Real Estate Terminology & Common Questions

Handshake a successful real estate transaction in an office. Business people shake hands after signing a house purchase agreement.

If You're New or Rusty, Get Familiar with Common Terms

Understanding Real Estate

Making a Complex Process Simple

When you get into your first real estate transaction, or your first transaction in a long time, you will likely benefit from a refresher on common real estate terms. I’m here to simplify a complex process for you.

Check the list below, and if there are real estate terms not listed here that you’d like to know more about, please reach out!

The Term ‘appraisal’ in real estate is an appraiser’s independent opinion of value on a property, which is different from a Comparable Market Analysis (CMA) report that your agent might provide you to establish market value. They are similar, but an appraiser uses very specific formulas to adjust for particular features and attributes, and most loans will require that the appraisal value be at least the value of the contract price in order to underwrite the loan. It’s the mortgage company’s way of ensuring they are backing a marketable property should the Buyer default on their payments. Appraisers are independent parties and must not be affiliated with anyone in the transaction.

The term ‘BINSR’ in real estate stands for Buyer Inspection Notice and Seller Response, and is a notice document that the Buyer uses to give notice to the Seller of any disapproved items discovered during their due diligence, and to give the Seller a chance to correct those items. The default timeframe for the BINSR due date (on the standard Arizona Residential Purchase Contract) is 10 days from the date of contract. The Seller then (by default terms) has 5 days to respond as to whether they will correct all, some, or none of the disapproved items. The Buyer then has another 5 days to choose to move forward with the contract, or cancel the contract (only if Seller is not opting to correct all items on the BINSR).

The term ‘closing costs’ in real estate refers to what a buyer or seller will pay in order to close on a property and can include things like fees to the lender, title company, escrow company, a home warranty company, prorated advances on HOA fees and taxes. The costs associated with the sale of your property will be listed for the Seller and the Buyer in the Closing Disclosure form. Early in your transaction, the Escrow Officer will be able to give you a Cost Sheet of Estimated Closing Costs associated with your sale. This will give you a general idea of what to expect, but the final numbers will be on your Disclosures sent to you prior to final signing.

The term ‘Comparable Market Analysis (CMA)’ in real estate refers to a report that provides an opinion of value on your home. When you interview Realtors®, they will likely provide you with a Comparable Market Analysis (CMA) to establish their opinion of your home’s value. In order to do this, they are examining recent sales data on homes similar to yours, and then making adjustments based on the differences between your property (the subject property) and the comparable properties in the same area.

When data is limited, it can require making adjustments for changes in the market as well. For example, if the most recent sales in your area are 8 months old, adjustments would be necessary to adjust for the increase or decrease in average sales prices since 8 months ago. Alternatively, if sales in your area are limited, it may be necessary to expand the search area, but adjustments may then be needed to account for the differences in the desirability of the nearby areas being used.

To get a Comparable Market Analysis (CMA) for your home, visit my What is My Home Worth page on this site to get started.

The term ‘escrow officer’ in real estate refers to the person assigned at the escrow company – the company that leads the facilitation of your escrow, including earnest money, escrow instructions preparation, funds disbursement, signing of documents and more. The escrow company also coordinates with the title company, and in some cases, they are separate departments of the same company (in Arizona). Because of this, they are often referred to interchangeably.

The term ‘inspection’ in real estate simply means an analysis of the physical condition of the home or specific systems in the home. In most cases, Buyers order inspections as part of their due diligence. Once under contract, a Buyer has a predetermined amount of time to conduct their due diligence on the property (established by the contract terms). A general inspection is an independent, objective and comprehensive analysis of the physical condition of a property and an evaluation of any safety concerns. There are general inspections that will cover the many components of a home, as well as specialized inspections that will cover HVAC, sewer/septic, pool, and other specific systems. All inspectors provide a detailed written report outlining their findings which can be used as backup if a Buyer wishes to ask that a Seller correct any items found on inspection.

In fact, the standard Arizona Residential Purchase Contract requires that any inspection reports or estimates obtained during diligence must be shared with the Seller immediately upon receipt.

