In the real estate field, like others, industry-specific words can sometimes be confusing to an outsider. If you're planning on buying or selling, it's a good idea to get versed in the lingo, or at least familiar with some key terms. Below is a list of some of the most common words you'll likely encounter in your process, explained in plain English.
CMA (Comparative Market Analysis)
A side-by-side comparison of your home with similar homes that have recently sold, been listed or expired in your area. Created by a real estate agent to help determine an accurate listing price when you sell. Can also be done for buyers who are trying to determine a fair offer price.
Purchase Agreement (aka PA)
The document (and all related contingencies) listing the price and terms of your offer. Once signed by both buyer and seller, the PA becomes a legally binding document.
Contingency
A provision in the Purchase Agreement stating that certain conditions must be met in order for the sale to be valid. Usually includes specific time periods for completion. Most common are contingencies fo buyer inspections and financing.
Addendum (singular) / Addenda (plural)
Documents added to the Purchase Agreement as supplements to the offer — add ons. Examples include counteroffers, purchasing “as is”, disclosures of lead-based paint, and buying a Common Interest Community (condo, townhouse, co-op).
Amendment
A document outlining any changes made to the final Purchase Agreement. Must be signed by both parties to be valid.
Mortgage
A “debt instrument” used to secure a loan on a home. The property is used as collateral for getting the loan money.
Closing Costs
Money paid at the closing to cover the costs of transferring ownership of a property. They can include a variety of fees to different service providers such as the title company, lender, broker, etc. Paid by both buyers and sellers.
Seller's Disclosure
A document filled out by sellers disclosing all known material facts and details about the home. Minnesota requires this (or a Seller's Disclosure Alternative form) be completed prior to selling. Must be made available to buyers and signed by them when submitting an offer.
MLS (Multiple Listing Service)
A database service real estate professionals subscribe to that stores up-to-date listing information including current properties for sale, homes sold, and listings cancelled or expired. Several MLSs operate around the country. The Twin Cities and Rochester regions use the “Northstar MLS.”
Earnest Money
Cash paid by buyers when making an offer as a show of "good faith". It's optional and can be any amount (1-2% of the sale price is typical.) Intended to go toward the downpayment if you end up buying the home.
Conventional Loan
A home loan not backed by the government.
FHA Loan
A home loan backed by the government (Federal Housing Administration). Downpayment requirements are usually lower than those of conventional loans, however, purchasing mortgage insurance is usually required.
PMI (Private Mortgage Insurance)
Insurance you pay when you put down less than 20% on a conventional loan.
MIP (Mortgage Insurance Premium)
Insurance you must pay when financing with an FHA loan.
Title Insurance
Insurance paid to protect against claims on the title of your property. Lenders require it for their own protection. Buyers can also choose it for self protection. Ask your title company about costs of coverage.
Arbitration Agreement
A document that allows buyers and sellers to agree to settle disputes about the property outside of court. Optional for all involved in the transaction including buyers, sellers and their agents. Must be signed by both buyer and seller to be valid.
Heidi Swanson is a Realtor® based in St. Paul, Minnesota. She writes a blog to share information on a variety of real estate related topics including buying and selling, market conditions, homeownership trends and more. Reach her at heidi@lyndenrealty.com or 651-503-1540.