For the past two years the seller has been king, but that kingdom is starting to crumble.
Of course, we’re nowhere near an official shift from a seller’s market to a buyer’s market, but most sellers can’t bank on being bombarded by multiple offers over the asking price and buyers willing to waive every contingency.
To survive in the current market, sellers need to approach their home sale with a game plan, a strategy—and that includes mastering some critical real estate terms.
Quiz yourself on the following real estate jargon, then learn exactly how understanding these terms can help you.
1. Days on the market (DOM)
The number of days a home spends on the market is commonly referred to as days on the market, or DOM. Knowing your home’s DOM is important because it can affect the final closing price—or whether your home even sells at all.
“If a property is priced right, it moves very quickly,” says Ellen Sykes, broker at Coldwell Banker Warburg.
However, if a home is overpriced or has a glaring issue that buyers are unwilling to overlook, it could languish on the market. A home with a high DOM can be used to a buyer’s advantage to negotiate a lower price.
A contingency is a condition that must be met to finalize the sale of a home. The most common contingencies are a home inspection, appraisal, and financing.
In the red-hot seller’s market of the past couple of years, sellers have been used to buyers waiving contingencies to make their offer more competitive against other buyers. But as the market comes back down to earth, sellers shouldn’t be surprised to see contingencies in offers again.
Sykes recently had a client write a home sale contingency into his offer.
“The buyer offered to purchase a new home provided he could sell his old one first. I haven’t seen that one in years, and the seller refused the offer. If the economy gets worse, I’m willing to bet I’ll see more of them,” says Sykes.
3. Stale listing
Stale listing refers to properties with a high DOM, which means the house has been on the market for a long time. How long? It all depends on whom you ask and which market you’re referring to.
Some experts say a listing is considered stale after about six months; others say three months.
So why are stale listings bad for sellers?
“A stale listing can carry an unwarranted stigma that a brand-new listing does not have,” says Sykes.
Buyers might believe they have more bargaining power and can get a steal on a house that’s been eating up time on the market.
“In a buyer’s market, sellers should be wary of letting that much time elapse before they adjust the price, because they will lose out to the new listing on the block,” Sykes says.
4. Market value
A home’s market value is the price that a buyer is willing to pay and a seller is willing to accept on the open market. Market value is influenced by a number of factors, including location, supply and demand, comparables (aka comps), and a home’s physical characteristics.
In years past, some sellers used the tactic of listing their house below market value to create a bidding war.
“It was a great marketing strategy that really worked, but in a cooling market, buyers will pay what the market value is, and no more because they don’t have to,” says Sykes.
Consult your real estate agent to come up with the most realistic and strategic listing price, and be sure to price it right from the beginning.
5. For sale by owner (FSBO)
For sale by owner, or FSBO, occurs when homeowners want to maximize their profits by not having to pay commission, meaning not hiring a real estate agent to sell their home. But it means the sellers have to do all the negotiating, such as finalizing a contract, and possibly opening themselves up for potential legal problems.
“The adage in law, that a person who acts for himself has a fool for a client, has a corollary in real estate,” says Sykes. “In an uncertain market, get a professional who has experience. You’ll get a better price every time, and you won’t get an ulcer.”
6. Earnest money deposit (EMD)
An earnest money deposit, or EMD, tells the seller that the buyer is serious. The buyer’s earnest money will go toward funding the down payment and closing costs.
“The buyer gives the seller a deposit on the sale price,” says Andrea Wernick of Coldwell Banker Warburg. “This demonstrates good faith in the sale transaction.”
However, Sykes says an earnest money deposit is not the same in all states and that in many states the EMD comes with the contract when it is signed.
“In other states, it is a sign of the buyer’s desire to buy and can be offered immediately without a contract,” says Sykes.