What Does it Really Mean? Real Estate Terms Defined
If you are thinking of buying or selling a home, chances are you’ve come across a lot of real estate terms or jargon. Some of these terms seem self-explanatory, but lots more are confusing. To help you out, below are a few commonly used terms and their down-to-earth explanations:
Bridge Loan: Typically a short-term loan that is designed to provide the cash for a buyer to purchase a home before the current home is sold. The equity in the present home is used to secure the loan. Bridge loans are becoming increasing popular because of the fast-moving dynamics of the Midpeninsula real estate market.
Comps or Comparables: This is a term that describes comparable properties that are used in determining the sales price and appraisal price of a home. Recently sold properties that are similar in location, lot size, home size, home age and amenities are analyzed to come up with an estimate of value of the home for sale. To set the “for sale” price of a home, the seller’s agent will do a Comparative Market Analysis (CMA) to determine a fair market price.
DOM: Days on Market. This can be confusing because when exactly do you count the beginning and end of a sale? The clock starts ticking the moment that the property is listed on the Multiple Listing Service (MLS) (link to MLS here) and ends when an offer is accepted. The closing of escrow (define below), however, may take longer. The DOM clock is reset when a home is withdrawn and relisted later (although the MLS will record all of this history). The DOM is an indicator of how in-demand a certain property or geographical area is.
Earnest Money or Good Faith Deposit: Upon acceptance of an offer, this is the money that the buyer gives to the seller to demonstrate that the buyer is serious about following through with the purchase. Earnest money is usually between 1% and 3% of a home’s purchase price. The amount and timing of the earnest money is usually indicated in the buyer’s offer. When the sale goes through, the earnest money is applied against the down payment. If the buyer decides not to go through with the purchase for reasons not covered by a contingency, the seller is often entitled to keep some portion or all of the earnest money.
Escrow: During the process in which the sale of a property is finalized, a neutral third party (not the buyer or seller or their agents) will keep all funds, documents and other materials necessary for the sale in their possession. When the sale is finalized, also called the close of escrow, the assets are handed over to the appropriate parties, as previously specified in a legal agreement. The escrow process is designed to protect both the buyer and the seller in real estate transactions.
Non-Contingent Offer: An offer to purchase a property without any contingencies at all. Once the seller accepts the offer, the buyer is obligated to follow through with the purchase. In a strong real estate market, sellers prefer, and often can obtain non-contingent offers, which greatly shorten the sales cycle and risk for a seller.
Off-market, Private or Pocket Listing: These are homes that are listed for sale with a real estate agent, but not publicly advertised or registered on the Multiple Listing Service (MLS), which is the primary medium for communicating information about houses for sale among real estate agents. An off-market listing limits the pool of buyers, but offers other benefits to sellers, including privacy, reduced preparation time and costs and an ability to test the market before publicly listing.
Pre-qualification and Pre-approval: Pre-qualification is the process that a lender goes through to estimate how much money a prospective buyer can borrow to purchase a home. The estimate is typically based upon self-reported information and is not binding. In contrast, when you have a pre-approval, a lender has done an extensive check on your financial background and current credit rating. The lender then provides a conditional commitment in writing to make a loan for a specific amount, sometimes at a specific interest rate, for a specific time period. A pre-approval is much more powerful than a pre-qualification when making an offer in a competitive market.
There are many terms that are second nature to real estate professionals, but may be confusing to consumers. Please contact me if you have any questions, and I’d be happy to explain them to you.