But, for all its perks, working with first-time homebuyers can also be tricky. There are many obstacles, and you’ll probably have to spend a lot of time educating your buyers. I’ve put together this list of 17 first-time homebuyer tips to share with your clients so they can avoid the mistakes that can cost them their dream home.

Before Your First-time Homebuyers Start House Shopping

More than likely, your clients, dreaming of buying a house for the first time, have scrolled through Zillow like a social media feed for quite a while before contacting you. Prepare them for the process by helping them tackle these steps, so you don’t waste time showing properties they’re not interested in or qualified for.

1. Determine If They’ve Saved Enough Money

There are so many costs involved in purchasing a home that most first-time homebuyers aren’t even aware of. Want to share some excellent advice for first-time home buyers? Sit down and explain these costs to them:

• Down payment: Unless they’re using one of the few loan programs that don’t require it, they’ll most likely need a substantial amount for a down payment, typically 5%–20% of the purchase price. If they need it, there are some available down payment assistance programs that you can educate them on.
• Closing costs: Buyers should plan to pay 3%–4% of the home purchase price for closing costs. You can help your buyers by negotiating a seller’s concession to pay part of the closing costs.
• Realtor fees: Ensure your buyers understand their responsibilities for covering commissions and fees. Explain the recent changes in transparency on agent commissions and how you can still negotiate to have the sellers cover these costs along with additional fees.
• Repairs, upgrades, and furnishings: No home will be perfect, and your buyers may need to prepare for the costs of repairs or upgrades. Let them know they may need to customize some things to make their home their own after they close.

Start by sharing this Home Buying Checklist, which lays out the foundations of the homebuying process and is full of first-time home buyer tips. It will help them kick off their homebuying journey the right way.

2. Help Your Buyers Establish How Much House They Can Afford

It’s easy for your buyers to get caught up in the excitement of home ownership without thinking through the realities. As a professional buyer’s agent, you should educate your buyers on how much they’ll actually pay each month—including their loan principal, calculated interest, property taxes, home insurance, private mortgage insurance (PMI), and homeowners association (HOA) fees, if applicable. Their monthly payment should be 25% or less of their monthly income.  

Give your buyers access to this mortgage calculator to estimate their monthly expenses.  

3. Encourage Them to Check Credit Scores

Let your buyers know credit scores are an important step to home ownership. Most mortgage lenders won’t take a credit score below 600, so your buyers need to know where they stand. If their score isn’t quite where it needs to be, let them know how to improve it and maybe hook them up with a lender who specializes in working with buyers who need guidance.

4. Persuade Them to Shop Around for a Mortgage

Honestly, one of the best tips for any client buying a house is to shop for the right lender. Keep a list of some of the best lenders. You may have different lenders for different types of clients. For example, you may have a list of lenders great for VA loans but a separate list for first-time buyers or investor clients. Share your favorite lenders to get them started on the right track.

Then, have your buyers contact multiple lenders to compare mortgage fees, rates, and any additional costs to take out a mortgage. Your buyers should consider several different types of mortgages when buying a home. Have them consult with different lenders on their best options.

Types of Mortgages

• Conventional loans: These are the most common type of home loan. The US government does not guarantee them. Some conventional loans allow first-time buyers to purchase a home for as little as 3% down.
• Federal Housing Administration (FHA) loans: These loans are insured by the Federal Housing Administration and allow buyers to purchase a home with less strict financial and credit score requirements than a conventional loan. With an FHA loan, a buyer can qualify with a 580 credit score and down payments as low as 3.5%.
• US Department of Agriculture (USDA) loans: These loans are guaranteed by the US Department of Agriculture. They are for specifically zoned suburban and rural homebuyers and have household income restrictions. They usually require no down payment for those who qualify.
• Veterans Affairs (VA) loans: These loans are guaranteed by the Department of Veterans Affairs. They are exclusively for veterans, active-duty armed forces and National Guard members, and qualified spouses. They allow those who qualify to buy a home with a 0% down payment.

5. Verify They Are Preapproved 

No sense in wasting time shopping for homes if your buyers aren’t prepared to make an offer when they find a home they love. Getting that preapproval letter will give them an advantage when it’s time to write up an offer. But it will also help your buyers stay within a set budget. They will know what the lender has tentatively approved them for, so they won’t be tempted to veer off into unaffordable territory.

6. Suggest They Research Neighborhoods Online

One of the best first-time home buyer tips is to encourage clients to research different neighborhoods, schools, and local amenities before looking at homes. If they find a home in a neighborhood or town that doesn’t suit the rest of their needs, they’ll be miserable. No one lives in a bubble. Urge your buyers to explore the areas to ensure they can access things they need, like shopping, restaurants, schools, and work, before deciding which areas suit them best.

House Hunting With Your Buyers

Now that the important foundation work has been done, it’s time for the exciting part—house hunting! But you certainly don’t want to start without a plan in place. When your clients are buying a home for the first time, follow these steps to make sure everyone is making the best use of the time you’ll spend together.

7. Educate Them on Working With a Real Estate Agent

A lot has changed for homebuyers recently, most notably how commissions are paid to their agents. As a buyer’s agent, you now have a more important responsibility to explain your value, break down why your clients need you working for them, and why you’re worth every penny of that commission. 

8. Create a List of Needs vs Wants

Sit your clients down with our House Hunting Checklist and review their needs and wants. This checklist is full of tips for first-time home buyers. Be sure to explain what features are true needs (like bedrooms for everyone in the house) vs “nice to haves” like a covered patio in the backyard. Explain that some things will be deal-breakers, but they can be more flexible on other features. Some items can be added after closing if they truly want them.

9. Educate Them to Be Realistic

If you’ve been in real estate for more than five minutes, you know there’s no such thing as a perfect house. That’s called a unicorn. Explain to your clients that they won’t find a house that meets every one of their expectations. But they will find a home they love with most of their preferences. Set their expectations to be open to homes that aren’t quite everything they want. They may just find a truly amazing house that fits them perfectly, even if it’s less than perfect.

10. Find a Home That Fits Their Needs & Budget

As frustrating as it can be to buy a house, first-time buyers may be tempted to bump up their budget if they can’t find the home they really want. And truthfully, this is their first home purchase and probably won’t be their last. If everything they want is out of their price range, then the first step to getting a better home is to start where they are. Work within their budget to find them plenty of well-suited options. 

If you’ve set their expectations well, they should be able to see potential in the homes you present. Their first home is supposed to be the starting point—remind them of that. They can enter the market with a starter home, stay in it for three to five years to build some equity, and then level up on their next home purchase.

11. Negotiate With the Sellers

The art of negotiation is a skill you should learn early in your career. This is where you will shine and help buyers present the best terms to get the deal accepted. Go to bat for your buyers to get the most agreeable terms possible. 

Negotiate with the sellers to pay some or all of your clients’ closing costs to alleviate some of their stress. However, you can also negotiate the purchase price, repair limits, and closing date with the sellers. The ideal situation is for everyone to leave the negotiations and feel good about the deal. 

After Your Buyers Are Under Contract

You’ve scoured the MLS, found your clients their new dream home, and negotiated the deal. Now, you must carefully steer the ship into the harbor without hitting any rocks! Follow these tips to ensure everyone arrives safe and sound at the closing table.

12. Help Them Hire a Home Inspector

Keep a list of reputable home inspectors and some great questions, along with other types of inspectors (wood-destroying organisms, septic tanks, pools, etc.), to help your clients perform the proper inspections to ensure their purchase is sound. Since your buyers are buying a home for the first time, you might need to explain why each inspection is important and worth the extra expense.

Pro Tip: This is a perfect opportunity to share some past experiences where things went terribly wrong. For example, I once had buyers fall in love with a house and helped them make an offer. Once they were under contract, I made sure to help them order a home inspection, which uncovered thousands of dollars of termite damage. Ouch! Stories like that one demonstrate the need for hiring professionals to see the things other people can’t.

13. Make Them Aware of Deal-killing Mistakes to Avoid

Have you heard about a buyer showing up to closing and driving a brand-new car they bought the week before closing, and the deal fell through because of it? Yeah, buyers get so excited about closing on their new home that they make costly mistakes. 

Here are some examples: 

• Don’t change jobs 
• Don’t make any big purchases 
• Don’t move your money
• Don’t buy a new car

Thankfully, we’ve put together a whole list of first-time home buyer advice, full of the dos and don’ts while under contract that you can go over with your buyers. You can even print it out and have them post it on their fridge until closing day! This is another great place for anecdotes to drive your point home. (Eh, hem. It’s part of the Home Buyer Checklist!) 

