for free by the
prospective listing agent. To learn more about
appraisals, visit the consumers section of www.appraisalfoundation.org.
2.
Commission: Commission is the
compensation or fee that a real estate agent charges for performing the
agreed-upon terms under a brokerage contract.
The commission due for a real estate transaction is negotiable and usually
paid from the seller's funds at closing.
The fee is typically calculated as a percentage of the total sales price
and commissions vary from market to market.
Commission is shared between the listing agent and the agent who represents
the buyer, but the division is not always a 50/50 split. [Also, agents split
their commissions with their brokers.]
3.
Closing: Closing, or
settlement as it sometimes referred to, is the final step in completing a real
estate transaction. The closing date,
set during the negotiation phase, usually takes place several weeks after an
offer is formally accepted. At this time, ownership of the property is
transferred to the buyer and any costs incurred by either the buyer or the
seller beyond the price of the property itself are paid. These additional expenses are known as
closing costs and might include recording fees, attorney fees, title insurance
premium, etc. Closing typically takes four weeks to 45 days depending on
variables such as delays in obtaining documents, clearing title defects,
inspection repairs, etc.
4.
Existing Home Sales: Existing home
sales is an economic indicator of both the number and prices of single-family
homes, condos and co-op sales over a one-month period – this figure does not
include new construction. Each month, the
National Association of Realtors (NAR) releases statistics on sales and prices
of existing single-family homes for the nation and four regions. The existing
home sales report, which includes footnotes on how the numbers are derived, is available
at www.realtor.org. The Canarecci Group also
publishes local housing statistics in our monthly newsletter for counties
throughout Indiana. To receive our
monthly newsletter, just drop us an email at info@IndianasBestHomes.com and put
“newsletter” in the subject line.
5.
Home Appreciation: Home
appreciation is the increase in value of a property over a period of time. Short-term increases or decreases in value
are triggered by factors such as employment rates, interest rates, housing
supply, demand, affordability, crime rate, quality of schools in the area and proximity
to a city. Additional factors such as
upgrading a home can also result in home appreciation. What a home is worth depends on these elements,
as they directly impact what a buyer is willing to pay for a particular property.
While real estate moves in cycles and home values fluctuate regularly, real
estate has consistently appreciated over the long term.
6.
Home Equity: Home equity is the
value of ownership in a home that represents the current market value of the
house -- minus any remaining mortgage payments. This growing value is
contingent on the property owner paying off the mortgage and the market value
of the property appreciating. When a home
is purchased, every dollar put towards the down payment is immediately
transferred to the equity in the home.
This is one of the many reasons why saving for a down payment is so
important - a significant down payment helps homeowners build equity more quickly. For example, a home buyer who puts nothing
down needs a year of 20 percent appreciation to have as much equity in his
property as a buyer who put 20 percent down in a stable market.
7. Home Inspection: Home inspection is
a visual inspection of the structure and components of a home by a qualified
professional to find items that are not performing correctly or items that are
unsafe. A home inspector's report will review things, such
as the condition of the home's heating and cooling systems, interior plumbing
and electrical systems; the roof, attic, and visible insulation; walls,
ceilings, floors, windows and doors; the foundation, basement, and visible
structure. While the inspection is not meant to be a tool for re-negotiations,
many times it becomes one. Homebuyers should be sure to make a list of items they think should be
addressed and present them to their real estate agent in a timely manner. Often times, the seller will agree to have
the problems repaired before closing or accept a new offer that deducts the
cost of repairs.
8.
Housing Market: The housing market
refers to the supply and demand for houses in a particular country or
region. Factors that affect the housing
market include interest rates, the mortgage industry, economic growth, incomes,
unemployment rates and population demographic trends. More specific definitions of “market”
include:
·
Buyer’s Market: A buyer's market occurs
when there is a larger inventory of homes available. In some cases, home appreciation has slowed
in the short term, which means that homebuyers have the opportunity to purchase
a home at lower prices.
·
Seller’s Market: A seller's market
occurs when demand of for homes is great. In a seller’s market, potential
sellers have the opportunity to sell their home at a higher price than in the
past due to a limited amount of properties available and a large number of
potential buyers demanding them at current prices. Sellers and home owners are also likely to
experience higher appreciation in a seller’s market.
·
Time on Market: The length of
time in which a home is listed for sale is known as “time on market.” On many MLS listing sheets, this is also
noted as D.O.M. – Days On Market.
9.
Inventory: Housing inventory
is the number of existing homes available for sale each month. The most closely watched housing inventory
measure is a months' supply, which measures the latest housing supply in
relation to housing demand. A
decrease in homes for sale is a sign that the housing market is on its way to
recovery, while a large supply of homes still available gives potential buyers
more options in choosing the home that best fits their specific needs and wants.
10.
Real Estate Agent: A real estate agent
is a professionally trained and licensed real estate expert who is involved in
real estate sales and transactions. Though it is not required to hire an agent
when buying or selling a property, the tasks an agent performs can be extremely
complex and time-consuming. Therefore, it is in a consumer’s best interest to
work with a seasoned real estate professional who can offer invaluable
expertise and assistance, as well as insight into the local real estate market
and neighborhoods of interest.
·
A Seller's Agent: An agent who is
hired to sell a home is responsible for marketing the home to potential buyers
as well as other agents who are working with buyers. The seller’s agent ensures
that the property is in proper viewing order and that he/she is familiar with
everything about the property. Some specific
responsibilities include:
o
Assisting the seller in pricing the property
appropriately
o
Suggesting any necessary repairs to be taken care of
prior to listing
o
Exposing the property to a maximum number of buyers;
arranging showings and providing feedback from prospective buyers
o
Explaining all the contingencies, helping the seller
to remain objective and make informed decisions based on current trends, market
data, and individual needs
o
Presenting and negotiating offers on the seller’s
behalf
o
Following through on the contingencies all the way
to closing (e.g. making sure that the mortgage loan is applied for and granted
within a certain timeframe, the home inspection is done according to schedule,
and any necessary repairs are made prior to closing).
·
A Buyer's Agent: An agent
representing a buyer will need to focus on what the buyer's needs are,
establish what amenities the buyer is looking for, what geographical area(s) are
being considered, how prepared the potential buyer is to buy and how much he/she
is willing to spend. A buyer’s agent must also have a firm grasp of the
surrounding area's real estate market so that he/she can recommend alternative
properties to the buyer. Once
the home buying process begins, a buyer’s agent will be responsible for the following:
o
Providing an honest analysis of each property,
including both good and bad points
o
Preparing an offer to purchase the property with
terms favorable to the buyer
o
Negotiating with the seller to obtain the property
at the best price and terms for the buyer
o
Providing the buyer with an estimate of the costs
involved in the transaction and assisting the buyer in contacting the
professionals necessary to complete the purchase, including mortgage services,
title insurance and escrow companies, and home inspectors
o
Monitoring performance of all others involved in the
transaction to make sure all services are promptly and professionally carried
out . Accompanying the buyer to the closing to verify that all terms and
conditions of the purchase agreement are met
The Canarecci Group with Coldwell Banker Roth Wehrly Graber have been representing both buyers and sellers in northern Indiana since 1997.
Coldwell Banker Roth Wehrly Graber is the 3rd largest real estate Company in Indiana (#1 in NE Indiana) and in the top 1% of real estate companies nationwide. We utilize our experience and success to provide our clients the most extensive real estate services available.
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