Professionals in many occupations have a tendency to throw around explicit industry terms that leave consumers bewildered. While many people have heard of real estate related words, few really understand what they fully mean.
When you're anywhere in the process of buying or selling real estate, understanding their definition and their context in your deal is vital. Don't be afraid to ask your real estate agent what something means and how it affects you.
Here are the most common real estate words and their definitions. Please note that I sell real estate in Chicago's North Shore communities of Winnetka, Wilmette, Kenilworth, Glencoe, Northfield, Glenview, Evanston, Northbrook, and Highland Park.
These specific terms might be understood differently throughout the country. Real estat agents are licensed by their states and local customs and laws vary widely depending on where one is practicing. These are the common terms in the Chicago North Shore.
Appraisal: is an unbiased estimate of the true-market value of the home you are buying or selling. If you are securing a loan to purchase your home, your bank will order the appraisal. If you are paying cash you can forgo the appraisal process.
As Is: a home that is sold with the understanding that no repairs or payment will be made toward anything that is broken, non-operational, missing, or damaged in the home. Typically, the homes are foreclosures or being sold at a discount.
Back Up Offer: offers that come in after an offer is accepted and signed. There may be multiple back-up offers that would be considered if the first accepted offers falls through.
Buyer's Agent vs. Listing Agent: There are normally two agents involved in a real estate transaction. The buyer's agent represents the buyer and the listing agent represents the seller's interest.
By-Laws: a set of rules of a condominium or cooperative that regulates how they operate, including elections, officers, and authorizations.
Cash Offer: our contracts allow for two different types of cash buyers. The first is a real cash deal, that is, the buyer actually delivers upon closing the full amount due (nowadays by wire transfer.) The second type of cash offer is one where the buyer offers cash but will be actually securing a loan. In this case, the buyer must have sufficient funds available and must verify that information. This allows a buyer to make a "cash" offer without the use of a mortgage contingency which would be helpful in a bidding war.
Closing: where the buyer signs all necessary paperwork and takes ownership of the house. In the North Shore, it is customary to use attorneys to approve the legal terms of the contract and to schedule the closing. Closings are usually held at title companies and take from one-hour (cash closing) to as long as three hours (or longer.)
Closing Costs: All the miscellaneous feels that buyers and sellers pay at closing. Buyers pay recording fees, attorney fees, loan processing costs, appraisal, property taxes, and title insurance. Sellers also pay closing costs including marketing fees, attorney fee, survey, and property taxes.
Commission Split: a sharing of the commission between the listing and selling brokerages.
Comparables: are homes that compare in size, location, condition, and price to the one you are buying or selling.
Condominium (condo): Each unit owner owns their own space in the building and common areas are shared by all.
Contingency: is like a "string" attached to the contract that protects the buyer (or seller). It makes the contract dependent on other factors, from the most common like a mortgage contingency (deal won't proceed without the buyer securing a loan by a certain date,) , an inspection contingency (deal won't proceed until the inspection is completed and any issues are resolved,) or a house sale contingency (deal won't proceed until the buyer sells their own home.) Other contingencies are less common - for example, a buyer might want to know for certain that a house can be enlarged but needs to find out from the local municipality - thus a contingency.
Cooperative (Co-op): a building owned by a corporation in which each unit is allocated shares of stock based on size. The cooperative owns all the units and the purchaser buys stock in the corporation. We have very few co-ops on the North Shore with two in Wilmette (1630 Sheridan and 1410 Sheridan,) plus several in Evanston.
Disclosures: representations that the seller has made about his home. In Illinois, there are three required disclosures: Lead Paint Disclosure, Radon Disclosure, and Property Disclosure.
Down Payment: the amount of money that a buyer pays upfront when purchasing a home (see Earnest Money, below.) Typically 5% in the North Shore.
Dual Agency: When the real estate agent you are using is both listing the house (working for the seller) and helping you buy the house (working with the buyer.) In some states, dual agency is against the law, but it is legal and fairly common (but controversial) in Illinois.