14. Help Them Find Quality Home Insurance

I live in Florida, and home insurance is a serious issue here. I like to keep a list of reputable insurance providers to share with my clients to help them get started. There are several sources online to compare rates, but you can also include a broker or two in your list. Another strategy is to get the current insurance provider from the sellers. Sometimes it’s easier to get a good rate for homeowners insurance from the company that already has a solid history with the home. 

15. Explain Title Insurance

Title insurance is typically done through the title company running your transaction. But when the buyers see or hear about this charge, they may need help understanding what it is and why they need it. Explain title insurance to your buyer. 

Title insurance protects the homebuyer and the lender against potential issues with the property’s ownership or any legal claims like some distant nephew of the deceased seller showing up and laying a claim to the property or boundary issues. Title insurance ensures the buyers can take complete ownership of the house, protecting against any liens, claims of ownership, or other situations that put the buyer’s full ownership at risk. 

16. Be Thorough at Your Final Walkthrough

You’re getting down to the wire; the final walkthrough is the last step. Schedule the final walkthrough with the seller’s agent within 24 hours before closing. The final walkthrough is to ensure the home is in the same condition it was when your buyers made the offer. 

I can’t begin to tell you how many times I’ve heard agents in my office regale stories of going to a home the day before closing only to discover something major missing—the fridge, the stove, the security system, the plants in the front flower bed—it’s hard to overstate the need for ensuring everything is in its place before your buyers sign the final closing papers. Be thorough!

17. Close & Celebrate With Them

You’ve finally made it! If it’s possible, go to closing with your buyers. This milestone is a HUGE accomplishment, and they will be so excited. You definitely want to be a part of that. Celebrate their win with them. I made it a tradition to take my buyers to lunch after closing to help continue the celebration. The longer I can continue that feeling, the better. I always take a closing gift to the closing and recommend the same to you. This event is a big deal, and they should feel that.

Pro Tip: Bring your smartphone and take video clips and pics of their big day. Ask them if they can give you a video testimonial after signing. I love asking my clients to do video testimonials right after closing when their emotions are the highest. 99.9% of the time, they’re so excited to share their gratitude with a video testimonial. The beautiful part is you’ll get their raw, authentic, emotional endorsement, which really does wonders for your marketing.

Bringing It All Together

Working with first-time homebuyers is a thrilling experience. As agents, it doesn’t get much more emotional than watching your clients sign closing docs on their first home. It’s such a high! But when you’re working with clients buying a home for the first time, you have a responsibility to guide them through the process, help them deal with their emotions along the way, and educate them on all the moving parts of a real estate transaction. 

If you get this right, they’ll remember you fondly for years to come. They may even name their child after you! I’m just kidding, but they will refer you to more business down the road. And when they’re ready to level up, guess who they’ll call.

The post 17 First-Time Home Buyer Tips: A Real Estate Agent’s Guide appeared first on The Close.

But is it worth your time? We’ll learn what it means to be an Accredited Buyer’s Representative (ABR®), the cost and process of getting this designation, and, ultimately, whether it’s the right move for you and your business. Plus, we’ll get an insider’s opinion from one of the creators of ABR® course content.

What Is the ABR® Designation in Real Estate?

The ABR® designation is offered by the to Center for REALTOR® Development, a wholly owned subsidiary of the National Association of REALTORS® (NAR), to agents who work directly with buyer-clients, provide a superior client experience, and prioritize professional development.

How to Get the ABR® Designation

This one is reasonably priced in real estate designations and doesn’t take long to get. When I calculated the pricing in the bullet list below, the total cost for the ABR® designation was approximately $600. There is a $75 per year fee, after the first year, to maintain it. If you meet the experience requirements, the entire designation can be completed in one week. 

To obtain your ABR® designation, you must:

1. Be a member in good standing with National Association of REALTORS® or an IRM (International REALTOR® Member)
2. Complete the two-day designation course online, in-person or in a live virtual format.
3. Complete one qualifying elective course online, in-person or in a virtual format.
4. Submit five completed transactions as a buyer’s rep in your career, (two can be leases) in which you act solely as a buyer’s representative
5. Submit your application and fee to become an Accredited Buyer’s Representative through their online form. International REALTOR® Members pay a one-time application fee of $185.

It’s important to note that the ABR® course is updated every two years, which could impact pricing. We’ve been assured that it has gone through a very recent update reflecting the current legal headwinds that NAR and the industry face. To learn more, check out the course here.

The course covers the following topics: 

• Conveying your value to the buyer-client
• Conducting a seamless, productive buyer counseling session
• Guiding a buyer-client through the search-showing-selection process
• Negotiating buyer client offers
• Bringing the transaction to a successful close
• Providing exceptional service

Benefits of the ABR® Designation

In light of current buyer agent conditions and potential shifts in commission structures, agents are looking for ways to demonstrate their value and worth. ABR® designees display the designation on their marketing materials, which sets them apart from the competition. These three little letters are a way to do just that.

“We asked Adorna to articulate the actual value of the ABR^®, specifically in today’s market: If you want to stay in business in a changing business environment, you need the best tools possible to remain competitive. This course can help agents work smart instead of hard, substantially increase their income, manage risk, and generate more business. This course is a game-changer for agents who take it.”

Adorna Occhialini Carroll

ABR® Marketing Materials

With your ABR® designation, you get access to the ABR Member Center library of print marketing templates for things like postcards, letters, and brochures. You also receive digital assets like Facebook profile picture frames and cover photos for places like LinkedIn and Instagram. Like most NAR marketing materials, they aren’t going to win any design awards, but they look professional and convey a strong sense of professionalism and expertise. 

Use these materials in social media posts that educate your prospects about your designation and how it benefits them. You can also use them on your website, where you can articulate what it means to be an ABR® and how that sets you apart. Make sure it’s clear you’re an ABR® Designation REALTOR®: your designation is on every piece of marketing you send, it’s part of your email signature line, and you’re talking about it in every new client meeting. 

ABR® Member Resources

Once you get your ABR® real estate designation, you can instantly use the client-facing resources. These resources include videos to share with your prospects about the value of working with an Accredited Buyer’s Representative, a homebuyer’s toolkit, and consumer one sheets. These features are perfect for buyer-agent scenarios like mortgage prep, home inspection, making an offer, and more. These resources are all packaged nicely and can potentially impress serious buyers. 

ABR® Networking

As an ABR® designee, you are allowed membership to the exclusive ABR Facebook Group, which boasts over 10,000 members. Here, you can connect with other ABR® designees, share strategies, exchange referrals, and more. The group is active, with two posts today and 28 in the past month, as well as live virtual networking events throughout the year. It’s unclear how many actual referrals one can expect from this group. Still, it’s certainly a place where agents are discussing current issues, problem-solving, and supporting one another. 

ABR® Member Programming & Publications

Accredited Buyer’s Representatives are automatically subscribed to the monthly ABR® publication, Today’s Buyer’s Rep, the TBR HotSheet, a weekly e-newsletter wrap-up of real estate information, as well as a standing invitation to the Buyer Representation Sessions, an annual event at the National Association of REALTORS® (NAR) Conference and Expo. Each of these resources offers an opportunity to liaise with fellow ABR® designees, learn from best practices, and stay up to date on the most relevant news.

Is the ABR® Designation Worth It?

Yes. The ABR® offers interesting courses, substantial continuing educational opportunities, and a helpful community of fellow designees at a fraction of the cost of other designations. It’s quick to get and affordable to maintain.

However, the ABR® designation only pays for itself if you actively promote it, explain how it sets you apart from your competition, and if you consistently deliver great service to your buyers. You have to leverage the designation to create space between you and those you’re competing against—if you aren’t doing that, you won’t benefit from this distinction, and it’s not worth the time.

“Adorna offers her final two cents: Based on how much business practice is changing and in light of current changes within the industry, anyone who has already taken the ABR^® course should retake it. You just don’t take a designation course once—you take it periodically to elevate your business skills and add new tools to your professional toolbox. For agents who have not taken the course yet–now is the time.” ABR^® designees have access to all up-to-date live virtual courses in the member center.

Adorna Occhialini Carroll

Bringing It All Together

The ABR designation is absolutely worth getting if you have a marketing plan to promote it and the follow-through to stay consistent with that message. If you possess both of these things, the ABR® is a no-brainer.

