For many people, buying or selling a home is the single biggest transaction of their lives. As real estate agents, we help people buy and sell all the time. We’re knee-deep in contacts and market news. And it shouldn’t surprise you that a lot of the real estate market comes with its own jargon that we use on a regular basis.
For the average buyer or seller, many of these terms are only vaguely understood. However, when you’re in the midst of buying or selling, it’s essential that you know what’s what.
Keep reading for real estate terms every buyer and seller should know.
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Understanding Offer Terms
One of the unique aspects of real estate is that no two transactions are exactly the same. This makes it essential to understand the terms used in offers to ensure clarity and avoid misunderstandings. While some may say that deals can be made with a handshake, the reality is that well-defined contracts are crucial. As the saying goes, “Nobody needs a contract until they NEED a contract.” Gray areas in real estate can lead to complications if not properly addressed upfront.
Here are some fundamental terms you’ll encounter when making or evaluating an offer:
Price
This may seem straightforward, but beyond the agreed-upon purchase price, an offer may include stipulations regarding how and when funds will be disbursed. Payment terms and schedules are often detailed in the agreement’s schedules.
Deposit
Many buyers mistakenly confuse the deposit with their down payment, but they serve different purposes. A deposit is a form of consideration, demonstrating the buyer’s commitment to the transaction. It reassures the seller that the buyer intends to close on the property as specified. Importantly, the deposit is not paid directly to the seller; it is held in a trust account and only released to the seller upon the successful closing of the deal.
Closing
The closing date is the agreed-upon day when the buyer and seller exchange funds for the property deed. Typical closing timelines range from 30 to 90 days, but they can extend to a year or longer, depending on the terms negotiated between the parties.
Irrevocability
This term refers to the period during which an offer remains valid. Some buyers include a short irrevocability period (e.g., until 5 p.m. the same day) to apply pressure on the seller, while others extend the offer’s validity for weeks to allow time for due diligence.
Clauses vs. Conditions
Contracts often contain various clauses, but it’s critical to understand the distinction between a clause and a condition:
- A clause can cover various aspects of the transaction, such as property vacancy, mold remediation, or renovations.
- A condition is a specific clause that, if unmet, allows the buyer or seller to exit the deal without penalties. Common conditions include financing approval and satisfactory property inspections. Sellers should be cautious of offers that seem too good to be true but contain conditions that allow the buyer to walk away without consequence.
Do you have more questions about buying a home in Toronto? Here are a few more posts you might find helpful:
- How Much Does it Cost to Own a Home in Toronto
- Should I Buy a House That’s Been on the Market for a Long Time?
- Fixed Rate Vs. Variable Rate Mortgage: A Guide For Buyers
Understanding Market Terms
Beyond offer-specific terms, there are also key real estate metrics that help buyers and sellers assess market conditions. These terms are often used in real estate reports and market analyses to indicate trends and pricing dynamics.
Absorption Rate
The absorption rate measures the speed at which homes are selling in a particular market. It is calculated using the formula:
= Total Sales in a Given Period/Total Active Listings in the Same Period
- A high absorption rate signals a strong seller’s market with high demand.
- A low absorption rate indicates a buyer’s market, where inventory is accumulating and homes take longer to sell.
Months of Inventory
This metric estimates how long it would take to sell all active listings at the current sales pace if no new homes were added to the market. The formula is:
= Total Active Listings/Average Monthly Sales
- Less than 3 months of inventory suggests a seller’s market with high demand.
- More than 6 months of inventory indicates a buyer’s market with excess supply.
Sale-to-List Ratio
This ratio compares a property’s final sale price to its original or last listed price:
= Final Sales Price/List Price x 100
- A ratio above 100% means homes are selling for more than the asking price, often due to bidding wars.
- A ratio below 100% suggests properties are selling for less than the asking price, possibly due to price reductions or weaker demand.
DOM (Days on Market)
DOM tracks how long a property remains listed before going under contract. It provides insight into market activity:
- A low DOM indicates a competitive market where homes sell quickly.
- A high DOM may suggest overpricing, weak demand, or market saturation.
PDOM (Property Days on Market)
PDOM measures the total number of days a property has been on the market, even if it has been relisted under a new MLS number. Since some systems reset the DOM when a listing is removed and reposted, PDOM offers a more accurate picture of a property’s market history. Buyers should check PDOM to understand how long a home has truly been listed before making an offer.
Thinking about selling your home? Check out these posts next:
- What are the Signs Your Home Will Sell Fast
- Should I Price My Home Below Market Value?
- What’s Negotiable When Selling Your Home in Ontario
Understanding these real estate terms can empower buyers and sellers to make informed decisions, whether negotiating an offer or analyzing the market. With this knowledge, you’ll be better equipped to navigate the complexities of buying or selling a home confidently. If you have any questions, always consult with a trusted real estate professional to ensure you’re making the best decision based on current market conditions.
You can also get in touch with us directly! Call 416.642.2660 or email admin@torontorealtygroup.com to speak with our team.
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