Real Estate Terms Made Simple

Buying or selling a home in Southwest Louisiana can come with unfamiliar terminology. Cedar & Moss Realty explains common real estate terms in plain language so buyers and sellers can better understand the process from pre-approval through closing.

What Is Due Diligence?

Due diligence is the buyer's opportunity to investigate a property before moving forward with the purchase.

Buying a home involves more than deciding whether you like the property. During the time allowed by the purchase agreement, buyers should take reasonable steps to learn about the home's condition and determine whether it meets their needs.

Depending on the property and transaction, due diligence may include:

• Completing a professional home inspection
• Reviewing the property disclosure documents
• Checking flood zone and flood insurance information
• Reviewing available surveys and property boundaries
• Investigating utilities, sewer or septic systems, and water sources
• Obtaining specialized inspections when appropriate
• Reviewing HOA restrictions or other property restrictions
• Confirming financing and insurance availability
• Researching other issues important to the buyer

Due diligence doesn't necessarily mean finding a perfect property. It means gathering enough information to make an informed decision before completing the purchase.

Cedar & Moss Tip: Don't wait until the end of your inspection period to begin your due diligence. Some inspections, estimates, insurance quotes, and other research can take several days to complete.

Pre-Qualification vs. Pre-Approval

A pre-qualification is generally an initial estimate of what you may be able to borrow, while a pre-approval typically involves a more detailed review of your finances by a lender.

Although lenders may use these terms somewhat differently, a pre-qualification is often based primarily on information supplied by the borrower. It can provide a helpful starting point when determining a price range.

A pre-approval generally goes further. The lender may review items such as:

• Income
• Employment
• Credit history
• Assets
• Debts
• Bank statements
• Other financial documentation

A strong pre-approval can help buyers understand their purchasing power and demonstrate to a seller that they have already taken meaningful steps toward obtaining financing.

Keep in mind that pre-approval is not final loan approval. The lender will still need to approve the property and verify that all loan requirements have been satisfied.

Cedar & Moss Tip: Talk with a lender before seriously shopping for homes. Knowing your financing options early can make the buying process much smoother.

What Is an Appraisal?

A real estate appraisal is an independent professional opinion of a property's value.

When a buyer is financing a home, the lender will commonly require an appraisal to help determine whether the property provides adequate security for the loan.

An appraiser may consider factors such as:

• Recent comparable sales
• Location
• Living area
• Property condition
• Lot size
• Improvements and amenities
• Overall market conditions

An appraisal is different from a home inspection. The appraiser is primarily evaluating the property for valuation and applicable appraisal requirements, not performing a comprehensive inspection of every component of the home.

If the appraised value comes in below the agreed purchase price, the parties may have several options depending on the purchase agreement and financing.

Cedar & Moss Tip: Sellers shouldn't assume that every dollar spent on an improvement will result in an equal increase in appraised value. Buyers should also understand that the contract price and appraised value are not necessarily the same thing.

What Is a Home Inspection?

A home inspection is a visual evaluation of a property's accessible systems and components performed by a qualified home inspector.

A typical inspection may evaluate areas such as:

• Roof
• Foundation
• Electrical system
• Plumbing
• Heating and cooling systems
• Attic
• Walls and ceilings
• Doors and windows
• Built-in appliances
• Other visible and accessible components

A general home inspection is not a guarantee that nothing is wrong with the property. Inspectors generally cannot see behind walls, underneath inaccessible areas, or predict when a system will eventually fail.

Depending on the property, additional inspections by specialists may be appropriate.

After reviewing the inspection findings, buyers should evaluate the property as a whole and determine whether additional investigation, negotiations, or other action is appropriate under their purchase agreement.

Cedar & Moss Tip: Focus on significant concerns rather than expecting an older home to be equivalent to new construction. The purpose of an inspection is to better understand what you're buying.

What Are Seller Concessions?

Seller concessions are certain costs or credits that a seller agrees to provide toward a buyer's transaction expenses.

For example, a buyer may negotiate for the seller to contribute toward eligible closing costs or other expenses permitted by the purchase agreement and the buyer's loan program.