The post What Is the Accredited Buyer’s Representative (ABR®) Designation? appeared first on The Close.

Furthermore, in today’s market, understanding our complex mortgage industry could actually help you close more deals and maybe even save clients money. So we’ve included a handy download with questions your clients should ask their mortgage broker. Download it now and add it to your new homebuyer drip campaign for 2024!

4 Key Interest Rate Questions That Could Save Your Clients Money

We present our glossary of 136 real estate terms you need to know—and be able to define for your clients.

A I B I C I D I E I F I G I H I I I J I K I L I M I N I O I P I Q I R I S I T I U I V I W I X I Y I Z

1031 Exchange

This tool, also known as a like-kind exchange, allows investors to defer paying capital gains taxes on a sale. The catch is that they must sell one property and buy a similar one within a set time frame. If you want to work with real estate investor clients, read our own Sean Moudry’s simple, yet thorough rundown: How to Explain 1031 Exchange Rules to Your Clients.

A

Acceleration clause

Make sure clients who see an acceleration clause in their mortgage contracts understand that this allows their lender to demand repayment of the loan in full if they default on the loan.

Active contingent

To help your clients understand contingencies, use the word “conditional.” If a property is active contingent, a buyer has submitted an offer to purchase a property, but the sale won’t be finalized until certain conditions, or contingencies, are met. A contingency might be the buyer selling their current house, requiring certain repairs to be made, or obtaining a clean termite inspection. 

It might feel stressful, but handling contingencies well is actually a time when you, as the agent, can really shine. Sure, deals can fall apart. There are plenty of things out of your control, like a foundation crumbling, undisclosed liens, or all the seller’s DIY repairs. But if you shepherd your clients through the process with the greatest attention to detail, they won’t forget it.

Active with contract

Your client might wonder if they can still view a property that’s active with contract (also known as “active under contract”). Let them know that it’s totally fine, assuming the seller agrees, but make sure they understand that the property has an offer with contingencies that have not yet been met. There is always a chance a sale might not go through, especially in today’s wild interest rate market. But if and when the contingencies have been met, the property will be listed as “pending.”

Addendum

Clients will come across all sorts of addenda, or supplemental documents that modify a specific part of an existing contract, in the transaction. They must be agreed upon and signed by both parties. One of the most common addenda, and an easy example for clients to understand, is the lead paint disclosure for homes built before 1978, which alerts buyers to potential hazards.

Adjustable-rate mortgage (ARM)

Clients should always consult with their mortgage professional when it comes to specific questions about their mortgage. But it’s helpful to be able to explain the basics.

Clients might be interested in an ARM because it allows borrowers to take advantage of interest rate decreases without having to go through a whole refinance process and pay additional closing costs. Since an ARM’s interest rate fluctuates over time depending on various market factors, some experts believe they save borrowers money in the long run. The disadvantage, of course, is that ARMs make it hard to plan and budget since there is always the possibility (and current reality) of rates increasing.

What About ARMs? 4 Loan Questions Worth Asking

Adjustment date

Clients with ARMs need to know their adjustment date, because that’s when they may see a change to the interest rate in an adjustable-rate mortgage. The time between a change in rates is called an adjustment period, and the length of this period depends on the loan. For most ARMs, the adjustment date occurs annually.

Amortization

This is one of those words everyone has heard but few really understand. When it comes to property financing, amortization is the preset schedule of mortgage loan payments, including interest, over time. Generally the payments are scheduled monthly over a period of 15 or 30 years. You know you love a good amortization schedule. How else would you and your clients understand how much is being paid in principal and interest over the years?

Annual percentage rate (APR)

Clients may be confused about the difference between an interest rate on their mortgage loan and an APR. Simply put, the APR includes all of the fees involved, including points. It’s really just the total amount, expressed as a percentage, that it costs to borrow money, including interest and fees.

Apps

There are an infinite number of real estate apps out there to boost agent productivity. We have a roundup of our current favorites and bet there is at least one that will solve for one of your pain points.

Appraisal

The appraisal—an estimate of how much a home is worth— can be a stressful point in the homebuying process for clients. If an appraiser assigns a lower value to the property than what the buyer has offered, the lender might not fund the entire loan amount. The appraiser, after all, is computing the fair market value of a property to ensure that the loan amount is reasonable.  

There are options, though, and y’all are the best at navigating these tricky waters. The most common solution is to negotiate with the seller to bring down the price to the appraised value. You can challenge the appraisal if it’s really off the mark. Or, the buyer can put more money down and reduce the loan amount.

Appreciation

Appreciation of a home’s value can happen over time from a number of factors, like inflation or the neighborhood becoming the it spot. To calculate a property’s projected increase in value over time, divide the change in value by the initial cost of the property and multiply it by 100. Appreciation may not be your clients’ main motivator, but it should always be a consideration. After all, (shout it from the rooftops!) real estate is one of the safest and most profitable investments one can make.

As-is

Was that knob-and-tube wiring in the attic? Clients who’ve binge-watched HGTV might be excited about a fixer-upper, but you can help them understand what “as-is” really means. Basically, the property is being sold in its current condition without any improvements, repairs, guarantees, or warranties.

Assessed value

This is the dollar value the local government assigns to a home based on square footage, condition, and relative comps. It helps determine how much owners will pay in property taxes. It’s often presented as a percentage of the fair market value.

Assignment

This is when the seller signs over all rights and obligations related to a property to the buyer before the actual closing. This is a bit of legalese and probably not a term you’d use in casual conversation with clients.

Assumable mortgage

You don’t hear much about assumable mortgages anymore. If a client asks, it means the buyer will take over the seller’s existing mortgage and existing house-related debt. This might happen if a parent or spouse dies and the heirs take over the mortgage. An assumption clause will be included in the mortgage’s provisions and the lender will typically hold the buyer to the same eligibility requirements as the original borrower. 

While this type of arrangement may be attractive in today’s rising rates environment, you’ll want to explain to your clients that it’s very difficult to take over a mortgage. This is thanks to the Garn-St. Germain Depository Institutions Act of 1982 (“Oh, of course,” they’ll say, and nod their heads knowingly). Basically, the law protects lenders from assumable mortgages with below-market interest rates. Most mortgages now have a “due-on-sale” clause, which requires the borrower to repay the loan in full if they sell the property.

B

Balloon mortgage

Clients who opt for a balloon mortgage will pay smaller monthly payments at first, followed by one larger-than-typical payment (the balloon) at the end of the loan. They generally come with lower interest rates and the ability to get a higher loan amount. Common in the 2000s, they aren’t as popular now. The final balloon payment can be massive, and one misstep could leave the borrower upside down. 

Biweekly mortgage

Borrowers with a biweekly mortgage will submit their mortgage payments twice a month as opposed to once. This results in 26 payments annually, which means paying one extra month per year. A borrower with a 30-year biweekly mortgage could pay their loan off sooner than those with traditional payment schedules, even by year 25.

Bridge loan

Got clients who found their dream home before selling their current one? A bridge loan can be a real life-saver in this situation. Essentially, it’s a short-term loan that helps a buyer cover costs in the interim between buying a new house and selling one. It could also mean you have the chance to be the client’s buying and listing agent!

Broker

Clients may want to know the difference between an agent and a broker. After all, part of the commission they’re paying may go to a broker. You can explain that a broker is equivalent to a manager in the real estate world: an agent with a certain level of experience who has taken the state-mandated education and examinations to meet the requirements to become a licensed real estate broker. (Of course, some states refer to a real estate agent as a “broker.”)

Buydown

This is a really helpful concept for today’s market. You’ll want to encourage your clients to consult with their mortgage specialist, but often borrowers can secure a lower interest rate by buying discount points as a one-time fee paid at closing. A buydown can also exist when a seller makes initial payments toward the mortgage to reduce the interest rate, usually in exchange for a higher purchase price. Both routes represent great options to consider if interest rates are, ahem, rapidly rising.

C

Call option

This gives a buyer an exclusive right, or option, to purchase a certain property at a set time for a specified price.

Cash-out refinance

A homeowner can refinance their property for more than its value and take the added amount as cash. It generally results in a higher interest rate or additional points, but it’s a way for homeowners to leverage their equity in a property. 

Certificate of eligibility

When working with veterans, you’ll want to prepare them for a fair amount of paperwork. The certificate of eligibility is but one example of this. It’s an official form certifying that a veteran has met the terms that qualify someone for a VA loan. VA loans might have a lot of red tape, but they can be excellent, affordable options for service members and their spouses.

