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The real estate world can be difficult to navigate unless you know the language. There is so much jargon and specific terminology that somebody without years of experience can get overwhelmed. If you’re buying or selling a house for the first time, you’ll be learning a lot of these terms as part of the process. Here are three of the most important terms to understand:
Escrow is a word you will see used to describe part of the home sale process. Escrow means that a neutral third party is temporarily holding onto money involved in the transaction. A home is “in escrow” for however long the entire transaction takes to complete. An individual escrow agent or escrow company can facilitate the process. Either way, the purpose of escrow is to protect both sides of the transaction. Escrow guarantees that the buyer actually has the money to go through with the purchase. It also protects the buyer from losing money in a fraudulent sale.
Sometimes you might see the word escrow used to describe the entire home buying process. While that’s mostly accurate, the transaction is not technically “in escrow” until the neutral third party holds the funds.
FSBO (For Sale By Owner)
FSBO is an acronym used to describe a type of property listing. When a home is “for sale by owner,” or FSBO, it means the seller did not hire a real estate agent or broker to manage the sale. There are many benefits and disadvantages to FSBO depending on the situation, but no matter what, the seller holds responsibility for everything on their side—literally and legally. The seller sets the price and handles all the paperwork, so as a buyer you (and your agent) will work with them directly rather than another agent.
Closing, sometimes also referred to as settlement, is a term that covers a lot of important details. Primarily it refers to the very end of the home sale transaction when the title officially transfers to the new owner. Closing involves reviewing all the legal paperwork and signing off on the last stage of obtaining a mortgage loan. An attorney or mortgage representative typically oversees the process and makes sure all the required documents are completed. The Consumer Financial Protection Bureau provides a paperwork checklist to help you make sure you complete every step. The entire process from loan application to title transfer takes 30 to 45 days, but the final checking and signing of the paperwork only takes a few hours. This is called “closing day.”
Buying a home is a complicated process on both sides of the equation. Regardless of the number of agents involved, it’s important for the buyers and sellers to understand the terminology so they can make informed and confident decisions. For many, buying a home is the biggest financial transaction of their life—and not just because of the money. The details and long list of steps in the process might make it seem like an ordeal, but once you understand the language, you’ll find it a lot easier to enjoy the experience.