15 Real Estate Terms Every Agent Should Know
Excellent communication skills are essential for real estate agents. A large part of this comes from having a firm understanding of basic real estate concepts and terms.
Even if you’re already familiar with most of these real estate terms, brushing up on the basics is always useful, and is a great way to level up your skills and showcase your knowledge to your clients. To help you excel in your career, we’ve prepared a list of 15 real estate terms to know:
Adjustable-rate mortgage (ARM)
Adjustable-rate mortgages have interest rates which change periodically. A homebuyer with an adjustable-rate mortgage can start with lower monthly payments compared to a fixed-rate mortgage, but the changing interest rates mean that monthly payments can go up later on.
Amortization is the term used for the schedule of mortgage installment payments over a period of time. In real estate, a typical buyer’s amortization schedule is one payment per month over 15 or 30 years.
A real estate appraisal is a process designed to develop an accurate opinion of value for real property. In a real estate transaction, an appraisal performed by a third party is often required by a lender to ensure that the amount being requested for the loan reflects the property’s fair market value. In situations wherein a home’s appraised value is less than what the buyer offered, the lender can request the buyer to cover the cost’s difference.
As the name implies, a buyer’s agent is a real estate agent who is legally licensed to assist buyers during the home buying process. They represent the buyer’s interests exclusively during a real estate transaction. Some of their responsibilities include negotiating for the best possible price for a home, providing information on the neighborhood and its surrounding area, making sure the home is inspected, and performing due diligence.
Closing is the final step in the home buying and selling process, and is one of the most important real estate terms to know. The closing date is agreed upon by the buyer and seller during the negotiation phase, and is typically set weeks after the offer is accepted. At closing, ownership of the property is officially transferred from seller to buyer and all necessary payments are made, after which the buyer can then move in or start renovating the property.
Expenses incurred by home buyers and sellers to finalize a real estate transaction are known as closing costs. These may include appraisal fees, taxes, loan origination fees, credit report fees, title insurance, and so on. In most situations, the buyer usually pays from 2% to 5% of the home’s purchase price, although closing costs can be paid by either the buyer or the seller.
Property deed and title
Deed and title are two terms that are often used interchangeably. But while they’re closely related, there’s a difference between the two. The title is a concept and not a physical document. It represents legal ownership of the home and all of the rights that are transferred from seller to buyer. The deed on the other hand, is a physical, legal document that conveys the title to the new owner after a home is sold. It includes a description of the property and identifies the grantee (buyer) and grantor (seller) of a specific transaction.
The down payment is the amount paid by the homebuyer during the closing period. Most home loans require a 20% down payment, while several conforming loans only require a down payment of 5%. There are also loans offered by the Federal Housing Administration (FHA) that accept a 3.5% down payment.
The part of the property officially owned by an individual is known as home equity. While a person does have ownership of a property he or she has purchased, the mortgage lender has interest in the property up until it’s completely paid off.
Escrow is a step in the home buying or selling process which happens when a neutral third party holds something of value (often the buyer’s earnest money check) during a real estate transaction. Once the transaction is completed during the closing period, the third party will then release the funds held during escrow.
Fair market value (FMV)
One of the key real estate terms and definitions all agents should be familiar with is fair market value, which is an accurate representation of a property’s value or worth. Simply put, it is the price a property would be able to sell for on the open market, under the condition that the buyer and seller are both well-informed regarding the property, are acting in their best interests, and are not pressured for whatever reason to complete the transaction.
A Federal Housing Administration or FHA loan is a mortgage issued by a lender approved by the FHA and insured by the agency itself. An FHA loan is designed for low to moderate income homebuyers, and requires lower minimum down payments and credit scores compared to other conventional loans.
A fixed-rate mortgage comes with an interest rate that remains the same throughout the loan’s lifetime, giving the borrower more predictability and stability over their loan’s duration. It is one of the most common types of loans available, and is preferred by many consumers due to its long-term reliability.
A short sale happens whenever a property is sold for less than what is owed on its mortgage. In a short sale, the seller pays for the difference in what is owed to sell the home. These are often used as an alternate option by homeowners and banks to avoid foreclosure.
A Veteran’s Affairs or VA loan is a type of home loan that is only available to US military veterans and their surviving spouses. This type of loan is designed to assist veterans who are looking to purchase a property without needing a down payment or mortgage insurance. VA loans are available through banks and mortgage companies. A percentage of VA loans are guaranteed by the federal government, allowing banks to offer more advantageous loan terms.
Great communication skills are one of the keys to success in the real estate business, but knowing your key terms should always be top priority! At Sea Coast Academy, we can help you by providing you with the resources you need to succeed.