Real Estate Terminology

Appraisal: An appraisal is done in all non-cash sales. It’s the process whereby the bank or credit union making the loan needs to know if the ratified contract price is justified. Banks will not make a loan if there’s evidence that the sales price is not in-line with the fair market value. A licensed appraiser provides the bank with a report that estimates the fair market value by using recent sales (aka comps) in similar neighborhoods. If an appraisal comes in below the sales price, then the parties have four choices: 1. Contract is voided 2. Buyer comes up with cash for the difference 3. Seller lowers the sales price to the appraisalr amount, or 4. The parties meet in the middle (most likely outcome) In the past, the large number of short sales and foreclosures complicated the appraisal process. Fortunately that was never an issue here in Falls Church.

Days on Market: Days on Market is the number that shows how long a listing has been for sale or how long it took to get a ratified contract. It is not the time from initial listing to closing. It’s a very important number as it’s almost always the second question asked by buyers……How much and how long?

Foreclosure: This type of sale (known as distressed) is where the owner has legally given up their rights of ownership and the property is owned by the lien holder, almost always a bank. Banks are more anxious to get these properties off their books than a short sale (see below). The time it takes from ratified contract to closing is also much faster. A foreclosure is sold in “As Is” condition, i.e. what you see is what you get. The bank typically won’t make any repairs, excluding serious things such as mold, flooding, etc..

Home Inspection: The process where the buyer hires a certified home inspector to inspect the property looking for any significant defects, i.e. leaking roof, faulty hot water heater. Most residential sales include this contingency in the contract. Once done, the buyer can request the seller to fix any defects found. If the seller refuses, the buyer can void the contract. If the seller agrees, then all repairs must be done by the day of settlement. Sometimes both sides will agree to a dollar amount whereby the seller credits the buyer for one or more defects. If the seller refuses to make the repair, they then have to disclose any/all defects cited in the report. The law says you have to disclose anything you know that’s materially wrong with the property. So with report that says the roof leaks, the seller has to either fix it or cite this defect when the house goes back on the market. Sellers often complain but almost always fix the problem or an credit is agreed upon.

Pricing: Does It Matter? Of course it does (okay, a silly question). It’s the first thing a buyer asks when searching the inventory. Local agents (the good ones) can tell right away if a property is not well priced. Sellers that try to test the market to see if they can get “a little more” almost always end up regretting it. An overpriced property simply drive buyers to look at other listings.

Price Break: This is a fancy term for how to price a property. Today everyone (buyers and agents) searches on-line. MLS search data show that nearly all searches are done in even increments ($25K, 50K, $100K). So a property listed at $599,999 should be priced at an even $600,000. The $1 difference is absolutely meaningless. But that pricing ensures that someone searching $600K and above won’t see it. That’s a lost opportunity as the listing may be an ideal candidate for that person(s). And of course the more viewings on-line mean more actual showings at the property. So knowing how to price a property is vital.

Seller Subsidy: It’s a concession a seller makes to a buyer. The buyer requests a subsidy up front when making the offer. That money is often used to cover closing costs, though that’s not required. Banks usually have a limit on the amount of the subsidy (based on the amount of the total loan).

Short Sale: Is the other kind of distressed sale. Unlike a foreclosure, someone still owns the property but is in the position of no longer being able to afford it. Usually the owner contacts the bank and asks for some portion of the loan to be forgiven. Once approved, the hose is listed in MLS as a short sale. Whatever proceeds are left (after taxes, etc.) go to the bank. One way to describe it is that a short sale is a very close relative of a foreclosure. Sometimes a property begins as a short sale but does not sell fast enough such that the owner cedes their ownership rights. Soon thereafter, the house is owned by the bank and is on its way to auction or a foreclosure sale. What makes this process so difficult (i.e. slower) is it takes so much more time than a standard sale or even a foreclosure. The tradeoff is that you can get a property well below market value. Short sales are not for the faint of heart as the process can go on for a very long time.

Sold Price/Tax Assessment Ratio: This ratio shows how a sold price compares to the tax assessment. It’s a good indicator of how realistically a property is priced. In Falls Church City, listings usually sell above the current tax assessed value. For more information on tax assessments, check out the City web site.