7 Essential Key Terms Needed by All New Realtors
Starting your career as a beginner in real estate does not require fancy college degrees or certificates, and that’s one of the many reasons ambitious and provident youngsters consider it as a career. In all fairness, we can not deny the huge amount of profits that flow in this industry, at least for the most experienced. So the worldwide urge to know more about real estate and take advantage of its opportunities is understandable. However, like all the other professions, in order to improve, we must at least be familiar with the real estate basics.
I believe knowing these fundamental key terms and phrases—their definitions and of course, their proper use—will help us to understand more easily what is going on in the real estate world. Here, I’m trying my best to pave the way for the people out there to become more successful realtors.
Buyer’s Agent Versus a Listing Agent
Undoubtedly, there is a difference between the buyer’s agent and the listing agent, but we don’t need to think too hard on these words because they are rather simple. The buyer’s agent represents the buyer, and the listing agent represents a seller. If I represent both the buyer and the seller on the same deal, then it’s called dual agency. That wasn’t that hard, was it? Let’s move on then.
Pre-approval Letter and Pre-qualified Letter
The next phrase we need to understand is the pre-approval letter. We should keep in mind that the pre-approval letter is completely different from the pre-qualified letter. In fact, they are substantially different. Let’s clarify these two terms with a very simple example:
Imagine the buyer of a property and the lender are having a meeting. For the buyer to be able to receive a loan from the bank, he should fill out the applications and verify all his information, such as his income, assets, FICA score, how long he has been at his employment, etc. To make the long story short, the lender likes to verify everything there is to know about the buyer, or “with proof.” However, in the pre-qualified case, there are none of the above-mentioned things because everything is just “verbal.”
Here is another example:
Answering the lender’s questions, the buyer can just claim he made a million bucks last year as an income, or he has been employed for five years; he has yet to prove it.
Basically, there is a huge difference here, and it seems the first case has more power and validity over the later one since the pre-approval letter has verified all the aspects. Another term comes to light here: Contingency.
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It’s another word we should be familiar with before entering the real estate realm. However, before explaining its meaning, we should learn the definition of another important key term: R.P.A (Residential Purchase Agreement). When the buyer of the property makes an offer, he signs and fills out an R.P.A. It means the buyer sets out all the details of his offer on this R.P.A. such as the purchase price, and days of escrow.
Now let’s get back to the contingency. A contingency clause defines a condition or action that must be met for a real estate contract to become binding. It is a way of protecting the buyer. Here are several examples.
The buyer and seller of a house are negotiating to reach an agreement. Then the buyer says “I want to make you an offer of a million dollars, and I will buy it only if I can get a loan.” This is a loan contingency.
The buyer might say “I want to make you an offer on your house only if the house appraises for what I offer.” That’s called an appraisal contingency.
The buyer might say “I want to make an offer on your house, and I want to go through with this transaction only if I approve all the disclosures that you gave to me, and it passes my inspection.” This last one is called inspection contingency.
To sum it all up, we can say all of these “only ifs” are contingencies. However, we should keep in mind that all these different forms of contingencies are very common, typical and in the R.P.A.
And here comes the last but not the least key term: Appraisal.
The next key term we need to understand is appraisal. This word is often used with lenders. It’s an unbiased estimate of the true (or fair market) value of what a home is worth. Here is an example.
The lender will say “We would like to lend you a million dollars. You are pre-approved for a million dollars, so go find yourself a house at this price.” Then the buyer might ask his realtor to show houses for a million dollars. The realtor does his job and finds houses worth a million dollars. Later they make an offer on the R.P.A which has a contingency. Finally, they make the offer and the seller accepts it for one million dollars. Now, the lender who is going to supply the funds to buy the house is slightly concerned. Logically, he wants to make sure and verify that this house has is worth at least a million dollars. At this point, the lender will send out an appraiser. The appraiser will visit the house and run his comparable research to price the home. He goes into the house and makes sure the house doesn’t have any major problems. In the end, if the appraisal comes in at value, the transaction continues onward until it closes. In fact, the appraisal brings value to a home as to what the offer was.
Actually, the key terms mentioned above are just a few of the phrases we encounter in real estate. We will see these words daily on offers, on listing agreements, on residential purchase agreements (R.P.A), and just about on everything. We should educate ourselves, especially on terminology, since we are going to use it on an everyday basis. Are there any other key terms that should be added to the list? Leave them down below and for further study please visit: How to Succeed as a New Real Estate Agent.