12 Key Terms to Know When Buying or Selling a Home

From appraisal to zoning, the real estate world is full of jargon and terminology that can be intimidating. Here are some terms and definitions that everyone who is buying or selling should know:

• An Appraisal is an assessment of a property's value often required by lenders before approving a mortgage loan. Appraisers use various factors, including location, size, condition, and recent sales of comparable properties, to determine the fair market value.
• Capital Gain is the profit from the sale of a property or investment and may have tax implications. Sellers need to report gains to be compliant and understand whether they qualify for primary residence exclusions.
• Closing is the real estate transaction's final step, when all necessary documents are signed and the property's ownership transfers from the seller to the buyer. This process also involves the exchange of funds, including the down payment and closing costs.
• Closing Costs are the fees and expenses associated with purchasing a property, including appraisals, inspections, title searches, and loan origination fees.
• Contingency is a condition required for a real estate contract to become binding. Common contingencies include financing, home inspections, and the sale of the buyer's current property.
• A Down Payment is a lump sum of money a buyer pays upfront when purchasing a property. It is usually a percentage of the property's purchase price not covered by the mortgage loan. In general, the higher the down payment, the lower the monthly mortgage payment is.
• Escrow is a financial arrangement where a third party holds and manages funds and essential documents related to a real estate transaction. The escrow agent ensures that all conditions of the sale are met before releasing the funds and documents to the appropriate parties.
• A Homeowners Association (HOA) is an organization that manages and enforces rules and regulations for a specific community or development. Homeowners typically pay dues to cover maintenance and amenities. Real estate agents can navigate the complexities associated with HOAs with buyers, review relevant documents, and ensure they make informed decisions.
• Interest is the cost of borrowing money from a lender, typically expressed as a percentage of the principal amount borrowed. Interest rates can be fixed (remaining constant over the loan term) or variable (changing over time based on market conditions or specific terms).
• Multiple Listing Service (MLS) is a database real estate professionals use to list and share information about available properties. Buyer's agents use it to find properties that match their client's criteria.
• Principal is the original amount borrowed in a mortgage loan. A portion of each mortgage payment goes toward reducing the loan balance or principal.
• Title refers to legal ownership of a property. It is the method of legally transferring ownership to the buyer.