Buying and selling property can be emotional, complex, and involve an entirely different vocabulary than you hear in your daily life. As your area experts, we speak this language every day! If you’re about to begin your first real estate transaction, or if you’re just brushing up, we’ve compiled a list of often-used terms that you may find in need of further explanation.
1. Pre-approval vs. Pre-qualification
What’s the difference between pre-approval and pre-qualification?
Getting ready to put an offer on your first-ever house? Congratulations! You’re probably taking in a lot of new information at once, and the difference between a pre-approval and pre-qualification can sometimes get lost in the mix.
Pre-qualification is the first step. This typically involves self-reporting your financial situation either over the phone, in person, or by using an online portal. They’re typically used to start the conversation with your lender and get a rough idea of how much you may be able to borrow. Given that these are often done via an online calculator, you may have a pre-qualification in just a few minutes.
Pre-approval is a bit more involved and time-consuming, as you’re working with a real lender. Typically, you’ll need to fill out a mortgage application, provide pay stubs and other relevant documents, and undergo a credit check. A pre-approval letter will be key when your real estate agent goes to submit an offer on your behalf–it gives the home seller confidence that you’ll be able to go through with the purchase, if they choose to accept your offer.
Stone House Properties has longstanding relationships with caring and experienced local lenders. Your buyer’s agent will be happy to make recommendations on who to get in touch with!
2. Competitive Market Analysis (CMA)
How is a home's value estimated?
When an agent offers to put together a “CMA” for you, they are pulling information based on the local market to determine what price is most appropriate when it comes time to list your home.
Once your selling agent gets a tour of your home, they’ll compile a handful of properties that are either currently listed or have recently sold–and provide you with justification for why they’re a decent comparison for your property. As local experts, they’ll provide insights on how your home matches up with what’s currently available based on attributes like:
-
Acreage and square footage
-
Location (desirable towns, water frontage, etc.)
-
Quality of finishes
-
Recent upgrades
By supplying this analysis, you and your agent will be able to determine what price is right for you and your home.
3. Appraisal vs. Opinion of Value
Why don’t appraisals and agent valuations always match?
A home appraisal and home valuation, also referred to as a broker opinion of value, are not interchangeable terms–while they both can be used to determine a home’s worth, they’re performed by different professionals and may sometimes be different numbers.
Appraisals are done by licensed appraisers (not real estate agents). Appraisers have strict guidelines to follow when determining the value of a home. They’re often used by lenders to ensure the bank is not over-financing a property, but can also be used to refinance your home, appeal your current tax assessment, and more.
An opinion of value is what you receive from your real estate agent based on their findings in the aforementioned CMA. You can also use automated home valuation tools like ours to begin getting an idea of what your property may be worth–but those online tools won’t be able to provide the insights into the local buyer demand that a living, breathing agent can.
While both are valuable, appraisals are about risk, and valuations are about strategy. You and your agent may decide on a different number than what’s appraised for a variety of reasons. For example, you may be comfortable listing your beloved second home slightly higher if you’ve decided you’re only willing to part with it for the right price. Or, you may decide to list at a slightly lower, highly attractive price if you’re motivated to get an offer in hand and close the sale as soon as possible.
Your Stone House agent will work with you to get a full understanding of what you want and need out of your home sale, and come up with the right plan of action to get you there.
4. Closing Costs
What are closing costs made up of?
There’s more to be paid by closing day than just the down payment–in fact, both the buyer and the seller could be on the hook for different closing costs. For example, sellers in both Massachusetts and New York pay a transfer tax. There may also be seller concessions: as part of your negotiations, the seller may offer to pay for repair issues that arise during the home inspection period. For buyers, there may be fees associated with securing a mortgage, alongside home inspection fees.
Other examples of closing costs include attorney and real estate agent fees. Closing costs can vary by state, but many lenders recommend you budget anywhere between 2%-6% of your loan amount to account for closing costs.
5. Multiple Listing Service (MLS)
What is the MLS and why does it matter?
Multiple Listing Services are databases that are established and paid for by real estate agents. They are run by local boards made up of agents from a wide variety of brokerages. The MLS is where your agent uploads photos, a description, and all other relevant information about your home when you list it for sale.