Certificate of reasonable value

This is a form from the Department of Veterans Affairs outlining the maximum amount that can be issued to a borrower of a VA loan. Like we said, lots of paperwork.

Chain of title

As clients get ready for closing, they’ll hear a lot about the title. Chain of title is an historical record of previous owners of a property that’s essential in establishing the legal ownership of the property. An established chain of title helps protect the buyer from future challenges to ownership. A title search helps create that chain and is usually conducted by a lawyer or title company prior to closing.

Clear title

Clients may want to know why you’re doing a happy dance when you hear the property has a clear title. A clear title, you explain, indicates that there are no liens or encumbrances on the property. It’s also known as a “just title” or “free-and-clear title.” A title with liens or encumbrances has a “cloudy title.” Properties can have their titles cleared, but it can take a long time and may even require legal action.

Closing

Pay day! Another happy dance. Also known as the agreed-upon date when a property changes ownership from the seller to the buyer.

Closing costs

You can explain early in the process that closing costs are all of the additional fees related to the purchasing or selling of a property. They are generally between 3% and 5% of the purchase price and account for appraisals, taxes, attorney fees, and title insurance. 

It’s really important that your clients are keyed into this crucial part of the process. Clients will need an exact accounting of the total amount owed in closing costs. They’ll also need to ensure that those funds are properly wired or deposited on the closing date.  

Remember that time when a wire transfer didn’t go through from a third party who was hiking on top of a mountain and couldn’t be reached? Prepare your clients to double, triple, quadruple check everything related to these costs and their transfer.

Co-borrower

Don’t you love it when the co-borrower is the client’s dad who comes along on the inspection and is suddenly an expert on chimney engineering? If your clients are concerned about getting approved for a loan, you can remind them that a co-borrower agrees to back the borrower in a mortgage loan. They sign all of the loan documents, have interest in the property being purchased, and are required to pay the monthly payments if the primary borrower is unable to.

Commission

My guess is that, while you know exactly what a commission is and how it works, your clients might have some questions. 

You can explain to them that a commission is the amount charged by the real estate agents who lead the transaction. It is almost always paid by the seller. Generally 6% of the purchase price of the property, commissions are usually split between the buyer and seller agents and then between the agents and their brokers.

Community property

In a community property state—namely Arizona, California, Delaware, Idaho, Louisiana, Maryland, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, South Carolina, Tennessee, Texas, Washington, and Wisconsin—any real estate purchased during a marriage belongs equally to each spouse, 50-50.

Comparable sales

Of course, the ultimate pricing decision lies with the seller, but we hope they listen to you because you’ll come up with a price based on the science and art of the comparative market analysis (CMA). To create a CMA (see below), you’ll collect similar properties that have closed recently, also known as comps.

Comparative market analysis (CMA)

When you sit down for your listing appointment, one of the most important things you’ll have with you is your comparative market analysis. This is an estimate of a property’s worth, determined by local comparable sales, market data, sale history, and location. 

CMAs are a place where an agent can really show off their knowledge and professional value. In this article, our own Chris Linsell explains how to create an unbeatable CMA.

Compound interest

The concept of compound interest can perhaps best be described by Benjamin Franklin, who allegedly said, “money makes money. And the money that money makes, makes money.” Albert Einstein supposedly called compound interest mankind’s greatest invention. 

It’s essentially the idea that if you invest your returns into more investment, that money multiplies. This works in your client’s favor if they are collecting on investments, but against them when applied to debt.

Construction loan

A construction loan is a short-term loan that covers the cost to build a property until the owner can secure long-term financing.

Contingency

Clients often have trouble understanding the difference between contingent and pending. A property is considered contingent when the buyer has made an offer to purchase it, as long as certain conditions are met. This could mean repairs need to be made or the buyer’s home needs to sell. Whatever these contingencies are, they have to be resolved before the property can close.

Conventional mortgage

Conventional mortgages are the ones that aren’t part of a specific government program, such as Fannie Mae, Freddie Mac, USDA, or the VA. Generally, borrowers who go the conventional route are lower risk, offer a larger down payment, and don’t require mortgage insurance.

Help Clients Navigate a Volatile Mortgage Environment

Convertible adjustable-rate mortgage 

It’s kind of like a fixed-rate mortgage and an adjustable-rate mortgage had a baby. A convertible ARM is a mortgage with a much lower interest rate at the start of the loan, where the interest rate fluctuates during the life of the loan, usually every six months. But, unlike a traditional ARM, a borrower has the option to switch to a fixed-rate mortgage. These mortgages were developed in the 1980s in an era of double-digit interest rates when borrowers were hopeful that the rates wouldn’t rise much more.

Cost of funds index (COFI)

Used to calculate variable interest in adjustable-rate mortgages, COFI is a benchmark determined by average regional interest rates incurred by financial institutions.

Customer relationship manager (CRM)

A CRM helps agents track leads in their sales funnel. Robust CRMs have email and text drip campaigns and many even let you call prospects and track responses directly through the system. The best CRM is one you’ll use, so make sure it’s user-friendly, has all the bells and whistles you need, and helps you reach out to prospects and leads quickly and consistently.

D

Days on market (DOM)

As a seller’s agent, you’re counting the days a listing is on the market. Chances are your client is too. Which is why she’s calling you before breakfast.  

Simply put, this measures the number of days a property is for sale, from the day it is listed on the multiple listing service (MLS) to the day a buyer and seller are under contract.

Deed

The deed is a legal document recording the transaction of title (or official ownership transfer) from the seller to the buyer. It is recorded at the local county clerk’s office. Really just a combo of legalese and paperwork, but everyone feels better having a tangible representation of ownership.

Deed in lieu of foreclosure

This is when a homeowner turns a deed over to the mortgaging bank to avoid going into foreclosure. This allows the borrower to avoid personal liability for the remaining unpaid debt. In some cases, they may be able to continue living in the property.

Default

To default on a mortgage loan means the borrower has stopped submitting monthly payments.

Delinquency

Borrowers can go into delinquency if they have stopped paying their monthly mortgage loan payments for a certain time period. At this point, the lender has the option to start foreclosure proceedings.

Debt-to-income ratio (DTI)

This is an important calculation for lenders when considering mortgage applications and whether borrowers can afford to make payments. You can help your clients calculate their DTI by adding together all of their monthly payments and dividing the total by their gross monthly income.

Discount points

Borrowers may pay these fees at closing to secure a lower interest rate.

Down payment

Crucial question for your clients: How much can you put down? After a good look at their finances, a nice long chat with their financial advisers, and an extensive application with a mortgage lender, they might finally have an answer. 

A down payment is the amount of money that a buyer uses to secure a mortgage on a property. Conventional loans often require 20% of the purchase price, while government-backed mortgages could require much less (sometimes nothing!). Loans with less than 20% down often require buyers to pay private mortgage insurance until they reach a certain equity ratio.

Due diligence period

What if your clients are asking about their due diligence period? Easy, you explain: It’s a specified amount of time after an offer is made during which the buyer can inspect the property and review relevant documents. It’s a chance for the buyer to be sure in their decision to move forward with the purchase. It’s also a period when seller’s agents tend to bite their nails, breath rapidly into paper bags, and yes, they will have that third margarita, thank you.

Due-on-sale clause

Also called an acceleration clause, this requires the borrower to repay the loan in full when a property (or collateral) is sold. It all goes back to that riveting Garn-St. Germain Depository Institutions Act, which was put into place to protect lenders from assumable mortgages.

E

Earnest money deposit

First-time buyers may be new to this concept, so it is worth bringing it up in the beginning of the home-search process. Also known as a “good faith deposit,” it’s the amount of money a buyer puts in escrow to show their commitment to purchase a property. Usually a small percentage (1% to 3%) of the purchase price, it goes toward the purchase at closing. If the sale falls through, the seller could keep some or all of the earnest money, depending on the situation.

Easement

When examining a property—to buy or sell—it’s crucial to first understand if there are any easements on the property. An easement is the legal right for a non-owner to use or cross a property for a specific purpose while the title remains with the owner. 

One example is someone using a private road to access their own land. Another one that is popular down here in Charleston is a conservation easement. This means that the owner has donated a portion of the property to be protected because it has historic, cultural, or environmental significance. The owner can receive tax credits in exchange.

