10 Real Estate Terms to Know

1. Buyer’s Agent vs. Listing Agent
There are usually two agents involved when you buy a home; the “buyer’s agent,” who represents you, and the “listing agent,” who represents the home seller. Dual agency is when one agent or firm representing both sides of the transaction.
Tip: When buying a home, buyers don’t typically pay their real estate agent – they will get a commission from the home seller.

2. Fixed Rate vs. Adjustable Rate Mortgages
Conventional loans include “fixed rate” and “adjustable rate” mortgages. A fixed rate mortgage has a predetermined interest rate throughout the life of the loan; the most common are for 30 years. An adjustable rate mortgage has a variable interest rate; the most common are for 5, 7, or 10 years.
Tip: Adjustable rate mortgages can make financial sense if you’re planning to sell or refinance your home before the introductory period ends; but if you’re planning to own your home longer than five years, it’s less risky to choose a fixed rate loan. Make sure to shop around so you can get the best mortgage possible, which will save you a lot of money in the long run. Ask your real estate agent for lender recommendations.

3. Pre-approval Letter
Before you apply for a mortgage or even start looking for a home, you should get a pre-approval letter from the bank, which is an estimate of how much they’ll lend you. This letter will help you determine what you can afford, and ensures home sellers that you will be able to get a loan when needed.
Tip: When you go in for a pre-approval letter you should be clear on what the bank is offering. Ask them about closing costs, what fees are involved, what you’re getting for that fee, and if they’ll lock in your loan at a specific interest rate.

4. Listings
Real estate agents frequently refer to homes for sale as “listings.” A “listing” on a website shows information about the home, like the price and number of bedrooms.
Tip: For the most up-to-date listings, use sites from real estate brokers, rather than real estate portals. Brokers have access to the multiple listing service, which real estate agents are required to update, so the information is more accurate than sites who aren’t affiliated with a brokerage. In a competitive real estate market, you can miss out on a good deal if you use sites that don’t show all the homes for sale.

5. Inspection
After you’ve made an offer on a home, you’ll need to schedule an inspection, which costs around $500 – $1,000, depending on the market. The inspector will go through every nook and cranny, and review things like the plumbing, electrical, foundation, walls, heating, and appliances.
Tip: Get advice from your realtor on a good inspector. If they find something wrong, you can negotiate for a reduced price. If they miss something, you could be stuck with expensive repairs after you’ve purchased the home.

6. Appraisal
When you apply for a mortgage, your lender will require an appraisal of the home you want to buy. A licensed appraiser will estimate the home’s value based on comparable homes that have sold in the area and an investigation of the property.
Tip: If the appraised value is less than the offer you are making on the home, you might not be approved for a loan. The bank doesn’t want to invest in a home that’s overpriced (and neither do you!). Before making an offer, ask your agent to do a comparative market analysis, which will tell you what comparable homes have sold for nearby. If you’re a seller, get an estimate on how much your home is worth as well as how to increase your home appraisal value.

7. Due Diligence
The due diligence period in North Carolina is a negotiated period of time during which a buyer has the opportunity to conduct their “due diligence” before deciding to move forward with the purchase of the home. For both buyer and seller it can be a tense period of surprises and decision-making.
The due diligence period allows a buyer to discover any items that need repair or are of concern. The buyer will then decide if there are any major repair items they will ask the seller to fix before closing. With the help of their realtor, the buyer has a variety of options to negotiate a deal they are happy with in light of any major discoveries from the inspection.
The due diligence fee is a negotiated sum of money that essentially compensates the seller for taking their home off the market while the buyer completes their inspections. When the due diligence fee check is submitted, the check is cashed right away by the seller. If the buyer decides, before the end of the due diligence period, not to move forward with the purchase of the home, they can walk away for any or no reason and lose only their due diligence fee. If the buyer ultimately decides to buy the home, the due diligence fee gets credited towards the purchase price. The only instance in which the due diligence fee is refundable is if the seller breaches the contract.
Tip: If you’re in a bidding war on a home, sometimes it can help to shorten due diligence periods, waive them altogether, or pay a higher due diligence fee.  A larger due diligence fee may make your offer more appealing to the seller by demonstrating that the you, the buyer, have some cash and are committed enough to purchasing the home to risk a larger amount. As a seller, obviously, you want a higher fee because if the buyer walks away that money is yours to keep.

8. Earnest Money Deposit
The earnest money deposit is a negotiated amount of money that is also submitted once a contract is signed. This check is given to an agreed-upon escrow agent (typically this is one of the two real estate brokerages involved in the transaction or the closing attorney) who deposits it into a trust account until closing.
The earnest money deposit is usually much larger than the due diligence fee, and typically ranges from one to two percent of the purchase price. Like the due diligence fee, this deposit protects the seller and helps ensure the buyer is “in earnest” about purchasing their property. If a buyer decides, before closing but AFTER the end of the due diligence period, that they no longer want to move forward with the purchase of the home, they can walk away but will lose both their earnest money and due diligence money.

9. Closing Costs
Be prepared to pay a lot of fees when you purchase a home. Typically, closing costs will amount to 2-5% of the purchase price of the home, and that doesn’t include the down payment. Common fees include excise tax, loan-processing costs and title insurance.
Tip: Ask your lender about every fee involved in the Good Faith Estimate, and see if you can shop around for a better price for those services or negotiate down. Examples include homeowner’s insurance, wire transfers, underwriting and settlement fees.

10. Title Insurance
After all the negotiations are done and the seller has accepted your offer, you should receive a home title report within a week. Most mortgage lenders require you to pay title insurance as part of the closing costs; title insurers search the public records to make sure the home seller actually had rights to the title and that there are no liens on the home (like an unpaid contractor or unpaid taxes).