Now that we’ve covered basic and intermediate vocabulary, I think everyone is ready for the advanced stuff! While these can be good terms to understand, the likelihood that you’ll need to use them right away is slim (with the exception of equity – in all honesty that should have probably been moved to intermediate). These terms will come up under certain circumstances and may not be anything you see during the purchase or sale of your home.
For the Real Estate Enthusiast:
1031 Exchange: Also known as a “like-kind exchange” or “Starker exchange”, a 1031 exchange is when one investment asset is swapped for another within a specific amount of time. When one investment real estate property is sold and another investment property is designated as the replacement within 45 days, the tax on the potential gain of income that would have been made on the transaction will be deferred.
Comparative Market Analysis: Not to be confused with an appraisal, the comparative market analysis is prepared by a real estate agent and evaluates similar and recently sold homes in the area to establish the current market value of a home.
Dual Agency: Dual agency occurs when the listing agent of a home also represents a potential buyer as the buyer’s agent.
Earnest Money: Also known as a “Good Faith Deposit” is the money that a buyer pays 1 to 3 days after the seller has accepted their offer. The amount of earnest money will vary, but it is typically 1% – 3% of the sale price of the home. Earnest money will be deposited into an escrow account and will be applied towards the buyer’s closing costs during closing. If the buyer backs out of a sale due to a failed contingency, they will recover their earnest money; however, if the buyer backs out of the sale for any reason not covered by contingencies they forfeit this money.
Equity: The amount of the home value that the homeowner actually owns. this amount is calculated by taking the final sale price and subtracting the amount that the owners still owes on their mortgage loan.
Fixed Rate vs. Adjustable Rate Mortgage: Conventional loans can include fixed rate or adjustable rate mortgages. A fixed rate mortgage has a pre-set interest rate that will remain the same for the life of the loan. An adjustable rate mortgage has a variable interest rate typically for 5, 7 or 10 years.