The real estate sales process is often more challenging than sellers first anticipate — partly because of the confusing real estate terms used in the industry.
If you’re thinking about selling your home, we’ve made a list of the seven most commonly used real estate terms. Understanding these key real estate terms for sellers to know will help to ensure selling your home is as straightforward as possible.
“Closing costs” is one of the most dreaded real estate terms in the sales process. Put simply, closing costs are the expenses that sellers and buyers face on closing day. For sellers, closing costs include fees such as title insurance, taxes, real estate commission, loan pre-payment penalties (if applicable), and any other related settlement costs. As a seller, you should expect your closing costs to range anywhere from 8% to 10%. Additionally, it’s important to note that sellers’ closing costs can vary widely, depending on whether you offer seller concessions and use a real estate agent.
The decision of whether to sell your home is often heavily dependent on the amount of equity you have. Ideally, when you decide to list your home, you should have enough equity to cover your closing costs and put a down payment on a new home. Subtracting any outstanding loan or liens on your home from its market value will give you your equity amount.
A purchase contingency is a condition that must be met before a home can close. Most purchase contingencies rely on the home or the buyer meeting certain situations. For example, if the buyer adds an appraisal contingency into the contract, your home must appraise for the price stated; otherwise, the buyer can walk away from the deal. Generally, offers with fewer contingencies are cleaner and more likely to close, as there aren’t as many hurdles to overcome to close.
Cash offers are self-explanatory — the buyer is willing to pay cash for your house. Many real estate investors pay cash for homes as it makes their offer more competitive. When paying in cash, the buyer is typically able to close faster because they don’t have to wait on a lender to approve the purchase.
A conventional loan is the most common type of home loan and is not backed by a government agency. Buyers who secure conventional loans tend to have more funds to close or a good credit score. It is important to determine how the buyer is financing their purchase when considering offers on your property.
FHA loans are a type of loan that is insured by the federal government. With an FHA loan, the government guarantees that the lenders won’t incur any losses should the borrower default on their loan repayments. FHA loans have other benefits for borrowers, like requiring a lower down payment and lower credit score. However, it’s important for sellers to know that FHA loans have minimum property standards to protect lenders. Areas of the home, such as the roof, electrical system, water heater, and property access, must be safe and livable.
With technology making it easier than ever before to sell you home, iBuyer’s have started to change the real estate landscape. An iBuyer is a company that offers to buy your home as-is, quickly, and for cash. Many sellers find iBuyer companies attractive because they remove the burden of marketing your home and finding a buyer. In addition, iBuyers are often able to close in as little as a few weeks, making them a great option if you need a speedy sale.