Whether buying or selling a home, familiarizing yourself with the terminology used in the real estate industry is an essential part of the process. While you don’t have to be an expert on real estate terminology, having a basic understanding of the commonly used terms will help to ensure you make the best decisions possible for you and your financial situation. In this first of a three-part series, we will begin to explore some of these common terms and just what they mean.
Comparative Market Analysis
When selling a home, your real estate agent will first conduct a comparative market analysis, or CMA. The CMA is an in-depth analysis of the estimated value of your home. This analysis is based on recently sold homes or similar condition, age and size in your area. When purchasing a home, the CMA can also help you determine a fair price to offer when putting in a bid to purchase the home.
An appraisal management company, or AMC, is an institution that is operated independently of a lender. Once the AMC is notified by a lender, it will conduct the appraisal on your home. An appraisal is an informed and impartial opinion of the value of the home that is used by the lender to determine how much it is willing to lend to you toward the purchase of the home. This opinion is well-documented and prepared by a licensed and certified appraiser, with the opinion being based on data about comparable homes in the area. The appraiser will conduct a walkthrough of the home in order to develop the appraisal. If the appraised value falls short of what you have offered to pay for the home, your mortgage lender is not likely to lend you the full amount that you need to purchase the home.
A home inspection is different from an appraisal, though there are some similarities in the process. While the appraiser is looking to determine the value of the property, the inspection is conducted in order to ensure all of the systems within the home are properly functioning. The buyer is typically responsible for paying for the inspection to be completed, as the inspection is meant to help you determine whether or not the house is in proper working order. Based on the information gained from the inspection, you may choose to renegotiate your offer or to pull out of it altogether.
When looking for a home inspector, you will need to select someone who is a part of the American Society of Home Inspectors (ASHI). The ASHI is a not-for-profit professional association that sets the standards for property inspections while also providing educational opportunities to its members.
When making an offer on a home, you will be asked to provide make a payment known as earnest money. Earnest money is a security deposit that assures the seller that you are serious about your intent to purchase the home.