Earnest Money Deposit: money that the buyer pays upfront and is made part of their down payment - shows true intent to purchase. Most buyers here offer 5% of the purchase price as their earnest money.
In the North Shore, this is paid in a two-step process. After the contract is approved and signed by all parties, the buyer must deliver the "initial earnest money" which is usually $1000 to $5000, to the listing office within a set number of days, usually one or two. After all contingencies have been cleared, the buyer will deliver "additional earnest money," which is the leftover balance.
A frequent question is whether the earnest money deposit is refundable. If, after the inspection and attorney approval the deal is canceled, the full amount of earnest money is returned. There are instances when buyers back out of a deal days before the close - that earnest money may be lost - but that is a legal matter that your attorney will help you with.
Escrow: in a residential real estate sale, escrow is a state in which a sum of money is held for seller leading up to the close. Escrow accounts in the North Shore are typically held by the listing brokerage of the property for sale.
Equity: the difference between your home's value and the unpaid balance of the mortgage.
Fixtures: items in a home for sale that are attached and convey with the home. Items include light fixtures, appliances, ceiling fans, and attached shelving.
Flood Plain: areas of the North Shore that are low-lying and prone to flooding. If a home is even partially in the flood zone, it must be noted on the Illinois Real Property Disclosure.
FSBO: a home being sold by the owner without the use of a real estate brokerage. Pronounced "fizbo."
Home Equity Loan: a loan made against the equity of a home
Home Warranty: a warranty that covers (depending on price and coverage) various working mechanicals or appliances in the home.
Lien: an encumbrance (burden) on a property that prevents a sale until the debt is paid. A mortgage is a lien.
Lis Pendens: lawsuit pending typically on a foreclosure
Listing: home, condo, townhouse, or land for sale.
MLS: Multiple Listing Service. A local organization that collects and distributes home sale information to its members. Our MLS is called the Midwest Real Estate Data (MRED.)
Pending: a home for sale that has had all contingencies cleared and the balance of the earnest money has been paid
PITI: a financial term that describes the four main parts of a monthly mortgage and means principal, interest, taxes, and insurance.
PMI: private mortgage insurance which is required on homes where the purchaser has put down less than 20%.
Pre-Approval Letter: a document from your lender that shows that you have provided them financial information and they have pre-approved you for a loan. This is absolutely necessary as part of your offer on a home if you have a mortgage contingency. A more rigorous process than a pre-qualification letter.
Pre-Qualification Letter: a document from your lender that calculates the housing-to-income ratio and the debt-to-income ratio to determine a maximum mortgage amount. A less rigorous letter than a pre-approval letter.
Principal: the amount of money you borrowed to buy your home.
Realtor®: a real estate agent who is a member of the National Association of Realtors (NAR) and upholds their standards and code of ethics. Not all real estate agents are
Riparian: a common term on the North Shore referring to properties that adjoin Lake Michigan and have access and use of the water.
Title: documentation that shows someone is the lawful owner of a property
Title Insurance: is an insurance policy of which there are two. Title insurance is required by your lender if you get a mortgage and it protects the lender's interest in the property until the loan is paid off. Conversely, a purchaser will secure title insurance to protect them their ownership rights in case the seller or previous sellers did not have clear title.
Transfer Tax: a transaction fee imposed by some local municipalities. Wilmette levies a transfer tax on buyers of $3 for every $1000 of purchase price. Evanston and Highland Park levy $5 on every $1000 on the seller.
Under Contract: a property with an accepted contract that still has contingencies (see Pending)
Variance: is a deviation from specific zoning rules usually because of special condition of the property.
There - I think I've covered the most commonly asked questions that I've been asked over the years regarding real estate terms. If I've missed something or you would like more clarification, please call me - I'd be happy to answer any questions you have. 847-977-6024.
While you're here, please see ALL NORTH SHORE HOMES FOR SALE
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Margaret Goss is a full-time real estate broker since 1998 working in the North Shore communities of Winnetka, Wilmette, Kenilworth, Glencoe, Northfield, Glenview, and Evanston.
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