The real estate industry is chock full of complex jargon. For real estate buyers and sellers, this can make an already complicated process that much more unnerving. And although you’ll have a real estate agent beside you to help you navigate tricky terms, knowing some of the most common contractual terms can make the process feel much simpler and maneuverable for you. With that in mind, here are six real estate terms you should know:
Throughout the real estate process, you’ll hear the term “closing” again and again. “Closing” is when the sale of a home is considered final. But what can you expect when it comes to closing time? First and foremost, the buyer and seller set a closing date during the negotiation process. During the closing date, you officially become the legal owner of your new property, however, in some cases the closing date can be pushed back to accommodate everyone’s timeline.
It’s also important for you to understand that although there is a final “closing date,” the actual closing process can take several weeks. At closing, you review and sign all the documentation (including the deed and promissory note), cover all of your financial obligations (down payments, interest, taxes, insurance, etc.), and conduct a final walkthrough.
Multiple Listing Service (MLS)
An MLS is a database used by real estate professionals to add and access information about property sales in any particular area. Listing agents are responsible for adding new properties to the MLS when they go up for sale. And buyer’s agents use the MLS to find properties that match their clients’ criteria.
Originally, the MLS was created for brokers to share listings and information with one another, but over the years, the MLS technology has evolved to make the home selling and buying process much more efficient. There are over 600 different MLS organizations in the United States. Many of the popular real estate platforms that you use, like Zillow and Trulia, receive their data and feed directly through an MLS organization.
Natural Hazard Disclosure (NHD)
A Natural Hazard Disclosure is a detailed report that discloses whether a property is an at-risk area. Several natural hazard zones are covered in a standard NHD report, including flood hazards, fire hazards, and earthquake fault zones. Many states—including California—are required to provide an NHD report. Homes that are in natural hazard zones are at greater risk property damage caused by Mother Nature, and it helps the buyer make an informed decision.
In some purchase agreements, a due diligence period is offered. During the due diligence period, the buyer is given the opportunity to thoroughly examine the property. At this point in time, they can hire professionals to inspect the property and conduct tests, and based on their findings, they can renegotiate terms of the contract. Due diligence allows buyers to minimize risks and ensure they’re participating in a fair transaction.
A seller’s disclosure is a document provided by the seller, wherein all important information about the property is disclosed. This could include whether there’s mold on the property, pests, or drainage issues. On the same token, sellers must also include any details that aren’t specific to the integrity of their property, but to the buyer’s ability to enjoy the property. For example, in California, sellers are required to list any deaths that occured in the home within the past three years. In some states, it’s even important for you to disclose all known “material facts” like paranormal activity. Ultimately, the details contained here could affect the buyer’s decision to purchase the property.
Appraisals are conducted to provide an accurate depiction of the value of a property during a purchase or refinancing. Mortgage lenders require appraisals to ensure they aren’t giving the buyer or refinancer too much money, which would make it difficult to get that money back through a sale in the event that a buyer defaults.
From here, the appraiser will create a report based on several key findings, including visual inspections, market trends, home aspects (like the layout and amenities), and recent sales of similar properties. The buyer is typically responsible for paying the appraisal fee, which costs several hundred dollars. In some cases, if the appraisal is lower than anticipated, the sale of the home could be cancelled or delayed altogether.