Real estate language is the specialized vocabulary used by real estate professionals. This vocabulary or lingo includes terms like ‘earnest money deposit,’ ‘down payment,’ ‘seller’s concession’ or ‘seller subsidy’, ‘appraisal’ ‘contingency’, and ‘ratification’. It is important for buyers to understand these terms so they can navigate the real estate market confidently.
Early in the home buying process, we recommend reviewing the residential real estate contract with your exclusive buyer's agent.
In the Greater Washington D.C. area, there are several contracts written by real estate lawyers and used by real estate agents including; The Maryland Association of Realtors contract used throughout Maryland, The Greater Capitol Area Association of Realtors used primarily in Montgomery County Maryland, and the GCAAR Washington D.C. contract and finally the Northern Virginia Association of Realtors.
All the contracts are pre-written by real estate lawyers. Real estate agents fill in the blanks on the contract with the buyer's information and the pertinent details of the offer. This process typically takes between 1-2 hours depending on the detail of the contract.
Overview of Real Estate Lingo
Keep in mind this information relates to the Greater Washington D.C. and Baltimore area. In other parts of the country, real estate language and contracts may be different.
An earnest money deposit is a down payment made by a buyer in order to secure a property. The earnest money deposit is a percentage of the purchase price and is typically between 3-10%. The earnest money deposit is typically held in escrow by the settlement office or title attorney. The funds are held in escrow until closing. This money is placed in escrow early in the offer and typically between 2-5 days after the contract is signed by both parties. The earnest money funds can go toward the overall down payment and closing costs.
A down payment is typically a percentage of the home’s purchase price that a buyer pays in cash. For example, a buyer with a conventional loan of 10% down and 90% financing on a $700,000.00 property would need an additional $70,000.00.
The down payment is important because it gives the buyer some financial skin in the game and shows his or her commitment to buying the home.
The seller’s concession is an allowance that the seller gives to the buyer to help with closing costs. For example, the seller may agree to pay $5,000 of the buyer’s closing costs. The seller’s concession is also known as a ‘seller subsidy.’
An appraisal contingency stipulates that, if the appraised value of the home is less than the purchase price, the seller and buyer will negotiate the difference. Sometimes the seller lowers the sales price to the appraised value and other times the seller and buyer may split the difference. And finally, if the buyer and seller cannot agree to the terms of the appraised value, the buyer has the right to terminate the contract.
A financing contingency stipulates that, if the buyer cannot obtain a loan as detailed in the financing addendum, the buyer can void the contract. There are variations to this contingency depending on the contract used for the offer. In general, this contingency offers protection to the buyer(s) should they lose their employment or some other extenuating circumstance that keeps them from moving ahead with the purchase. This is a common agreement in real estate transactions.
Addendums and disclosures will be added to the contract reflecting the local jurisdictional contract requirements. The addendums would include; well & septic, property inspection, escrow, cash appraisal, and others.
Home sellers are required to provide residential property disclosures including but not exclusively; agency disclosure forms, lead-based paint disclosures, deferred water, and sewer, and in Montgomery County Maryland the results of a radon test.
If a home is in a homeowners association or condominium association, there will be a document review period and an addendum.
In Maryland, each homeowner should apply for the Maryland Homestead Tax Credit which is a one-time application for each property. This tax credit limits the increase in taxable assessments each year to a fixed percentage.
What’s most important in the home buying process? Choosing an advocate by your side.
You are making one of the most important financing decisions in your lifetime. It’s exciting, stressful, and can feel overwhelming. That’s where we come in.
At a settlement last year, one of our buyers said, “Gosh, I can’t believe we’re done. It’s been so much fun! I kept waiting for something to go wrong but that never happened.”
Exclusive buyer agents with HomeBuyer Brokerage specialize in serving home buyers. We educate and inform our buyers so they make informed decisions.
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