Eminent domain

This is the government’s right to use private land for a specific, public purpose after compensating the owner.

Encroachment

An encroachment is a violation of an owner’s property rights by building or extending onto their land without permission. For example, if you build a fence and part of it is on your neighbor’s yard, that’s encroachment.

Encumbrance

You just never want to hear that a property has an encumbrance. Never. Want to. Hear it. And if you do hear it, you need to explain it to your client. An encumbrance is a claim against a property such as a mortgage, lien, or easement. These can affect the transferability of ownership.

Equal Credit Opportunity Act

This was groundbreaking legislation when it passed in 1974. Today it offers agents the opportunity to further the cause of equality and justice in our professional transactions. The act protects potential borrowers against creditors who would discriminate against their mortgage application based on race, color, religion, national origin, sex, marital status, age, or acceptance of public assistance.

Equity

This is the amount of a property that a person (not the bank) actually owns. For example, if you put a down payment of 20% on a $200,000 home and got a loan for the rest, your home equity is $40,000. Your equity will increase as you pay down the loan and as your property value increases. But it could decrease if you take out more loans against the property or if the home rapidly declines in value.

Escrow

A third party holds funds in escrow during the real estate transaction, releasing them at closing. Generally, this refers to earnest money funds. Some states have laws on the books requiring escrow account holders to pay interest on these funds, though banks are often exempt.

Examination of title

Before closing, everyone will want to make sure that the title is clear. Title companies research a property’s transfer of ownership through public records to trace its history and ensure there are no encumbrances that could affect the purchase.

Exclusive listing

When walking through a new listing agreement, it’s important to explain all of the different representation options. An exclusive listing gives one real estate agent a property listing and a certain amount of time to get the property sold. That agent is expected to find buyers and oversee the transaction during this period. This is a good topic to cover when you’re explaining commissions, percentages, and how they are split.

F

Fair Credit Reporting Act

This one doesn’t get as much attention as the Fair Housing Act, but it was a game changer for the industry. Before the Fair Credit Reporting Act, consumers were not nearly as protected and abuse of personal data ran rampant.

Enacted in 1970, the Fair Credit Reporting Act ensures that files containing personal information gathered and held by consumer credit reporting agencies are handled fairly, accurately, and privately. It also gives consumers access to their own information.

Fair market value

The fair market value is essentially the price that the market is able to bear, borne out by the fact that both the buyer and seller agree upon it. Make sure your clients don’t confuse it with the appraised or assessed value.  

It’s actually a legal term. Courts define it as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”

Fannie Mae

The colloquial name for the Federal National Mortgage Association, Fannie Mae is one of the most active sources of mortgage financing in the country. Fannie Mae is a government-sponsored enterprise that allows medium- to low-income families and individuals to obtain affordable mortgages.

Fee simple

This is a type of common property ownership in which there are no conditions or restrictions, and the property is owned absolutely.

FHA mortgage

FHA mortgages are government-backed property loans insured by the Federal Housing Administration. They differ from conventional loans in that the down payment and credit score requirements are lower. That’s why they’re especially popular with first-time homebuyers.

Fixed-rate mortgage

With a fixed-rate mortgage, the interest rate is set and does not fluctuate during the life of the loan. This gives the borrower the stability of knowing the monthly payments will stay the same over the course of the 15 or 30 years of the loan. If interest rates dip significantly, borrowers can refinance their loan but will have to pay closing costs.

For sale by owner (FSBO)

This is when the owner of a property publicly lists it for sale without the assistance of a licensed real estate agent. Agent slowly raises palm to forehead. Many FSBOs are hoping to save money by not paying a seller agent’s commission fee. But given the cost savings that agents typically bring to a transaction thanks to their marketing and pricing expertise, they probably won’t. Learn more about FSBOs and who pays the buyer’s commission with a FSBO in this HomeLight article.

Foreclosure

If a property owner stops paying their mortgage payments, usually for at least 90 days, the lender can start foreclosure proceedings. This can lead to a short sale, foreclosure auction, and/or the lender taking possession of the property.

Freddie Mac

Freddie Mac is the common name for the Federal Home Loan Mortgage Corporation, or FHLMC. It’s a privately traded, government-backed company that offers greater accessibility to mortgage loans and provides stability in the market.

H

Home equity conversion mortgage

A home equity conversion mortgage is a type of reverse mortgage offered by the FHA that allows the borrower to withdraw a portion of their equity in a property.

Home equity line of credit (HELOC)

This is a line of credit based on the equity one has in their property.

Home inspection

Whether it’s bats, creaky foundations, creative duct-taping, or prominently displayed naked photos of the homeowners, most agents have encountered something unexpected in this phase. If you need a few more examples, check out realtor.com’s Strange but True Tales From the Trenches.

Generally, a buyer will enlist the services of a licensed home inspector after the initial offer phase. The inspector will look for major (and sometimes minor) defects in a home that could impact the value. Inspectors usually look at the foundation, roof, plumbing, electrical systems, and HVAC.

Homeowner’s association (HOA)

Buyers looking at a home in a planned community need to know what an HOA is and why it’s important. An HOA is an entity that oversees the rules and regulations related to a planned neighborhood or multifamily building. They can also offer services to homeowners, manage shared property and common areas, ensure appearances are kept up, plan activities, and protect property values. Homeowners generally pay HOA fees each month. If they neglect to do so, the HOA can put a lien on the property. 

HOAs have quite the reputation, but they’re not all bad. Or maybe they are. We appreciate Atlanta-based CPA Neal Bach’s list of his top 10 most amusing HOA stories. Our favorite is the HOA that mandated residents wear polo shirts and khaki pants when holding a garage sale. And yes, there absolutely was a fee for noncompliance!

Homeowners insurance

Clients will need to arrange property insurance before closing. That’s why it’s smart to start shopping around as soon as they are under contract. Homeowners are required by their lenders to obtain homeowners insurance, which protects both the owner and mortgage provider against calamities, natural disasters, and accidents occurring on the property. Insurance is generally folded into monthly mortgage payments. Be aware that certain areas may have special requirements, like properties in flood zones needing flood insurance.

I

IDX website

A real estate agent’s website is one of the most important marketing and lead generation tools in their arsenal, especially when they have IDX functionality. IDX, or internet data exchange, allows your website to “talk” to the MLS and keep up-to-date real estate listings right on your site. We have done extensive research and selected our top real estate website builders that include IDX to help agents select the best provider. Check out our roundup below:

J

Judicial foreclosure

In many states, lenders must obtain a foreclosure ruling through the courts before commencing foreclosure proceedings.

Jumbo loan

A jumbo loan is one that goes over the “conforming loan limit.” That makes it ineligible to be backed by government-sponsored programs administered by Fannie Mae, the FHA, and Freddie Mac. The limit is based on local median home values. Jumbo loans generally require stricter qualifications, higher credit scores, and higher income or cash reserves.

L

Lead generation

Agents generate leads to keep their sales funnels full and ensure a steady pipeline of prospects and leads. Lead generation activities can range from cold calling to buying leads and everything in between.

Lease option

As the market cools and rates rise, this could be an attractive option for buyers who have found their dream home but are hoping rates will come down in the near future. A lease option is also known as a rent-to-buy. A property is leased for a determined monthly amount and can be purchased at any time during the lease for a specified amount of money.

Lender

In real estate, a lender is any individual or institution that provides financing to purchase a property, with the expectation that the amount will be repaid with interest.

Lien

We bet you have a lot of clients who think they understand this concept but could maybe use a refresher. A lien against a property means there is some unpaid debt where the property was used as collateral. This could tangle up the closing process if not properly handled. Liens can come from unpaid mortgages, construction bills, even HOA fees. A mortgage is also considered a lien.

Life cap

On an adjustable-rate mortgage, this is the maximum rate of interest that can be charged above or below the initial interest rate. Generally, the life cap of an adjustable-rate mortgage is 5% or 6%, although it could be higher. This means that even if interest rates rise more than that life cap, the borrower will not have to pay those rates.

Loan officer

A loan officer is a licensed official with a financial institution who is responsible for helping borrowers understand the mortgage process, choose a loan, apply for and receive it, and communicate with other transaction stakeholders. These are the people who should be answering all of your client’s mortgage-related questions.

Loan origination

This is the time period during which a financial institution reviews a borrower’s loan application. There is sometimes a loan origination fee, as the institution gathers information and data to assess the borrower’s risk.

