Top 10 Real Estate Terms Sellers Should Know

Real estate terminology can be confusing—but it doesn’t have to be. If you’re selling your home soon, here are the top ten terms you should know to feel confident during the process.

1. Buyer’s agent vs. listing agent

Let’s start with an easy one! A real estate agent who works with the home shopper or buyer is called the buyer’s agent. A real estate agent who works with the home seller is called the listing agent because they are listing your home for sale.

What happens when a listing agent has a buyer interested in the property they have listed for sale? Good question! Each state handles this differently. Here in Florida, we transition to what is called a Transaction Agency/Brokerage. Click here to read our blog on this topic: Buying Agents vs Listing Agents in Florida. 

2. Contingency

A contingency is a clause in a real estate contract that allows one or both parties to back out of the deal if certain conditions are not met. Some contingencies include:

• Home inspection contingency: allows the buyer to back out of the deal if the home inspection reveals major problems.

• Mortgage contingency: allows either party out of the deal if the buyer is unable to obtain financing.

• Appraisal contingency: allows the buyer to back out of the deal if the property appraises for less than the agreed-upon purchase price.

• Home sale contingency: allows the buyer to back out of the deal if they are unable to sell their current home.

Contingency clauses can be a valuable tool for both buyers and sellers, but they can also slow down your real estate transaction. By their nature, contingencies make it easier for either party to leave the deal—which can leave you back at square one. But that doesn’t mean you should turn down offers that include a contingency. In fact, it's standard to have an inspection contingency period and also a financing contingency period if there is a mortgage involved. Talk to your real estate agent about the contract contingencies so that you have a good understanding of the process. 

3. Due diligence period

This is a specified period within the contract when the buyer investigates the property thoroughly to determine if they are satisfied to move forward with the sale. During this time, the buyer is to do their “due diligence” or "do their homework" on the property including home inspections, property surveys, insurance research, flood zone research, etc. The appraisal, title search, and permit search also happen at this time. This period is meant to allow the buyer to find out everything they need to know about the property in order to make an educated decision about the purchase.

4. Equity

Equity is the difference between your property’s current market value and how much you still owe on the mortgage. For example, if your property is worth $500,000 and you owe $300,000, then you have $200,000 in equity.

Typically, the more equity you have, the better, because this is the amount of cash you’ll make from your sale (minus any transaction fees). More equity will make it easier to purchase your next home, or you can use it for saving, investing, retirement, education, and more.

Did you know? A report from CoreLogic shows that the equity homeowners have in the U.S. recently hit a record high—making it a great time to sell your home. Talk to your financial advisor about your home equity and see what's right for you.

5. Seller concession

A seller concession is something offered by the home seller to the buyer to incentivize the purchase. These can encompass a variety of closing costs typically paid by the buyer, including appraisal fees, origination fees, interest rate buydowns or points, real estate tax service fees, and more—but they can’t include other purchase costs like the buyer’s downpayment.

Should you make a seller concession? That depends on your market. In a seller’s market where houses move quickly and receive multiple offers, seller concessions are less frequent. But in a buyer’s market where available homes outnumber buyers and take a while to sell, a seller concession is a good way to stand above the competition and attract attention. Ask your real estate agent for advice on your specific situation.

6. Purchase and Sale Agreement (PSA)

A purchase and sale agreement (otherwise known as a PSA) is a document that is written after a buyer and seller have finished negotiations. It includes details like the agreed-upon sale price, closing date, earnest money, and both parties’ contingencies. This is the official agreement on the terms of the real estate transaction, and when it’s signed, it moves the process forward toward closing. It’s different from the purchase agreement, which is the document you sign at closing that finalizes the transaction after the contingencies have been met.

7. Covenants, conditions & restrictions (CC&Rs)

CC&Rs are a set of rules that govern what you can do with a certain piece of property in a given area. You may be familiar with Homeowner’s Association (HOA) rules in your neighborhood, which are a type of CC&R, but they’re also common in planned communities, condominium buildings, and industrial parks.

What are the purpose of CC&Rs and what types of things can they govern? These rules can apply the following:

• Home maintenance like keeping your flower beds weed free, your lawn mowed, and your home in good repair

• Home appearance like the color of your exterior paint or the type of trash can or mailbox you can have

• Parking such as where you’re allowed to park or whether you can add a carport for your vehicle

• Pets such as breed and species restrictions or number of pet restrictions 

• And more!

Usually, the idea behind these rules is to keep an area aesthetically pleasing, safe, and to improve and maintain home values. Why is it important for you, a home seller, to understand the CC&Rs in your area? Buyers typically want to know this information before making an offer, and if you live somewhere with HOA rules and fees, you’ll have to disclose those in advance.

8. MLS

The Multiple Listing Service or MLS is the database in which all real estate listing information is stored. There are separate MLSs for states, regions, and even individual cities—and they don’t all have the same rules. MLS organizations in different areas require different information to be disclosed in a listing before it can go live in the database. Your listing agent will likely have a number of questions for you when it's time to enter your property into the MLS. 

9. Rent-back

A rent-back is an agreement between a buyer and a seller that allows the seller to stay living in the home after closing in exchange for making rent payments. Why would a seller want a rent-back? In very competitive markets, it can be difficult to find a new home after you’ve sold the old one. In this case, if the buyer is able, they can offer a rent-back to the seller in a written agreement that gives you more time before you have to move out.

10. Seller's Disclosure

The Seller's Disclosure is a document completed by the home seller listing any known problems with the property as well as any remodel projects/renovations the home has undergone since they have owned the home. Essentially, it's a list of "Yes, No, or I Don't Know" questions for you to answer about your property. Your listing agent will have you fill this out before your home goes on the market, and potential buyers can review the document before making an offer or once under contract.