The ABC's of Real Estate

Every day there are thousands of people around the United States that decide to sell their home, making the real estate industry one of the largest in the nation. Due to this immense size and scope of the real estate market there are many different terms, words, and jargon that get traded back and forth, but what do they all mean? To help out with the confusion we have here the ABC's of real estate. Now, these are not all the terms and words that you need to know, but they are all fairly common in the real estate world-for a full education as to the ins and outs of real estate, talk to your real estate agent.

A: Appraisal

What is an appraisal? And why is it so important? You've probably heard of an appraisal, whether it be for jewelry or for a car, but what does it mean in the case of a house? Well, here's the scoop-the home appraisal is where an appraiser comes inside and inspects the house. They will be inspecting the construction of the home, if it is safe, and all things in between, and with that appraisal, they will determine how much the home is worth. This will allow you to buy a home at a fair price and, if you are the seller, more correctly price your home.

B: Broker

Who is a broker? Well, in essence, the broker is the company that is legally able to represent you as a buyer or seller. The real estate agent works for the broker as an extension of the broker. For the amazing agents at the Hughes Group, that broker is Silvercreek Realty Group. They oversee a large majority of the real estate transactions that in the Treasure Valley, and are some of the greatest people to work with. They provide their agents with all sorts of stuff to help them be more successful so they can get the job do right.

C: Credit

Credit is a big part of real estate, without a proper understanding of credit, you can say goodbye to buying a home. Credit, in essence is how the banks decide to lend you money or not. It's like a report card for your finances. If you are late on payments, or don't pay the bank back the money you borrowed, then your credit will be lower; if your responsible with your money, pay everything back and don't miss any payments, then your credit will go up. And that allows the bank to decide if you are trustworthy.

Most credit is scored on a 300 to 800 or so point scale (numbers may vary), and if you have a higher credit score - like a 787 - the bank will be more likely to lend you money to buy a house. If the credit is low like a 450 - then you will be lucky to borrow any money at all. To raise your credit, however, there are several things you can do. Talk to your real estate agent, or your lending agent for more information on how to do this.

D: Down Payment

Down payments are a vital part of the home buying process. Why? To understand that, let's talk about what it is. If you are buying a home that costs $100,000 and the bank is willing to lend you the money to buy it, they may ask for something like a 10% down payment which means they want you to pay 10% of the price upfront. So, in this case, a 10% down payment would be $10,000. So, you would pay the bank $10,000 and they will lend you the $100,000. This makes it so that if you default on your loan, they at least got $10,000. Now, don't worry, this doesn't mean you will be paying $110,000 for a $100,000 house - no. The $10,000 is put toward the $100,000 as a sort of first payment thing.

E: Earnest Money Check

The earnest money check is much like a down payment, but it is made for the seller of the home. The simple explanation is that it is a way to show that a buyer is serious about an offer. If prevents people from just making offers for no reason without intent to follow up. Now, the seller can't take the earnest money check and cash it, they can only get it after the purchase is filed and it is added to the down payment. However, if you - as a buyer - send in an earnest money check and then back out of the deal, you will lose that money; it's a way to compensate the seller as they will have most likely lost other legitimate offers during the time they thought you would buy it.

F: Fair Market Value

Fair market value is a simple concept. Much like MSRP, the fair market value is how much your home is worth at the moment and how much you could expect to sell it for. Now, this price changes from time to time due to the economic climate and strength of the market.

G: Grantor

Now, this word may seem a little intimidating at first, but it really isn't that complicated. For all intents and purposes, the grantor of a property is the seller of the property. Now, it is important that the grantor can be a person, business entity, or any other organization of people that has the legal right to own property. The same goes for the seller, but, in some cases, it may be likely that when the word grantor is used, the person is more likely to be an entity.

H: Homeowners Association

Homeowners associations, or HOAs, are usually a word that makes people cringe. The homeowners association is essentially like the PTA for your neighborhood. It is a group of homeowners from your neighborhood that make rules and provide services for the community. A typical homeowners association will make and enforce rules like noise ordinances and renter policies and provide services like a neighborhood watch and sometimes will even throw block parties on occasion. Most homeowners associations are pretty laid-back, but there are some that are very active and have very high expectations for their neighborhood. The association is made up of people from the neighborhood, so if you do not agree with the rules that are currently in place in your neighborhood, go to the meetings and try and change them.

