Getting into real estate is like learning a new language! You’ve got to have an understanding of the terms to be able to prepare to buy or sell. That’s why we’ve prepared a beginner’s guide of real estate vocabulary. These are the terms every buyer and seller should know when starting out in real estate.
When you purchase a house using a mortgage, Equity = Value of the Home - Loan on the Property. Sometimes, you can have immediate equity in the home when you buy a house for less than the value. You can also renovate to increase the value of the home to add equity.
In real estate investing, your cash flow is the income you have coming from a property. There is before tax cash flow and after-tax cash flow. The after-tax cash flow will probably be significantly less than your before-tax flow, due to the annual depreciation for income tax purposes.
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If you don’t have enough money to buy your house outright, you can get approved through a lender, and they will purchase the deed to the house. They will then turn around and let you buy the house from them with monthly payments and interest. This process is called mortgaging a house.
After getting approved for a home loan through a mortgage company, they’ll require you to put some money down to show that you are serious about the transaction. Some allow as little as 3% down, but there are incentives for putting down more money, like less interest and no PMI.
Private Mortgage Insurance (PMI)
If a buyer puts a downpayment that is less than 20% on the house, the lender will require them to get private mortgage insurance. PMI protects the lender if the buyer ends up foreclosing on the property.
Escrow is an arrangement as outlined in a contract where a third-party holds something of value until the terms outlined in the contract are fulfilled. For example: If you are purchasing an investment property using a 1031 exchange, the money is held in escrow by a third-party who has no skin in the game, until the terms of the 1031 exchange contract are realized.
The property plus the buildings on the property (if any) are all considered real estate. One important thing to note is that while buildings don’t always increase in value, the property can because it is a scarce resource. The less land there is in the area, the more people are going to pay for that land.
An appraisal is a professional assessment of the value of the property. An appraiser will usually be hired by the buyer’s lender to make sure the property is worth what the buyer is offering to pay. The appraisal is usually conducted by comparing similar homes in the area and tax records, as well as updates done to the property.
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A pre-sale inspection is an inspection of the property to determine any issues with the property before the buyer closes on it. It is a right of the buyer to have a pre-sale inspection, although many waive that right as it comes out of their own pockets.
Discount Real Estate Agent
A discount real estate agent is a licensed agent that works at a discounted price. The services of these agents vary from partial service to full-service, as do the years of expertise. It’s a good idea to thoroughly interview your agent to make sure you understand what you are paying for.
A listing service is a service that lists your home on the MLS for a fee. They may also do more services al la carte, but they aren’t full-service agents. People consider working with listing services when they are selling their home FSBO.
For Sale By Owner (FSBO)
Selling your home For Sale By Owner means you are responsible for the marketing, showing, and paperwork of your home. People typically sell FSBO when they don’t want to pay real estate commission to a listing agent.
Flat Fee Agent
A flat fee real estate agent is a licensed real estate agent who is paid a flat fee rather than a commission rate for their services. Flat fee agents typically charge a percentage of the sales, but sometimes charge a flat dollar amount that is dependent upon the sale price of the home.
Multiple Listing Service (MLS)
The Multiple Listing Service (MLS) is a database of housing inventory provided by real estate brokers. The MLS allows agents in the area to search for homes for their clients and provides added exposure to those selling their home.
Property Value (aka Home Value)
The property value of your home is what your property and home are actually worth. This is dependent on factors such as comparable homes in your area (aka comps), the housing inventory, the condition of your home, and the amount someone is willing to pay for your home.
Did you know there are real estate agents out there who provide you with the highest level of service for a fraction of the price? It’s Clever! Clever uses the top agents in your area to provide you with the expertise and service you deserve. Call us today at 1-833-2-CLEVER or fill out our online form to get started.