Real Estate Terms You Need to Know, Explained
Venturing into the world of real estate can feel overwhelming, especially given the complicated lingo. However, like any language, all you need is a good reference and a little practice, and you'll be conversing like its old hat in no time.
To get you started, here are five of the most important real estate terms explained:
Agent—While it may conjure up visions of espionage and undercover operatives, but it's no secret that "agent" is one of the biggest real estate terms to know! In the language of real estate, they're the equivalent of a native speaker, in that they know what all these terms mean and how they can affect your journey as a homeowner. If you're buying, you'll work with a buyer's agent, and if you're selling, a listing agent. Most real estate agents are comfortable working in either role so that you can focus on key factors like knowledge of the market and area. Look for agents who are subscribers to the Greater Alabama MLS, or your local multiple listing service, which connects buyers with homes regardless of the listing agent.
Escrow—Escrow is often thrown around as a word no one really understands. However, this term is almost deceptively easy: Escrow is an arrangement where a third party—that is, someone who's not affiliated with either the buyer or the seller—to hold something of value while the buyer and seller meet their obligations for the sale. In real estate, this usually means the third party holds onto the deed during the period between the buyer submitting an offer and closing, when the final details of any loans are finalized, and the home is subjected to any tests or inspections. As a homeowner, you can also enter into escrow with your mortgage lender by paying them a monthly fee to take care of your insurance and taxes.
See? Super easy! Now to find a way to subtly work the fact that you know what escrow means into conversation…
PITI—Pronounced just like Mr. T's favorite verb, PITI is an acronym that summarizes the components of your monthly mortgage payment: the monthly Principal, Interest, Taxes, and Insurance. But what does that mean, exactly? Your mortgage is technically comprised of just the principal (or monthly fee) and interest, but it's important to note that the bottom line can be much more, and perhaps even double when you factor in taxes and insurance. Because it's common for homebuyers to enter into escrow with their mortgage company to take care of these fees, it's important to note that you would be responsible for taxes and insurance even if you pay cash outright for your home.
Equity—While PITI is an addition equation, equity, or the investment an owner has in their home, is a subtraction problem: take the home's value and subtract what the homeowner has paid into the mortgage. Essentially, equity reflects how much the homeowners truly own because, while their name may be on the deed, whoever loaned them the money to pay for the home has an interest in it until the loan is paid off. For example, if you borrow $100,000 to buy a home, the mortgage company "owns" the house initially. When you've paid $50,000, or half, of the loan back, you have 50% equity, and, when you pay it back in full, you have 100% equity.
Multiple Listing Service—A Multiple Listing Service, or MLS, is the holy grail of real estate information for a given location. In Alabama, it's the Greater Alabama MLS. What makes an MLS so valuable is its collaborative nature: sellers' agents post purchasable properties into a database, which buyers' agents then peruse in search of their clients' dream home, even if the two agents are from competing real estate agencies. The only catch is that real estate agents have to be subscribers, but with thousands of agents in the Greater Alabama MLS directory alone, you're sure to find the perfect fit for your family.
Learning the language of the real estate world can feel overwhelming, but don't get discouraged! Your Greater Alabama MLS real estate agent will be right by your side to translate... and explain escrow to you however many times you need!