I: Inspection

Inspections are very important. When you are going to buy a home, you need to have an inspection done as they will check to make sure they home is in good working order. Unlike the appraisal which simply puts a price tag on the home, the inspector looks at the structural integrity of the home, the quality of construction, and so forth. They will also check for mold, mildew, and other silent home killers. If the inspector comes back with a clean report, then you can rest assured that the home is in tip top shape and that buying it will not result in disaster.

J: Joint Ownership

Joint ownership is just that - joint ownership. It is when two or more people go in to buy a home, they both have equal rights to the home, and as such have equal responsibility for its repairs, upkeep, and payments. There are several different kinds of joint ownership, each with their own pros and cons. Talk to your real estate agent and your attorney about how to structure it properly for the best benefits to you and your co-owner.

K: Kindness

Now, this may seem a little strange, but kindness is something that is very important in real estate. There are many people involved in real estate transactions and each and every one of them has an agenda, needs, and expectations for the sale. It is important to find compromises so that everyone's needs are met. This is not only from an ethical standpoint, but also from a business standpoint. If people don't get what they need when working with you the first time, they will be much less likely to work with you a second time. So, at least in the interest of preserving business relationships, be kind and find a way to make any deal a win-win.

L: Lien

A lien is essentially a statement that says you owe someone money, however, a lien is put on to a piece of property because it is put up as a form of collateral. If you have a lien on your home it means you borrowed money and said that if you didn't pay them back that you would pay them with the money that comes from the sale of the home. If you try and sell your home before paying that debt back, you will have a hard time selling it, if you can sell it at all. Talk with your bank and your real estate agent more if you have any questions about liens.

M: Mortgage

Now, you hear about mortgages a lot in real estate, but what exactly are they? Well, simply put, they are a loan for the home. When you get a home, you will most likely not have all the money needed to buy it, so you will need to get a loan. These loans are called mortgages. Usually, a mortgage will have an interest rate similar to that of a car loan, but will be for a much longer period of time. However, the rates will change depending on the lender you use and how your credit score looks.

N: Notes (Promissory Note)

The promissory note is a formal document that is something like a pre-receipt. If you are selling your home and someone wants to buy it, they send a promissory note saying that they promise to pay you abc for xyz. These notes will have dates, exact amounts, and the like. They are legally binding and are enforceable by law.

O: Owner Financing

Owner financing, in short, means that the owner of the home is willing to finance the sale of the home. This occurs when a seller is desperate to sell their home, or a motivated buyer cannot get traditional financing from a bank or mortgage company. Essentially it works like this: instead of the seller receiving the bulk of the money at the closing, they will get it incrementally over the next few years as the buyer pays it off. For the buyer, they, instead of paying a mortgage company or a bank, they will make the payments directly to the seller.

P: Preapproval (Preapproval Notes)

Preapproval is another important part of buying a home. Essentially what it means is that you have gone to the bank before you started your home search and they ran all your financials and they have decided that they will loan you X amount. This is different than what normally happens as usually a person will find a house and then go to the bank to see if they can get approved for it. That method is a waste of time though. What you should do is go to the bank at the start and see what you are preapproved for. This will save you lots of time and can even surprise you as to how much you are able to purchase. Some homes - like the $1 million+ ones - will not even allow people to view them unless they have already been preapproved.

Q: Qualifying Ratio

So, when the bank goes back to decide what to lend you, how do they figure that out? What kind of stuff do they do? Well, they calculate what is called a qualifying ratio. This ratio is where they will look at your monthly budget vs your monthly income to see how much you can afford to pay on a house payment. Each bank has a different bench mark for how much they require, but they will make that known to you during the application process.

