When navigating the complex world of real estate, it’s easy to get lost in the jargon. Whether you’re a first-time buyer or an experienced seller, understanding key terms can make a huge difference in your experience. In this post, we'll walk you through three terms you should know when buying or selling a home: Seller Concessions, Closing Costs, and Contingencies. By the end, you’ll be better equipped to make informed decisions throughout the buying or selling process.

3 Terms You Should Know When Buying or Selling a Home

1. Seller Concessions

When you're buying a home, it’s common to encounter seller concessions—a term that might be unfamiliar but incredibly important to understand. Seller concessions refer to the agreement where the seller offers to pay a portion of the buyer’s closing costs. These concessions can help buyers save money upfront and make the home purchase more affordable.

How Seller Concessions Work:

Seller concessions can cover a variety of costs associated with closing a home. These may include, but are not limited to:

• Loan-related costs: This can include lender fees, appraisal fees, and other charges associated with securing a mortgage.

• Title insurance: The seller may agree to pay for the buyer’s title insurance, ensuring that the title to the property is clear of any legal disputes.

• Homeowner association fees: If the property is part of an HOA, the seller might cover certain fees that are due at closing.

Why Seller Concessions Matter:

Seller concessions can be a powerful tool for buyers. If you're struggling to save enough for a down payment or other closing costs, negotiating for seller concessions can help reduce your upfront financial burden. For sellers, offering concessions can make your property more attractive to buyers, especially if the home is priced at or above market value.

For example, in a competitive market, offering a $5,000 concession can help you stand out to potential buyers who may be overwhelmed by the total costs involved in purchasing a home. On the other hand, it’s important for sellers to understand how these concessions will impact their net profit from the sale.

2. Closing Costs

Both buyers and sellers need to understand closing costs—the fees that must be paid at the closing of a real estate transaction. Closing costs can vary depending on the sale price, location, and the specific terms of the sale, but they typically account for 2-5% of the home’s purchase price.

What Closing Costs Include:

Closing costs include a variety of fees that both buyers and sellers must pay in order to complete the transaction. Here’s a breakdown of what each party may be responsible for:

Buyers:

• Loan Origination Fees: Fees charged by the lender for processing the loan.

• Home Inspection Fees: Buyers usually pay for the home inspection to ensure the property is in good condition.

• Property Taxes: These are typically prorated, with the buyer paying taxes for the portion of the year they will own the property.

• Homeowner’s Insurance: The cost of insuring the home from damage or loss is usually due at closing.

• Title Insurance: Protects the buyer from any claims against the property’s title that may arise in the future.

Sellers:

• Real Estate Agent Commission: Typically, the seller pays the agent’s commission, which is usually around 5-6% of the sale price.

• Repair Costs: If issues are uncovered during the home inspection, sellers may need to cover the cost of repairs or provide credits to the buyer.

• Title Fees: Sellers usually pay for the title transfer fees and may also pay for title insurance to protect the buyer.

Why Closing Costs Matter:

Closing costs can add up quickly, so it’s important to plan for them when setting your budget for buying or selling a home. Buyers should factor these costs into their total home-buying budget, and sellers should be prepared to account for these expenses when determining their net proceeds from the sale.

For buyers, it’s critical to understand that while the seller may offer to pay for some closing costs, they will still be responsible for others. Working with your lender to get a precise estimate of your closing costs ahead of time will help you plan accordingly.

For sellers, it's equally important to factor in the commission fees and any potential repairs when calculating your profits. A good real estate agent will help you understand the financial impact of closing costs and strategize on how to best navigate them.

3. Contingencies

Another crucial term to understand when buying or selling a home is contingencies. A contingency is a condition in the purchase agreement that must be met for the transaction to proceed. Essentially, contingencies allow one party to back out of the deal if certain conditions aren’t met, without losing their earnest money deposit.

Types of Contingencies:

1. Inspection Contingency: This is one of the most common contingencies in home sales. It gives the buyer the right to have the home professionally inspected. If the inspection reveals significant issues (like a failing roof or plumbing problems), the buyer can negotiate repairs, ask for a credit, or back out of the deal altogether without losing their earnest money.

2. Appraisal Contingency: Buyers often include an appraisal contingency, particularly when using a mortgage to purchase the home. If the home appraises for less than the agreed-upon purchase price, the buyer can either renegotiate the price with the seller, cover the difference in cash, or cancel the contract.

3. Financing Contingency: A financing contingency protects the buyer by allowing them to back out of the deal if they are unable to secure financing for the home. This is an essential protection for buyers who are uncertain whether they will be approved for a mortgage.

4. Sale of Current Home Contingency: For buyers who need to sell their current home before purchasing a new one, this contingency allows them to back out if their home doesn’t sell in time.

Why Contingencies Matter:

Contingencies provide protection for buyers and sellers, reducing the risks associated with the transaction. For buyers, contingencies allow them to get out of the deal if there are major issues that weren’t disclosed or if financing falls through. Sellers, however, should be aware that contingencies could extend the closing timeline and may complicate the process, especially if multiple contingencies are involved.

For example, if a buyer’s financing contingency falls through, the seller might have to start the process over with a new buyer. As a seller, it’s important to understand the contingencies in the contract to ensure that they align with your timeline and goals.

Understanding real estate terminology is critical to navigating the buying and selling process with confidence. Seller concessions, closing costs, and contingencies are three of the most important terms that will impact your transaction, and knowing how to use them to your advantage can help you secure a better deal.

For buyers, learning about seller concessions and contingencies can help you negotiate better terms and avoid unpleasant surprises. For sellers, being aware of closing costs and contingencies can help you plan financially and minimize any potential hurdles during the sale.

By partnering with a knowledgeable real estate agent, you can ensure that you fully understand these terms and make informed decisions every step of the way. Whether you're buying your first home or selling a property for the fifth time, the more you understand the process, the more successful you will be. Happy house hunting—or selling!