Most people do not give much thought to common real estate terms – until they decide to list their home or make an offer on one. Suddenly, you are catapulted into a world filled with all kinds of terminology with sometimes perplexing meanings and definitions. To make matters worse, most real estate agents are so used to common real estate terms, they throw them around in a rapid-fire fashion. What might be common terms to the agent are often not so common for the client. As a buyer or seller, it’s easy to get lost in the terminology. Being lost is not a good place to be in a real estate deal. Fear not! I will cover six common real estate terms that should help better prepare you to navigate your real estate journey.
Six Essential Real Estate Terms
Agency
Everyone knows the term “agent” but very few consider the concept behind the agent, and that’s “agency.” If you have watched any real estate “reality” shows like Million Dollar Listing or Selling Sunset, you might form an impression that deals happen based on what the agents involved want. Those wheeling and dealing phone calls or heated face-to-face meetings between the two agents are more commonly handled by offers. . . in writing. At least in the real world they are.
An agent is empowered to act on behalf of the principal in a transaction. The agent has a fiduciary duty to their client, and assuming their client isn’t asking them to do something illegal, their job is to enact their client’s wishes. An agent is not empowered to make decisions for their clients, although they can and should advise their clients based on their own expertise and what they believe is in the principal’s best interests. In short, if you contract an agent to represent you, they should not be making critical decisions without your instructions to do so.
Agency can be single agency (where your agent / brokerage is only representing you), or, in some states, it can be dual agency, where one agent/brokerage is representing both buyer and seller. While single agency is the most common, it’s important to understand the implications for dual agency – whether you’re a buyer or seller. Regardless of the type of agency, you, as the principal, are in charge. Your agent should advise, guide and counsel you, but they are acting as your agent.
Offer, Counter-Offer, Multiple Counter Offer
You get three real estate terms for the price of one here! The offer process in real estate can quickly get confusing, especially when there are multiple offers and/or counter offers involved. I will dive into this process in more detail in a separate article, but we’ll cover the basics of these real estate terms here.
Here in California, your offer as a buyer is typically written up on the California Residential Purchase Agreement (sometimes referred to as the RPA). The RPA and the myriad of supporting documents that can accompany it are essentially the contract, written up with terms the buyer is requesting from the seller. Once the offer is made to the seller, they have to respond in a set period of time (the default expiration on the RPA here in California is 5:00pm on the third day after the offer is received by the seller). The seller has a few options on how they respond to the offer:
1) Accept
More on this below, but if they accept, they agree to ALL terms detailed in the offer, with no proposed changes of any kind.
2) Counter
In the case of a counter, the seller sends a counteroffer detailing any changes to the original offer and/or any new terms the seller wishes to specify. Once the seller makes a counter, the buyer is under no obligation to respond. Like the initial offer, the counteroffer is good for a set period of time.
3) Multiple Counter
A variation on the normal counteroffer, a multiple counter is a counteroffer that is sent to more than one buyer. The form used for a multiple counter is different from what is used in a single counter, and the multiple counter form can ONLY be used when countering multiple buyers. When making a multiple counter, the terms specified to each potential buyer can all be the same, or they might be custom-tailored to each potential buyer.
The key differentiator for a multiple counter is that the seller making the multiple counter must confirm / accept a buyer’s acceptance. This is to prevent the seller from going into contract with multiple buyers on the same property. When a seller accepts an offer, that leads us to the next real estate term – acceptance.
Acceptance
Acceptance in real estate, at least here in California, occurs when a party accepts an offer or counteroffer. Once that acceptance is communicated to the other side the contract is official. Some people refer to this stage as “under contract.” I have read that in some other states, acceptance is an intermediate step that occurs days before a property is officially under contract. Here in California acceptance usually is rapidly followed by confirmation of acceptance (the lag time for that is often minutes or hours, but is rarely measured in days). At this point, status of the property usually indicates “pending” rather than “active.” Properties in pending status then progress to our next real estate term.
In Escrow
Once acceptance is reached and communicated to the other side, the listing agent generally opens up escrow for that transaction. The escrow company, which is agreed to in the contract, is contacted with the property address, a copy of the contract and any counteroffers, and ideally the list of parties involved in the sale along with their contact information. The duration of escrow is also determined in the contract, with 30-60 days being pretty common here in San Diego, California.
Contingency
A contingency in real estate is a condition that needs to be satisfied before the contract can proceed. Most contingencies in real estate are buyer contingencies. Common buyer contingencies are: loan contingency, inspection contingency, and appraisal contingency. In short, these are mini escape clauses for the buyer if certain things don’t happen. With a loan contingency, if the buyer is not able to secure a loan and they have not removed their loan contingency, they can cancel the contract without penalty.
In some parts of the country, particularly where there is a hot market with a lot of buyer competition, you may hear of buyers making a completely non-contingent offer. What this means is that if the offer is accepted, the buyer has no “escape clause”. If they have an earnest money deposit in play, that money is at risk right away should they decide to back out of the purchase. A completely non-contingent offer is a highly risky proposition, although some steps can be taken to mitigate some of the risk.
Another buyer contingency is the contingency for the sale of the buyer’s property. This contingency gives the buyer a certain amount of time to sell a property to then complete the purchase of their new property. It is often used when the buyer needs the funds from the home they are selling to buy their new home. The likelihood of this contingency being accepted varies depending on market conditions and a particular seller’s circumstances. In hot markets, sellers are often reluctant to accept an offer with this contingency because it involves a higher level of uncertainty than a “clean” offer with only the typical contingencies in place. The buyer may or may not be able to sell their home, and that process may or may not happen in a short time frame.
In California contingencies require “active removal” which means the contingency is in place until the contingency holder removes them. The timeframes to remove specific contingencies have a default duration in the contract, but those timeframes are sometimes negotiated to be shorter or longer during the offer / counter offer process. The significant implications of contingencies make this a vital real estate term to be aware of.
Recording
Perhaps the most cherished real estate term. This is it, the moment all parties are waiting for. Recording is when the appropriate documents have been “recorded” by the local county office responsible. The requirements and timing for recording vary regionally, but recording is typically handled by the title company handling the transaction. In San Diego, the title officer is usually the first to know when a deal is official – in other words when the property has recorded. At that point, the seller no longer is on the title for the property and the buyer is now on the title for the property. Recording is a vital step because it creates a public record crucial to the chain of title on the property. And, it’s a good time to pop the champagne, whether you are a buyer or a seller!
Real Estate Terms Disclaimer
Laws surrounding the real estate terms detailed here vary from state to state. As a real estate agent in San Diego, California, I can’t give legal advice – so please consult with an attorney familiar with the laws in your state (even if it’s California), rather than relying on what you read here.
If you or someone you know might be buying or selling real estate in San Diego, regardless of location or price point, please let me know. I can also assist in connecting buyers and sellers outside San Diego with outstanding Sotheby’s International Realty agents via our 1,000+ offices in over 80 countries. Please read my client reviews, and don’t hesitate to call, text or email me with any real estate questions or to schedule a no-obligation consultation.