Seller concessions can sometimes help buyers reduce the amount of cash they need at closing.

However, concessions are not necessarily "free money." They are part of the overall negotiation between buyer and seller.

For example, a seller may view these offers differently:

$250,000 with no seller-paid costs

versus

$250,000 with $8,000 in seller-paid costs

Even though both have the same purchase price, the seller's estimated proceeds are different.

Mortgage programs may also limit the amount or type of concessions permitted.

Cedar & Moss Tip: Evaluate the entire offer, not just the purchase price. Price, concessions, financing, contingencies, closing date, and other terms all affect the strength of an offer.

What Does "As-Is" Mean?

An "as-is" sale generally indicates that the seller is offering the property in its existing condition and does not intend to make certain repairs or improvements as part of the sale.

However, "as-is" does not automatically mean that a buyer should skip inspections or other due diligence.

Buyers should still investigate the property carefully and understand the terms of the purchase agreement before proceeding.

"As-is" properties can range from homes needing minor cosmetic improvements to properties requiring substantial repairs.

The phrase also should not be interpreted as automatically eliminating every legal or contractual obligation of a seller. Disclosure obligations and the parties' rights depend on the circumstances, applicable Louisiana law, and the agreement they sign.

Cedar & Moss Tip: Think of "as-is" as a reason to investigate the property more carefully, not less carefully.

What Is a Contingency?

A contingency is a condition in a purchase agreement that must be satisfied or addressed for the transaction to proceed as contemplated by the contract.

Common real estate contingencies may involve:

• Financing
• Appraisal
• Inspections or due diligence
• Sale of another property
• Clear title
• Other negotiated conditions

Contingencies can provide important protections, but they also come with specific requirements and deadlines.

Missing a deadline or failing to follow the procedure required by the purchase agreement can affect a party's rights.

Not every transaction contains the same contingencies, and their wording matters.

Cedar & Moss Tip: Don't just ask whether your offer has a contingency. Understand what the contingency allows, what you must do, and when you must do it.

What Is a Clear Title?

Clear or marketable title generally means ownership of the property can be transferred without unacceptable title defects, liens, or competing ownership claims affecting the transaction.

Before closing, a title company or closing attorney typically researches the property's title history.

The title examination may uncover issues such as:

• Existing mortgages
• Liens
• Judgments
• Unpaid taxes
• Ownership or succession issues
• Recorded servitudes
• Restrictions
• Errors in previous documents
• Other matters affecting title

Finding a title issue does not necessarily mean the sale cannot happen. Many title problems can be resolved before closing.

Buyers may also be offered owner's title insurance, which can provide protection against certain covered title problems according to the terms of the policy.

Cedar & Moss Tip: A property's physical condition is only part of the buying process. Making sure the seller can properly transfer title is equally important.

What Happens at Closing?

Closing is the final stage of the real estate transaction when the required documents are executed, funds are handled, and ownership of the property is transferred according to the transaction requirements.

Before closing, the buyer will typically receive information showing the funds needed to complete the purchase. Buyers should review their closing figures carefully and ask questions about anything they don't understand.

At closing, documents may include:

• Act of Sale or other transfer documents
• Loan documents when financing is involved
• Settlement or closing statements
• Title-related documents
• Other required disclosures and agreements

The closing professional coordinates the collection and distribution of funds according to the transaction.

After the necessary requirements are satisfied, ownership is transferred and the buyer generally receives possession according to the terms of the purchase agreement.

Cedar & Moss Tip: Ask questions before closing day. By the time you sit down to sign, you should have a good understanding of the transaction, the money involved, and what happens next.

Still Have Questions?

Every real estate transaction is different. Understanding the terminology is a great starting point, but the specific terms of your purchase agreement, financing, property, and circumstances ultimately matter.

Cedar & Moss Realty is here to help buyers and sellers navigate the real estate process throughout Southwest Louisiana with straightforward information and local guidance.

This information is provided for general educational purposes and should not be considered legal, tax, lending, insurance, inspection, or other professional advice. Requirements and individual circumstances may vary.