Real estate can be confusing at first, largely due to the many different terms and phrases used. To make it a little easier, here’s a simple explanation of five common real estate terms.

Pre-Approval Letter

A pre-approval letter is a statement from the bank that basically estimates how much money they’re willing to loan to a particular buyer. This is extremely helpful to the buyer because it gives them a top end of their budget, and it’s helpful to a seller reviewing an offer because they know the buyer’s financing is solid. You’ll want to work with a lender who can be available to tailor this letter to whatever offer you’re making. For example, let’s say you’re pre-approved for $850k and you’re making an offer of $790k on a particular house, you don’t want to submit your original pre-approval letter implying you could pay $60k over your offer price.

Appraisal

An appraisal attempts to determine an accurate market value for a property by examining both the actual property and comparable homes that have recently been sold in the area. This process is done by a licensed appraiser for the sake of the bank, who wants to ensure that it is not investing in a property that is overpriced within its market. Buyers may want to waive an appraisal in a competitive market, but it’s important to discuss the potential risks with a knowledgeable real estate broker. 

Closing Costs

Closing costs are a group of expenses that you’ll incur at the end of your home buying process including loan processing costs, title insurance, and excise tax. These costs usually amount to about 2-5% of the total purchase price of the property, but it is possible to negotiate some of the costs down. In a neutral or buyer’s market, sellers may be willing to make concessions and pay more than their share of the closing costs. 

Title Insurance

Title insurance ensures that the seller of the home actually has the right to sell it! Title insurers also search public records to make sure there are no liens on the home, such as unpaid taxes or contracting bills. If you’re keeping a close eye on your transaction, you may notice that two title insurance policies are taken out: one for the buyer paid for by the seller, and one for the lender paid for by the buyer. 

Escrow

The escrow process while buying a home involves a neutral third party overseeing the process from the deal being signed to the property being officially transferred. The home is held “in escrow” to ensure that both parties are meeting their responsibilities during the deal and satisfying all of the conditions in the contracts. In Washington state, the seller and buyer do not have to attend closing at the same time. They can do it separately, with each party scheduling their own appointments with the escrow company.