This week’s Q&A column is written by Sallie Seiy of McEnearney Associates Realtors®, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact Sallie at 703-798-4666 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.
Question: How do I begin to understand buying or selling a home?
Answer: Build your real estate dictionary.
Real estate is a fast-moving world. Decisions are usually made very quickly with real estate lingo thrown at you all day long. There are a lot of uncommon phrases, terms and conditions in real estate contracts. I wanted to share some frequently used real estate terms that you may not understand, but ones you’ll certainly encounter in your transaction.
MLS: Multiple Listing Service
This is the database where licensed real estate agents post listings for sale or rent. It’s accessible only through a licensed real estate professional. While you can see homes all over the internet, the MLS facilitates cooperation and compensation between brokerages. More simply, the National Association of Realtors explains: “Sellers benefit by increased exposure to their property. Buyers benefit because they can obtain information about all MLS-listed properties while working with only one broker.”
“Comps” or CMA: Competitive Market Analysis
When buying or selling, it’s important to know what other similar properties have recently sold for in your surrounding area. Preparing a CMA takes a lot of research and attention to detail. It helps sellers know how to price their home and, conversely, it helps buyers understand what they should offer for a home.
EMD: Earnest Money Deposit
I tell clients it’s like your down payment to your down payment. It’s also deemed a “good faith deposit,” showing the seller you’re serious about purchasing their property. Generally, this amount is about 1-2% of the purchase price. With the competitive market we’re living in today, this number can actually be more in the 5%+ range. Once under contract, this amount gets wired or dropped off via check to the settlement company. It will sit in the settlement company’s escrow account until settlement. At settlement, it gets deducted from the amount you owe at the table [(down payment + closing costs) – EMD].
While the EMD is money that you’re pre-paying towards the overall purchase, it’s also money that you could potentially lose in the event of a default. Per page 9 of the Northern Virginia Association of Realtors (NVAR) contract, “If Buyer fails to complete Settlement for any reason other than Default by Seller, Buyer shall be in Default and, at the option of Seller, Deposit may be forfeited to Seller as liquidated damages and not as a penalty.”
Date of Ratification
No matter if the offer was accepted right away or if it took a couple of counteroffers, the date of ratification is when both buyer and seller have signed the offer thus making it a binding contract. When you read the contract, you’ll see a lot of references to this date.
The primary use of the term comes in the form of deadlines. For example, if you have a five-day home inspection period, that five-day countdown starts the day after ratification. If date of ratification is a Monday, the five-day inspection period starts on Tuesday (Day 1) and ends on Saturday (Day 5) at 9 p.m. It’s so important to know when the contract was ratified for counting purposes. Otherwise, all the other contingency deadlines can be invalid because you started from the incorrect date!
This number is simply the rate at which the market is “absorbing” inventory. It’s expressed as the percent chance a home will go under contract in a given month.
At McEnearney, we break these absorption rates down to look at certain jurisdictions, ZIP codes, price points and home types (single-family, townhouses, condo). If the absorption rate in any given price point is over 60%, this is called an extreme seller’s market. And that’s the name of the game right now — an extreme seller’s market.
Let’s use the following as an example: Say at the end of May, there are four Alexandria condos actively on the market in the $400K to $499K range and within that month 25 other condos went under contract. In total, 29 condos in this price point were on the market in the month. Of those 29 condos, 25 units were absorbed by the market, making the absorption rate 86%.
We also look at this number from a buyer’s perspective as well. As a buyer decides the price point, type of home and location, it is important to know what market they are entering into and how to adjust and prepare their offers to be competitive.
4 pCi/L (picocuries of radon per liter of air)
Actionable level for radon! Radon is a naturally occurring gas that is odorless and tasteless. It has been linked to severe medical issues. Radon can make its way through the underground soil and get into your home. Underground basements are the primary location for radon levels to be at their highest — 4 is the magic number for radon.
If you have a radon contingency with your contract, a test kit will be left in the home for 48 hours. If the results come back at a level of 4 picocuries of radon per liter of air (pCi/L), then you have a level of radon that is deemed actionable by the Environmental Protection Agency or EPA. The buyer has two options: Void the contract or require the Seller, at the Seller’s expense, to mitigate the radon with a licensed professional and then retest for the radon levels after the mitigation system is in place. If radon testing is not part of your contract or if you’ve owned your home for a while, it’s always a good idea to check your radon levels yearly. They have test kits you can purchase online for a little DIY!
WDI: Wood Destroying Insect Inspection
This inspection is to confirm that, “all dwelling(s) and/or garage(s), within Property (excluding fences or shrubs not abutting garage(s) or dwelling(s)) are free of visible evidence of live wood-destroying insects and free from visible damage.”
If selected to have this inspection in paragraph 18 of the NVAR contract, the inspector looks at the interior/exterior of the home and garage, if applicable, and the fences and plants touching or very near the property. This usually costs less than $50 and can be either at the buyer’s expense or seller’s expense. Most of the time, the buyer elects to pay for this inspection. If you are a Virginia buyer, you MUST have this inspection, and you are NOT allowed to pay for it according to the VA’s home loan requirements.
Regardless of who pays for the inspection, if damage or live insects are found, it is the seller that is to pay for any treatment and/or repairs identified in the report. While it is most often a low-risk inspection for the seller to agree to, there’s still always a chance the seller can still be on the hook.
As a fifth generation Realtor and the granddaughter of an architect and builder, Sallie has deep roots in real estate. She is passionate for the charm, history and architecture of Alexandria and its surrounding communities. If you would like more information on selling or buying in today’s complex market, contact Sallie today at 703-798-4666 or visit her website SallieSeiy.com.
If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.
McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria
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