It is recommended that any Buyer obtain a general inspection, a termite inspection and a sewer scope inspection, at a minimum. If there is any cause for concern for specific systems, it is also recommended that those systems receive a specialized inspection, so that the Buyer can be well informed of any issues prior to the deadline for providing the Seller with notice of disapproved items (BINSR).

The term ‘insurance claims history report’ (aka CLUE report) in real estate is exactly how it sounds – a history of insurance claims on the property. When under contract on real estate property, Sellers are asked to provide an Insurance Claims History Report, which include details of any claims that were made on the homeowner’s insurance policy such as the type of claim, when it occurred and how much was paid out by the carrier. The State of Arizona requires the last 5 years be provided.

If you are selling, all you have to do is contact your homeowner’s insurance carrier and ask them for a history of claims for the past 5 years. If, for some reason, you did not hold homeowner’s insurance, a letter from you stating such is required for the Realtor®’s file.

The Multiple Listing Service (MLS) is a national yet localized real estate database of all properties currently under an active listing agreement in a given area.

As a Seller, listing your home with the MLS typically yields you a much higher price for your home because of the exposure it gives you to every local real estate agent and any buyer using MLS syndicates to search for homes.

As a Buyer, if you see homes for sale that are not listed with the MLS, your Realtor® can still help you; it’s important to reach out for assistance early so they can be the one to reach out to any FOR SALE BY OWNER sellers, should you like to have representation in your transaction. Since the seller usually pays Realtor® commissions for both the Seller’s agent and the Buyer’s agent, using a Buyer’s agent does not usually cost you any money. Your agent can call and negotiate a commission with a FOR SALE BY OWNER seller, so you get the protection of representation.

A prequalification form (or pre-approval letter) in real estate is provided by a lender to notify interested parties of the Buyer’s qualifications to purchase a property at a specific price. It is recommended for any potential Buyer to ask a lender for this prior to starting a home search, so that he/she/they can know what price point is reasonable to shop for, and to provide a real estate agent with proof of qualification.

A Proof of Funds is evidence provided by a financial institution that a Buyer has the funds (cash or liquid assets) available to purchase a property.

The term ‘property disclosures’ in real estate refers to the sharing of material facts about a property with any potential buyer. The Sellers of a property will be asked to complete a Disclosure statement (aka Seller’s Disclosure, or Seller’s Property Disclosure Statement (SPDS)), which will list all “material facts” outlining any property details of which they are aware regarding the condition and history of the property. Both federal and state laws govern what must be disclosed during a property sale and only the homeowner can be the person to complete the disclosure forms. By law, your real estate agent cannot complete these forms for you. In addition to the Seller’s Property Disclosure Statement, the Seller may also be required to complete forms specific to the property such as (but not limited to):

  • Lead-Based Paint Disclosure
  • Disclosure Regarding the Vicinity of an Airport
  • Affadavit of Disclosure
  • Sewer/Septic Disclosure

Any person who is licensed as a real estate agent in the state of Arizona can help you with your real estate transaction. But the term REALTOR® is a registered collective membership mark that identifies a real estate professional who is a member of the National Association of REALTORS® and subscribes to its strict Code of Ethics.

When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly.

– National Association of Realtors® Code of Ethics

The term ‘recording’ in real estate refers specifically to the execution of a deed, as it is put into the records of local government. Much to the surprise of many homebuyers, when you “close” on a property, meaning both parties have signed all paperwork, and monies have been transferred, keys cannot be yours just yet.

Once funds are received by the escrow company (either by the Buyer or their lender), the property is released to be recorded by the county. In the State of Arizona, the property ownership does not transfer until the recording has been completed, and it is at this time, and not before, that keys can be handed over to the new Buyer.

If a property is released to record with Pima County prior to 4pm on a business day, it can usually record the same day, but it is wise to schedule any moving trucks or deliveries for the following day, as a precaution.

The job of the title company, with respect to real estate, is to research the history of a property’s ownership to ensure that the title is “marketable” – that is, that the entity selling the property owns it fully and can legally sell it to the Buyer. They work with the Buyer to eliminate title exceptions they are not willing to take subject to, and they issue an insurance policy to the Buyer against any future claims to the property.

To dig a little deeper on the importance of title insurance, see this video:

Find Your Nest. Grow your Nest Egg.