Loan servicing

Servicing is everything involved in the administration and maintenance of a loan. It includes sending out statements; collecting, recording and tracking payments; managing escrow funds; and following up on unpaid debts. This is important for clients to understand because the company that they ultimately pay might be different from the institution from which they originally took out the loan (the originator).

Loan-to-value (LTV)

This is the ratio between the loan amount and the property value. To find the LTV, divide the loan amount by the value. A higher LTV denotes greater risk to the lender.

Lock-in period

A borrower must wait a certain amount of time before being able to pay off a loan in full. If a borrower does pay off a loan during the lock-in period, fees are usually involved. Make sure your clients don’t confuse this with a rate lock.

M

Mortgage

A buyer who can’t pay cash for a home will take out a loan, or mortgage, from a financial institution, using the property itself as collateral. In exchange, the borrower will pay back the loan regularly over a scheduled period of time and with interest. Remember, the mortgage guys are the professionals. When it comes to specific mortgage questions, be sure you’re referring your clients to qualified people.

Mortgage banker

A mortgage banker represents the financial institution issuing the loan and oversees each step of the process. Make sure your clients understand the difference between a mortgage banker and mortgage broker.

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Mortgage broker

A mortgage broker has access to multiple financial institutions. This way, they can shop around to find a mortgage with the best interest rates or deal for the borrower. 

Mortgage insurance, aka private mortgage insurance (PMI)

Mortgage insurance protects banks against payment default. It’s often required by lenders if the borrower is putting down less than 20%.

Multiple listing service (MLS)

Like Zillow, but for real estate professionals, the MLS is a network of local lists that create a database of properties for sale. 

N

Negative amortization

Negative amortization can happen when a borrower doesn’t put enough in their monthly repayments to cover the interest. In this situation, the total amount owed on the loan continues to increase.

No cash-out refinance

A borrower might use a no cash-out refinance to take advantage of a lower interest rate or to shorten the term of their mortgage. The borrower isn’t taking money out based on the equity of the property as they would in a cash-out refinance. 

No-cost mortgage

In a no-cost mortgage, the lending institution pays all of the closing costs in exchange for the borrower paying a higher interest rate. This benefits the lender in that they can then sell the mortgage on a secondary market for more because of the higher rate. It benefits a borrower who plans on staying in a property for less than five years. They save the closing costs and aren’t saddled with a higher interest rate for 15 or 30 years.

Note rate

Also called nominal rate, this is the amount of interest set for a loan used to calculate the monthly payment on a mortgage. Clients often confuse the note rate with the annual percentage rate. But the APR is actually used to compare what it would cost for a specific loan with a certain lender, adding all their particular fees in. 

O

Open listing

A seller who uses an open listing doesn’t have an exclusive agreement with an agent. This means that any agent can compete to find a buyer and receive the commission. Similar to a FSBO, an open listing might save the seller some money, but we all know it comes with a lot of headaches. 

Without a real estate professional, the seller doesn’t have someone who can provide advice and help move the transaction along. Agents might also be less motivated to market the property since they are not guaranteed a commission.

Original principal balance

The original principal balance is the total amount owed on a loan before any repayment begins. This is the number clients will see before they pay their first monthly payment, though it generally does not have the escrow balance applied to it. 

Origination fee

A borrower will pay an origination fee to the lending institution to cover the cost of processing a mortgage loan. Clients might be surprised to learn that an origination fee is typically between 0.5% and 1.5% of the total loan amount. This means an origination fee on a $250,000 loan could be as high as $3,750.

Owner financing

If a buyer secures a mortgage directly from the seller, it’s considered owner (or seller) financing. The borrower generally avoids the fees, requirements, and rates associated with conventional loans and works out a legal and binding contract with the seller. There are also several advantages to the seller. They can typically set their own loan terms and sell the property as-is. Also, it all usually happens much more quickly than waiting on slow-moving financial institutions. 

Of course, there is risk involved, but sellers can often retain the deed until the debt is paid off. For buyers who struggle with good credit or putting together a 20% down payment, seller financing can open a lot of doors.

P

Pay-at-closing leads

Maybe you want leads, but you don’t have the budget to splash out on buying them right now. With a pay-at-closing lead gen model, you can obtain and work leads and then only pay when they close on a property. Just note that the cost is usually pretty substantial, even as much as 35% of the commission.

Pending

This definitely gets confusing for clients poking around on Zillow, Redfin, and even the MLS. What’s the difference between active, active-contingent, pending, and all of the other terminology? If a sale is labeled “pending,” all of the contingencies on the sale have been met and it is moving toward closing. Chances are very good that this sale will close. If not, the buyer may be at risk of losing their earnest money. 

Per diem fees

Per diem fees are paid by the borrower for every day a loan is scheduled to close but does not. To calculate the per diem, multiply the loan amount by the interest rate (as a decimal) and divide that total by 365. The fees are generally paid to the lender at closing. 

A seller could also add a per diem clause in the contract. For example, if a buyer doesn’t close on a specified date, they might be required to pay a certain amount per day to cover utilities, insurance, HOA fees, or taxes.

Principal, interest, taxes & insurance (PITI)

This figure calculates monthly housing costs by adding up principal, interest, taxes, and insurance. PITI represents the total amount owed by a borrower every month. Many recommend borrowers keep PITI to less than (or equal to) 28% of their total monthly income. This is helpful for clients to know when they are considering how much house they can afford. 

Planned unit development (PUD)

A PUD is a grouping of residential buildings. It could be made up of townhouses, condos, or single-family homes, and generally includes common areas such as pools, tennis courts, playgrounds, and parking. PUDs almost always have HOAs and associated fees. 

It’s crucial that clients looking at PUDs understand the covenants, rules, regulations, and costs involved. For example, a client looking for a home where they could also host exercise classes for paying customers might run into trouble with a PUD’s HOA rules about running a business out of a home. And make sure they’re aware of any required dress code when holding a garage sale.

Pocket listing

A pocket listing is a property that’s being marketed quietly, in back channels. It can benefit sellers who value privacy or want to test the waters before listing publicly. 

What should you do when a client asks for a pocket listing? Pocket listings are risky in that there is a lack of transparency that could end up limiting the number of potential buyers. This also makes pocket listings controversial, to the point where the National Association of Realtors (NAR) enacted the MLS Clear Cooperation Policy. This states that agents must put a pocket listing on the MLS within one day of any kind of marketing.

Pre-approval

Again, this is all really in the purview of the mortgage experts. However, your clients need to know the difference between pre-approval and prequalification (see below). After all, having a pre-approval letter from a lender can go a long way in giving a seller confidence when looking over an offer. 

After a borrower applies for a loan, a lender will grant them pre-approval for a certain amount based on verifying all of the information gathered. It’s important for your clients to understand that pre-approval does not guarantee a mortgage loan.

Predictive analytics

A predictive analytics company pulls together millions (if not billions) of data points from multiple sources in order to forecast the future. In real estate, common data sources include demographics, property, event data, and behavioral trends. This forecasting can influence, and even direct, strategic decisions, but it can also help agents hyper-target their marketing and lead generation activities on the prospects most likely to buy or sell in the next year.

Prequalification

Prequalification is the very first step in the mortgage loan process. A financial institution will prequalify a borrower for an estimated amount. It’s not as thorough a process as pre-approval, so it’s important to remember that this is even less of a guarantee of a loan.

Prime interest rate

With everyone’s eyes focused firmly on interest rates, it’s important to know what it all means. A prime interest rate is what financial institutions use as a basis to determine rates for mortgages, credit lines, and even credit cards. 

Each bank has its own prime interest rate, based on the Federal Reserve’s federal funds rate. While the prime interest rate is not the best or most competitive rate, it’s the one published publicly that can be adjusted based on individual loans. This is where clients with good credit, high down payments, and low debt-to-income ratios can negotiate for better rates.

Principal

Principal is one of those words that can mean different things to different people, probably because it all depends on the context. 

In lending, principal is the total amount of money borrowed that must be paid back with interest. 

In real estate, the principal could also refer to a party (the buyer or seller) who has authorized an agent to act on his or her behalf. 

It could also refer to the managing broker in a brokerage, or the individual who’s ultimately legally responsible for overseeing transactions.

Probate

This is the process of reviewing a deceased person’s estate and will and administering the transfer of property. Probate can take place whether or not the deceased had a will in place.

Proof of funds

Clients should be aware that proof of funds is different from pre-approval from a lending institution. Buyers with all-cash offers still need a proof of funds letter, but for the entire amount.