Not only does this make it easy for other agents to find information about your home–the MLS syndicates to home-finding websites from Zillow, to Homes.com and more, and this makes it easier for buyers to discover your listing.. It’s important to have an agent that is committed to getting high-quality photos, and putting your home in the best possible light when it comes to market.
Our affiliation with Luxury Portfolio International offers us even more syndication opportunities than your typical MLS listing. For our most high-end properties, Stone House’s listings are automatically put in front of qualified buyers browsing websites like The Wall Street Journal, Mansion Global, Financial Times, and more.
6. Designated Agent
Who does your real estate agent legally represent?
In most real estate transactions, it’s easy to understand who works for whom. The seller’s agent has a fiduciary duty to the home owner; the buyer’s agent acts in the best interest of the party interested in purchasing the home. But what happens if, as a buyer, your agent lists a home that you just fall in love with?
Depending on the specific circumstance, an agent & their interested parties may elect to bring in another designated agent. The designated agent is another salesperson from your current agent’s brokerage who will step in to represent one side of the transaction, ensuring both parties feel confident that their fiduciary interests are being protected to the fullest extent.
7. Contingency Period
What should buyers be doing before they commit?
Between the time a seller accepts an offer and the day the buyer has the key to their new home in hand, there is a contingency period for inspection and/or financing. This time frame allows the buyer to ensure there are no surprises before the purchase of a new home, and includes steps such as:
-
Home inspections/appraisals
-
Securing insurance
-
Obtaining final loan approval
The “final walk through” will also occur before you close on your new home. This is your opportunity to enter the property and be sure there are no surprises–such as leaks or failed mechanicals, for example–before you get to the closing table.
Your Stone House agent will be there for you every step of the way, offering their recommendations for the best local service providers and navigating negotiations as new discoveries arise.
8. Title
What is a title and why does it matter?
A title is the legal documentation that the home seller does, in fact, own the home–and thus has a right to sell it. In most cases, it will ultimately be your real estate attorney that conducts the title search.
9. Caveat Emptor (“Buyer Beware”)
Is the home seller responsible for disclosing problems?
Caveat emptor translates from Latin into “let the buyer beware.” Both Massachusetts and New York are considered caveat emptor states, meaning that the burden falls to the buyers of a home to uncover issues with the property. A seller is required by law to disclose known material defects such as structural issues, water damage, pest infestations, known environmental hazards (like lead paint), asbestos, etc.–but the task of uncovering potential unknown defects is the buyer’s responsibility.
This is why, as a buyer, it’s important to choose the right agent. At Stone House, we have a short list of home inspectors we work with every day and trust to do a great job uncovering potential issues for our clients. We’ll help you understand the results of your home inspection and how it may impact the way you move forward with your home purchase.
10. Cap Rate
What does cap rate mean in real estate investing?
Our team of knowledgeable commercial agents are experts in not only listing your commercial property, but also in helping make sure you’re choosing the right investment opportunities.
If you’re just starting to get your feet wet in the world of investing, one of the first things you should understand is capitalization rate. Cap rates are represented as a percentage, and assess the profitability of a piece of commercial real estate. The factors that go into determining cap rate include the market value of the property vs. its net operating income.
No matter which side of the transaction you’re on, our team of commercial agents will help you pick a property with a capitalization rate that’s comfortable for your goals and level of risk tolerance. They’ll also use their knowledge of local and national factors to help in your decision-making process.
FAQs About Real Estate Terminology
What does “Caveat Emptor” mean for home buyers in NY and MA?
It means “let the buyer beware.” In these states, buyers are responsible for identifying issues with a property through inspections and due diligence.
Why is a CMA different from an appraisal?
A CMA is done by a real estate agent to estimate market value, usually for pricing or offer decisions. An appraisal is required by lenders and follows stricter, regulated guidelines.
What’s included in closing costs?
Closing costs vary but can include attorney fees, title services, lender fees, prepaid taxes, and escrow fees. Buyers and sellers may each be responsible for different parts of these costs.
How does pre-approval help when making an offer?
Pre-approval shows sellers that you’re financially ready to buy and serious about the purchase. It can strengthen your offer—especially in competitive markets—because it reduces the risk of financing delays or denials.
