9 essential real estate terms to teach first-time homebuyers
Have you ever attended a professional game for a sport you don’t watch, play, or know the rules of? If your answer is yes, you can likely relate to first-time homebuyers.
While experienced agents understand and take complex real estate terms at face value, it can feel like a whole new ballgame for someone buying their first home. Every mention of addendums, contingencies, or escrow leaves them feeling left out.
Educate your clients instead of leaving them to Google terms or learn as they go (and probably miss valuable information along the way). Here’s a list of nine essential real estate terms to teach your first-time homebuyers, so they can approach the process with the confidence of a seasoned pro.
1. Addendum
An addendum is any additional requests your buyers have that weren’t built into the original offer, like furniture, appliances like a washer and dryer, or any built-in features like fixtures, bookcases, and desks. Typically, they’re written as additions to the sales contract and require the seller’s signature. Understanding addendums helps your buyer know exactly what they’re getting with their purchase. It also empowers them to ask for any extras they want within their contract’s format.
2. Agent
Real estate agents. Real estate brokers. Mortgage agents. Who really understands the difference between these different roles? You do, obviously … but your clients probably don’t. Share who does what in the purchasing process and when to separate each of these distinct roles.
For example, a real estate broker has passed the state broker’s exam, has some successful transactions on their record, and can work independently. This is different from a real estate agent (or realtor) certified through the National Association of Realtors (NAR) and from a mortgage broker who secures a funding source for the deal.
Your client is likely to get frustrated if they don’t understand these differences and will waste their time (and yours!) trying to get the answers they need from the right agent.
3. Appraisal
Appraisals are run through city inspectors to determine how much market value a home has. They’re typically done before listing the house, so sellers know how much they should list it for. However, buyers also have access to the report and the opportunity to argue it during negotiation.
Making your buyers aware of appraisal value and its power encourages them to dig deeper into the information they’re provided and determine whether or not a property is worth the price. For example, your client might discover that the homes on either side of their potential purchase have similar square footage and finishers, yet appraised for $10,000 less than their intended property. Understanding how these appraisals work and why appraisal gaps exist helps them navigate the eventual contract more confidently.
4. Cash Offer
Most first-time homebuyers don’t know that these are the magic words to get any seller’s attention. And as of July 2021, 30% of all home sales in the US were completed as cash. A cash offer means the potential buyer has a lower risk of falling through during financing and is ready to purchase ASAP, instead of dealing with contingencies, a loan, or other financing options. Knowing about cash offers could win them their first-choice home while others are still jumping through necessary hoops to find the money.
Not every buyer can afford to make a cash offer. Luckily, Homeward can help you with our Cash Offer solutions. Buyers who use our Buy with cash program allow Homeward to purchase the new house for cash. You can move in as soon as the title is ready and purchase the home back from us once your mortgage is finalized.
Our Buy before you sell solution works similarly. Buyers who need to sell their home first to afford their next home allow Homeward to buy the new home on their behalf and move in once the title is ready. The buyers then only pay a small rental fee while waiting for their old home to sell. Once it does, they buy their new home back from us!
5. Contingencies
Contingencies are if/then conditions that allow either the buyer or seller to cancel the contract if they are not met. Not understanding how to navigate them could unintentionally cost your client their dream home. Imagine your client has found the perfect new home. It’s in a great neighborhood with a great school system. The streets are calm enough for the kids to safely ride their bikes. Everything is perfect … except for the rotting floorboards ruining the living room. An interested buyer could say, “I’ll purchase your home if you refinish the wood floors.” While this example may seem silly, contingencies ensure your clients get exactly what they want from the transaction.
6. Disclosure
It’s easy to walk into a new home without understanding what could be hiding underneath the fresh paint … until it’s too significant to ignore. Disclosures, or significant things the seller should share that may impact a potential buyer’s interest in purchasing the property, prevent this!
Though not every for-sale home will have disclosures, a buyer should take them seriously. Deaths in the home, upcoming eminent domain, and foundation issues are just a few required disclosures that might impact your first-time buyer’s willingness to put in an offer.
7. Escrow
This term means that a mortgage lender has set up a mortgage loan account to collect monthly payments from the buyer. Multiple checkpoints (credit check, bank information, insurance, etc.) are required to get into escrow, and it’s a key stage every buyer needs to go through in the home buying process. Understanding this real estate term lets your clients know they’ve passed a significant hurdle.
8. Mortgage Insurance
Most first-time buyers know about homeowners’ insurance but making them aware of mortgage insurance can impact their decision-making and help them save money. Mortgage insurance is a surcharge that brokers add to monthly payments when a buyer cannot provide the standard 20% of their new home. The closer to that 20% they get, the more affordable the insurance is.
However, this information is a gamechanger for a client who is either financing their entire purchase or has less than the required funds. It’s vital to help them make the best decision — both for their finances and their future — and understanding is key to helping them make a confident purchase.
9. Under Contract
Many first-time homebuyers rush to celebrate when they hear this term … without understanding what it means. While going under contract means their offer was accepted, it doesn’t mean that their purchase is complete. If an offer has contingencies on either side, your buyer should see going under contract as motivation to meet them or renegotiate so the sale can be finalized. If contingencies aren’t solved, the deal is likely to fall through, and both your buyer and seller will have to start the process all over again.
Serve first-time homebuyers better with new technology
Today’s first-time homebuyers are rushing to get under contract. They’re young, tech savvy, and unafraid to explore homebuying solutions that ease the process and help them get into their first home faster and more efficiently. Buying with cash removes contingencies from offers and leads to faster closes. However, many first-time millennial and Gen Z homebuyers think this option is beyond their reach.
Thankfully, new resources help you better serve your clients and bet against the competition by playing smarter. In this case, using Homeward’s Buy with cash solution lets you help homebuyers negotiate their purchase with the confidence of a seasoned home buyer.
Think our Buy with cash solution is exactly what your clients need? Or, are more of your clients looking to buy before they sell? In either case, learn more about Homeward and talk with a Homeward Advisor today.
