Real Estate Terms for First Time Home Buyers
Buying your first home is a daunting, expensive, and time consuming ordeal — oftentimes made more confusing by countless real estate acronyms and industry terms. To help, I’ve put together a short list of some basics to know before you start your home search, so you’ll be an informed buyer who feels confident going into their first big purchase.
Escrow: An escrow company is a neutral third party who holds all of the funds of the transaction until closing. When you’re “in escrow,” that means that your offer has been accepted and all parties are satisfying the necessary legal, financial, and logistical requirements necessary before you officially become the owner of the property.
COE (Close of Escrow): The length of escrow is something you decide with your agent when you’re submitting an offer, and although it can sometimes be quite short, when there’s a loan involved most escrow periods last about a month. Close of escrow is the day that the county records that you’re the new owner and you officially get your keys!
Closing costs: While seller’s closing costs typically include commission fees for both the listing and buying agents, there are a number of closing costs that the buyer is responsible for. These are negotiable, but they often include appraisal cost, inspection costs, and any fees for establishing a new loan, among other things.
Contingencies: Unless you’re paying cash and waiving all contingencies, most offers to buy a home come with a few caveats. Typically those include any inspection contingencies, as well as appraising at the value of your loan. And sometimes, if a person needs to sell their current home to buy another one, their ability to “perform” is also contingent on the sale of their current home.
DOM (Days on Market): The number of days the home has been listed for sale on the MLS. The longer a home has been on the market, the more likely it is that you have some wiggle room with your offer price.
MLS (Multiple Listing Service): A multiple listing service is a private organization and database funded by real estate agents in that area. On the Southern Arizona MLS, for example, brokers share information on properties that are for sale, while allowing other brokers to view the information and disseminate it to their clients. Essentially, it’s a way to ensure equal access to housing information for both buyer and sellers, while making sure that brokerages cooperate with one-another.
Due diligence: Taking reasonable steps to ensure that you’ve gathered enough information about a property (through inspections, research, county record searches, etc.) to make a thoughtful and educated decision regarding the purchase of the property. It’s vitally important that you’re making a well-informed decision before moving forward with such a substantial purchase!
SPDS* (Seller Property Disclosure Statement): This document acronym is specific to Arizona, but across the country seller’s are legally required to disclose everything they know about their home — including those issues that may make it harder to sell. It’s important for buyers to review these disclosures and know what the condition of the property is.
BINSR* (Buyer Inspection Notice Seller Response): Another AZ specific document, the “BINSR” is where buyers make repair requests and sellers decide to make those repairs or not. After the sellers have made their decision, the buyers have the opportunity to cancel the sale or continue to move forward.
HOA (Home Owner’s Association): HOA’s are organizations that manage a specific subdivision or condo building. HOA’s require monthly fees to maintain the area (pools, landscaping, sometimes even road improvements, etc.) that can range anywhere from around $25 per month, to upwards of $350+, depending on where you live and what the amenities are. Smaller HOA’s are sometimes self-governed by the property owners, but often they are managed by companies that also require a fee. HOA’s have rules which determine a number of things including if you can rent out your home, what improvements you can and cannot make to the property, and smaller regulations, like if you can park your car on the street or not. If you’re buying a place that’s governed by an HOA, it’s very important that you know what you’re getting into before you do so. And from personal experience, you’ll also want to make sure that the HOA has enough money in “reserves” that you aren’t spending significantly more than you expected on community improvements.
CC&R’s (Covenants, Conditions, & Restrictions): CC&R’s are a set of rules — typically when an HOA is involved — that govern the use of real property. It’s important to review these thoroughly before buying a home, townhouse, or condo regulated by CC&R’s
Equity: When related to real estate and finances, equity is the amount of value you hold in your property. For example, if you bought a house and put 10% down, then the value of your home increased 10% in the following year, you now have 20% equity in your home and would reap that financial value if you sell.
Earnest Money: Also referred to as a “good faith deposit,” earnest money is what you put down at the beginning of the transaction to demonstrate your seriousness. The amount can vary, but it’s often 1% of the purchase price of the home.
Seller Concessions: When the seller agrees to pay part of the buyer’s closing costs, it’s called “seller concessions.” Although this wasn’t happening very much from 2020 - 2022, the market is swinging back towards favoring buyers, so seller concessions will likely become more common.
POF (Proof of Funds): When procuring a loan or buying a house with cash, you must provide proof of funds, and often income as well. POF typically refers to documentation from a bank that demonstrates your ability to perform.
Pre-qualification: Pre-qual is a loan estimate given by a lender based on personal financial information provided by a borrower. Pre-qual forms are not required to put an offer in on a home in Arizona, but they are strongly suggested.
Pre-approval: Pre-approval is the next step after pre-qualification, when a lender is provided more detailed financial information and examines a borrower’s creditworthiness. If you receive a pre-approval letter from a lender, it’s an offer to lend you a specific amount, but not a commitment. Pre-approval letters are typically valid for 90 days and give you a great edge during your home search.
FHA Loan: Federal Housing Administration loans are insured by the government — specifically the department of Housing and Urban Development — and allow buyers to put down as little as 3.5%. In addition to low down payments, FHA loans help get people into houses by providing low closing costs and easier credit qualifying than a conventional loan.
Conventional Loan: These loans are not insured by the government. The minimum down payment for conventional loans is 3%, but depending on a borrower’s credit score and debt-to-income ratio, they may need to put more down. Oftentimes, conventional loan borrower’s put as much as 20% down.
Back-up offer: If a seller receives more than one offer that they like, they’re able to accept an offer and a back-up one, so that if one falls through the next will come into play. Offers are constantly falling through for one reason or another, so being a back-up offer can still be a good position to be in.
Ready to start looking for your first place? Check out these homes available in the Tucson area.
*These state-specific terms correspond with contracts from the Arizona Association of Realtors and/or Tucson Association of Realtors.
Julia Van Valkenburg, REALTOR
OMNI Homes International
julia@buyselltucsonhomes.com
520-275-3514
