Many real estate transactions fall apart for one simple reason: miscommunication. A lot of times, folks in the real estate industry speak to their clients in a language they don’t understand, using terminology that goes right over their head.
Here are a few terms you should know when dealing with real estate.
The first one is the MLS. The MLS or Multiple Listing Services is a magical place where anyone looking for a property may search. The MLS is an online database used by a majority of Realtors and brokerage firms to make a property available to the general public. This system is then used to “feed” other external websites such as realtor.com. The MLS will give you specific property information such as room sizes and whether the basement of a home is finished or not. An MLS sheet may also provide financial information such as gross income of a six-flat apartment building or how much the pizza place that’s sale made in profit last year. The MLS will usually provide many photos of the property as well.
A “comp” is a property that is comparable or similar to the property you a looking to purchase. Room sizes are compared along with specific characteristics of a property such as air conditioning and room features. Offer prices are often calculated by checking the prices of two or three comps. The comps will also be used during your mortgage process by a certified real estate appraiser to confirm you are not over paying for a property.
A pre-approval letter states that you have been pre-approved for a specific amount on a mortgage based on a preliminary screening. This letter is valid as long as your financial circumstances are the same as when you initially applied. I can’t tell you how many times a buyer will mess up a mortgage because they opened a new credit card or bought a new car during the mortgage process. This generally doesn’t sit will with banks. You should also avoid all large purchases until a clear to close is issued or until after you have closed on the property.
A good faith estimate or preliminary HUD statement is a spreadsheet that lays out all of your costs, including closing and lender fees, that are needed in order for you to close on a property. Review the document carefully with your attorney prior to signing it. Bear in mind this is called a good faith estimate for a reason: It’s just an estimate. State and federal laws protect you in that the estimate must be within a certain percentage of the actual cost.
Buying a home will be the largest purchase many will make during their lifetime. Always ask questions whenever you don’t understand an issue or term. That could be the difference between smooth sailing and rough waters ahead. Like I always say, surround yourself with the proper team of brokers and attorneys to get the job done quickly and correctly!