A proof of funds letter lays out the financial situation of the buyer, demonstrating their capacity to buy a property. It should show that the buyer has enough cash on hand to cover the down payment and closing costs. These funds must be liquid, not stocks or bonds. 

A proof of funds form can be furnished by a bank, or you can use this simple proof of funds template from realtor.com.

Purchase agreement

Once an offer is accepted and all of the parties have signed, it becomes a contract, or a purchase agreement. It’s important for buyer clients to understand that if they submit an offer, it becomes a binding contract once the seller agrees and signs. 

A purchase agreement outlines the terms and conditions of a sales contract. It affirms the buyer’s intent to purchase the property and the seller’s intent to convey it to the buyer. It also outlines the general agreed-upon terms, such as the purchase price, contingencies, closing date, and earnest money details.

R

Rate lock

Imagine a client submits an offer, and then rates increase exponentially in the period between the contract being signed and the closing date. It could throw off the entire deal.

Luckily, borrowers can lock in an interest rate for a certain amount of time. This protects that rate against fluctuations in the market in the time between making an offer and the closing date. Clients should check with their mortgage specialist to see what time frames are available and the fees associated with them.

This Free Download Helps Your Clients Understand Rate Lock

Real estate agent

You know who you are! Clients might be interested to know that you have specific education requirements, are licensed by the state, and must follow certain laws. And if you’re a member of NAR, you’re bound by a very stringent code of ethics.

Real-estate owned (REO)

Properties that have been possessed by a lender after the borrower has defaulted on a loan and a short sale or auction was unsuccessful are called real estate (or bank) owned.

Real Estate Settlement Procedures Act (RESPA)

The Real Estate Settlement Procedures Act of 1974, or RESPA, is a piece of legislation that protects consumers. It requires lenders to be transparent by providing timely disclosures of the scheduling and costs of a real estate transaction. It also prohibits kickbacks and inflated fees and places some limitations on the uses of funds in escrow. 

Before RESPA, mortgage lending felt like the Wild West. Consumers could easily find themselves at the mercy of bad actors who charged exorbitant fees, required referrals, and promised one thing but delivered something very different. 

If your clients are concerned about the relationship between real estate professionals and bankers, you can assure them that agents and mortgage lenders are governed by RESPA regulations.

Realtor

Many think this term is synonymous with agent, but it’s not. A Realtor is a real estate agent who is a dues-paying member of the National Association of Realtors. NAR members are held to a high standard of professionalism and adhere to a strict code of ethics.

Refinance

If a borrower takes out a new loan on the same property, it’s called a refinance. The debt owed remains the same, but generally under better terms, such as a lower interest rate, smaller payments, or a shorter loan term. 

Right of first refusal (ROFR)

Giving someone the right of first refusal means that they have the opportunity to submit an offer on a property before anyone else. The seller can charge whatever price they want and the potential buyer can offer whatever they think is fair. It doesn’t mean the offer will be accepted, but it does give the potential buyer an advantage. 

Right of ingress or egress

The right of ingress is one’s right to enter their property, and egress is to exit their property. You’re likely to hear these terms mentioned when there is an easement on a property. 

S

Sale-leaseback

This occurs when a seller and a buyer close on a property, but the seller needs more time to vacate the property. The seller can then lease back their former home from the buyer and pay rent for a specified period. This can be a great negotiation point between buyers and sellers if time is an issue.

Second mortgage

Borrowers can take out a second mortgage on a property using the property as collateral. The first mortgage remains in effect, and would be the first loan to be paid off if there is any default. Generally, second mortgages have high interest rates and are for less money than the first mortgage.

Secured loan

A mortgage is a type of secured loan, where one uses collateral—in this case a property—to secure funds. Loans can also be secured by cars and other high-value items. 

Short sale

If a borrower is behind on payments and in a dire financial situation, a lender might allow a short sale of the property. In such a case, they generally accept less than is actually owed on the mortgage. 

Buyers are often interested in short sales because they can mean a good deal on a property. But short sales are incredibly complicated. And the process is anything but short.

Staging 

Seasoned agents know that staging can really help a home shine, especially if the property is vacant. Applying a neutral, trendy look can help prospective buyers visualize themselves living in the house and can even increase the sales price. 

Bringing in new design elements and storing owners’ current furniture can be pricey. But many staging companies assure sellers that they will recoup those costs in the sale of the home. 

If staging is not an option, consider tactful ways of suggesting that the owners declutter. Or just follow this list of clever staging tips!

T

Termite report/inspection/letter/bond

Imagine your clients purchase a home and, as they walk through the kitchen, their feet go through the floorboards because termites have been snacking on the wood. Termites can cause catastrophic damage. That’s why many lenders require proof that a property has been inspected for termites and termite damage. 

Banks may also require that the home be under a continuous termite bond. This shows that the home is regularly inspected and treated for termites by a professional pest control company. If termites are found, there are options of remediation. But the process is often pretty dramatic, like tenting the entire house and pumping in toxic gas.

Title

A title is one’s legal right to a property, to use it however one wants, and to transfer it how and when and to whomever one wants. It is different from a deed, which legally shows who is the property owner.

Title insurance

Let’s say you’re a buyer who purchases a property after conducting a title search, believing the title to be clean. Two weeks later, a fourth cousin, twice removed, of a little old lady who owned the house 74 years ago shows up on the porch saying you’re living in his inheritance. Title insurance has got you covered—it protects a property owner and a lender against claims on a property title.

Title search

When purchasing a property, most buyers will hire a lawyer or title company to comb through public records to follow the transfer of the title across the decades. This ensures that the title is clean and free of any liens or encumbrances. Individuals can conduct their own searches, but that’s not usually recommended. Generally, title insurance companies accept 30 years of record, which is good news for owners of historic homes. 

Transfer of ownership

This is a fancy way of explaining the conveyance of the deed and title from the seller to the buyer at closing.

Transfer tax

A transfer tax is essentially a fee charged by the state, county, or municipality to handle transferring the title. Clients will expect you to know the rates and if there are any applicable exceptions, as will the writers of your state’s real estate licensing exam. 

Almost everywhere, the seller pays the transfer tax. The fee is based on the value of the home and can be calculated in increments or as a percentage. For example, in South Carolina, the combined state and local fee is $1.85 per every $500 increment of the total sale price.

U

Under contract

If a buyer and seller have agreed on a price and terms and signed a contract, then the property is under contract. However, all contingencies have not yet been met, and the closing has not taken place. Once the contingencies are met, the property is considered pending and the sale will most likely go through.

Again, this is a time of great uncertainty, and while an agent can control a lot, you can’t control everything. Stay diligent, stay vigilant, stay calm. And make sure you take your phone off silent.

USDA loan

USDA loans are backed by the Department of Agriculture and tend to have lower mortgage insurance requirements than other government-backed loans. They also don’t require a down payment. The catch is that the property must be in suburban or rural areas to qualify.

Free Download: Loan Questions That Could Save Your Clients Money

V

VA mortgage

A VA mortgage is managed by the Veteran Benefits Administration and offers a guarantee for some or all of a mortgage issued by a private financial lender. This guarantee allows servicemen and women, veterans, and surviving spouses access to better loan terms. Those who qualify can learn more and apply for a VA mortgage loan here.

Bringing It All Together

You made it through all 136 real estate terms! Ensuring that you know and can explain these definitions will go a long way in helping your clients. No matter where you are in your real estate career, we hope this list of crucial real estate terms and definitions was helpful, a good refresher, and maybe even enlightening. How about that Garn-St. Germain Depository Institutions Act? Great anecdote for cocktail parties!

Did we miss any of your favorite terms? Have any definitions to add? Be sure to leave a comment below!

The post 136 Real Estate Terms & Definitions Your Clients Expect You to Know appeared first on The Close.

Being a real estate buyer’s agent is different from being a listing agent because buyers are inherently different than sellers. When working with buyers, you have unique challenges, responsibilities, and advantages. We’ll go through these major differences and look at what it takes to best serve real estate buyers in their search for the perfect home … other than patience. 

When working with buyers, having a checklist to help guide them through their search is a lifesaver. You can grab a copy of our 17-point homebuyer checklist to ease your stress (and theirs).

Download Your Homebuyer Checklist PDF

How Buyers Are Different From Sellers

A real estate buyer is someone who is ready to drop what is probably a hefty amount of money to purchase property. This could be one of the biggest financial decisions they make in their whole lives. They might be first-time buyers, move every five years, or be looking to invest in real estate.