R: Real Estate Agent

It's no surprise that R stands for real estate agent. A vital and irreplaceable part of the real estate realm, the real estate agent is a buyer or seller's guide to this intricate world. Real estate agents help represent buyers and sellers in negotiations, show buyers around to different homes and properties, help market and advertise a home for sale, and much, much more. In most real estate transactions, having the help of a real estate agent can make or break a deal and help save you a lot of money. So, despite what you may have heard before, hiring a real estate agent is a very wise decision that can do you a lot of good in the long run. For a top-notch real estate agent, contact one of ours here at the Hughes Group and they will help you find the home of your dreams (or sell a home for that matter).

S: Subdivision

The subdivision is one of the building blocks of real estate. After the house, the subdivision is the next major factor in picking a new residence. Why? you may ask. Well, it comes down to the sense of community that a person feels. If a person finds a home that meets all their criteria that is in a subdivision they do not like, they will be more inclined to keep looking instead of buying that particular home.

Subdivisions also offer residents a plethora of amenities that fulfill their needs like parks, clubhouses, pools, community centers, and so on. Some subdivisions even have event centers that can be rented out for people to use when they need to.

T: Title Company

The title company is one of the most important entities when it comes to a real estate transaction. This is because the title company is the one that verifies that a title to a piece of property is real and not faked. This is done so the buyer can know for sure that they home they are buying is going to be rightfully theirs and that it is not owned by someone else. The title company also helps to fill out the forms that occur when a title is transferred during a payment. So, in essence, they make sure everything is done lawfully and that it is all legitimate.

U: Underwriter

When you are applying for a mortgage, or any kind of loan really, the underwriter is the person who calls all the shots. They crunch all the numbers, run all the scenarios, and decide how much the bank should loan you. They are employees of the bank and as such try to make a deal as profitable for the bank as possible. This means they will not be very willing to loan you more than their numbers say they should. They protect the bank while still trying to do business. If you can prove to the underwriter that you are trustworthy with your money and the numbers reflect that, then you will be able to get a great mortgage and mortgage rate.

V: VA Mortgage

A VA mortgage is a special kind of mortgage that has been set up by the United States Government. It is a loan that is designed for qualifying veterans to help them get into a home that they need. It is a way of saying thank you for their service. It is set up and controlled by the Department of Veteran's Affairs and can only be issued by specified lenders and banks.

W: Water Rights

Water rights are a simple thing, all it means is that whoever has the water rights to a certain stream, lake, or other body of water, they can decide how it is used. So if you have a stream that runs through your property, then you may or may not have the right to do anything with it. This is best demonstrated by the canal system here in Idaho. The canals are owned by the government and their use is leased out to farmers and communities that want to use irrigation water for their crops and lawns. However, if it is not leased to you, or you do not own the canal, then you have no right to use it and will most likely be charged if you are using it unlawfully.

X: Xing

Xings stand for crossings. This can be railroad crossings, crosswalks, school zones, and more. These are important in real estate because certain types of crossings can increase a home's price and others can make a home's price drop. Usually, especially in Boise, if a home is found near a train track of any kind - especially a railroad crossing - it will diminish its price. This can be due to the noise of the train and the inconvenience it possess to travel.

Y: Yard

The yard of the home is one of the many parts that sells it. Along with the appearance of the home itself, the yard has a lot to do with the curb appeal of the home. A well-kept lawn will attract buyers and will make the home look astounding. In contrast, however a not so beautiful lawn can make a home's curb appeal plummet and could make it harder to sell.

Z: Zero Down

Zero down is a pretty simple concept. It is in reference to the down payment of your home. If a mortgage or a loan says that it is zero down it means that you don't need a down payment - zero dollars down. It is a great deal and, if found on a mortgage, it will usually mean the mortgage will have a higher interest rate.

So, there they are, the ABCs of real estate. With these 26 words and phrases, you will be more equipped to navigate the world of real estate. Remember though, this does not constitute a full real estate education. Real estate agents have to attend classes for weeks before they even have a basic knowledge of how it all works, so it is still important to rely on them. Contact one of our licensed agents to utilize their training and experience. They will help you get the best deal on the home of your dreams - or help you sell your existing home for the best price!