Buyers can be in various stages of the buying process, from “Honey, maybe we should buy a house someday—isn’t your cousin a real estate agent?” to “Ross, it’s Jim. We’re ready to 1031 our property on Lakewood Drive. See what you can find for our 38th investment transaction together.”   

Who Is the Typical Real Estate Buyer?

There’s no one profile for a real estate buyer, but the National Association of Realtors collects some pretty fascinating statistics on buyers and the home search process:

• The average age for a first-time buyer rose to an all-time high of 36 years old last year. The average age for a repeat buyer was also at an all-time high, at 59 years old. 
• 62% of first-time buyers listed “the desire to own a home of their own” as the main reason they wanted to purchase property. 
• 47% of all buyers first looked online for properties before contacting an agent. 
• 86% of buyers agreed that their real estate buyer’s agent was “a very or somewhat useful information source.” 
• 49% of buyers most wanted help “finding the right home.”
• 89% of buyers agreed that they would use their agent again or refer them to others. 

What Real Estate Buyer’s Agents Do for House Hunters

Your activities as a real estate buyer’s agent are fairly straightforward. You help clients narrow down what they’re looking for; identify properties that match their criteria; write, submit, and negotiate the offer; and manage the transaction all the way to the closing table. 

Why Be a Buyer’s Agent (vs a Seller’s Agent)?

Conventional wisdom says real estate professionals start out as a buyer’s agent because it’s easier to break into. Once they build their reputation and business, they can transition to listings. But what if you really like working with buyers? What if you truly enjoy searching for the perfect property and do a little happy dance when your clients find their dream home? 

In many ways, being a buyer’s agent allows you to build deeper relationships with your clients. You really get to know their needs and you probably spend a lot of time together. In many cases, you act as a wise counselor (and maybe therapist) to guide them through a crucial life moment. And while buyers might have a reputation for being needy, there are plenty of sellers who make agents want to repeatedly deep-breathe into a paper bag. 

Specializing as a buyer’s agent has plenty of advantages and is a wonderful path toward a successful and rewarding career in real estate. If you’re considering carving out a niche in your market as a buyer’s agent, let’s look at how you can best serve your buyer’s clients and grow your business.

5 Ways to Better Serve Real Estate Buyer Clients 

The most successful real estate buyer’s agents are really good at working with people and truly love helping others. Channel these wonderful attributes in these five ways and you will be on your way to becoming the best real estate buyer’s agent in your market.

1. Take a Breath & Listen

The biggest one thing you can do to serve your buyer’s clients is pause and listen. And I mean really listen. Most people think they’re listening, but they’re really planning what they are going to say next. 

Deep listening will help you understand your clients and their real estate needs, perhaps even better than they understand themselves. Maybe they are saying that they want a certain square footage but the properties you’re showing them feel too small. If you listen closely, you may figure out that they’re really feeling the low ceilings. Show them a home with vaulted ceilings and that same square footage and we bet you’ve got happy campers.

Get to know your clients’ likes and interests, family composition, and listen as they plan into their future. Are school districts important? Are they mentally calculating driving distance to aging parents or proximity to an airport? Are there plans to get a pet so they’ll need a property with a fenced backyard? If you listen carefully, you can help clients find a property that they didn’t even realize they needed. 

Listening also makes people feel valued and appreciated. Creating time and space for your clients will make them feel that you really care. That’s what they’ll remember and that’s why they’ll recommend you to friends and family. Sound simple? It is. But it’s amazing how many people just don’t do it.

2. Think of Yourself as a Coach

Regardless of whether this is your client’s first transaction or you’re working with a seasoned investor, you’re the real estate professional who brings the knowledge and experience to the table. 

You signed on to provide fiduciary guidance to your clients, which includes the concept of “reasonable care.” Your clients expect you to have their best interests at heart and guide them in the right direction. 

Working With First-time Buyers

A coaching mindset is vital for working with newbies. You can really shine as a specialist when working with first-time buyers who may be nervous, confused, and overwhelmed. Think of yourself as that coach and you’ll get them to the closing finish line.

• Create a checklist for first-time buyers (or use ours!)
• Carefully lay out and explain your client’s obligations
• Outline time frames and examine potential pitfalls
• Offer copies of blank documents they will encounter in the process
• Walk through your role and responsibilities and set clear expectations (e.g., Can they call you anytime day or night? What is a reasonable turnaround time for your response?)
• Be patient and empathetic; it might be your 17th transaction this year, but it’s their first ever

If you can guide a first-time buyer through the process with the mindset of a caring coach, your buyers will be singing your praises and recommending you to their entire network (and all of their friends who are currently renting and looking to buy).

Download Your Homebuyer Checklist PDF

3. Be an Expert in Your Local Market

If you want to specialize in helping buyers, then you need to be your town’s specialist. Start by understanding who is buying, where, and why. Are people relocating to your town? If so, learn what’s drawing them in. Are they first-time homebuyers? Seniors downsizing to condos? Understand who might need your services and build on that.

You’ll need to know your community backward and forward so that you can help your clients find that perfect home. If you have a pulse on the various neighborhoods and plans for development, you might be able to help a client score a great house in an up-and-coming area. Are they interested in a neighborhood that is charming but you know the commute is killer? Take them on the drive at rush hour. 

Knowing the local restaurants, festivals, coffee shops, traffic patterns, and school districts makes you an excellent resource for your clients. Live near the water? Learn about dock permits and flood insurance. Live in the mountains? Be able to point out the best ski slopes and trout streams.  

If you’re already an area expert, think about how you can market that to buyers. Parkbench makes it easy to become known as the local expert through its unique, content-rich websites that automatically update with local news and events. The company allows you to generate leads while marketing yourself as the go-to community authority.

Pro tip: If you know your community and your local market, you’ll also be a huge resource when your clients are negotiating price. You know the comps and you might even know the negotiation style of the listing agent. Your expertise and your confidence can help your client get their dream home at the right price. 

All of this serves your real estate buyer clients and helps you become the agent in town everyone looks to when buying a home.

4. Communicate Well & Often

What’s the biggest complaint real estate buyers have with agents? A lack of communication. Agents often bombard a buyer client with listings and disappear. You should always be in regular touch with your clients. 

Consider your communication methods carefully. Does your buyer client prefer email, text, or old-school phone calls? What time of day is best to reach out? What level and frequency of communication do your clients expect? Weekly check-ins or daily emails? Are your emails and texts professional, grammatically correct, and devoid of typos?

As our friend Ryan Serhant says in this recent article on Forbes, “If your agent isn’t in touch with you every day, find a new agent. If he/she takes six hours to reply to a simple question, find a new agent.” 

Your buyer clients don’t need a new agent. They need you. And you need to communicate with them well and often.

To help you accomplish this high level of professionalism, you need a great customer relationship manager (CRM). If you’re shopping for this vital tool, check out our buyer’s guide here. Our top pick is LionDesk, which organizes contacts, helps you strategize your communication, sets up automated emails, and even allows you to send texts and voicemail messages through the platform.

5. Remember: It’s the Little Things

At the end of the day, you’re in the service industry, which means there are ample opportunities for you to show off your attention to detail. Not only are you the consummate real estate expert, you can also be the best service provider in your community.

Think about the little things your client might need and figure out how to provide them. This is the equivalent of chocolates on the pillow at turn-down service. Do they lack childcare and need to go look at a listing? Create a list of screened babysitters. Do they need someone to attend an open house for them? Go and take video and pictures. Have they moved into their new home and want to paint? Turns out, you have three excellent painters you’d recommend. 

You’re so professional, you write handwritten thank-you notes, give a meaningful closing gift, check in regularly even after closing, and become a trusted resource for years to come. 

You should go above and beyond, notice the little things, and show real thoughtfulness. When a former client hears someone is looking for a home or wanting to move to your town, guess who they’ll recommend? You! Our expert real estate buyer’s agent. 

Over to You

Being a real estate buyer’s agent isn’t just for those starting out in real estate. It’s a rewarding niche that allows you to build your business, serve clients, and make a real difference in people’s lives. With these tips, you’ll stand out as your community’s go-to buyer’s agent.

Do you have experience as a real estate buyer’s agent? What about advice for those wanting to specialize? Questions about getting started? Leave us a comment or question below!

The post Do Buyer’s Agents Have All the Fun? appeared first on The Close.