Are you going to sell your Michigan home? Welcome to this page where you will learn the terms every seller should know.
Selling a home in Michigan involves various legal, financial, and real estate-specific terms that can be overwhelming if you’re unfamiliar with them.
Understanding these terms can help you navigate the selling process with confidence, avoid potential pitfalls, and maximize your home’s value. Below, we break down the essential real estate terms every home seller in Michigan should know, along with real-life examples for better clarity.
1. Listing Agreement
A listing agreement is a legally binding contract between a home seller and a real estate agent that outlines the terms under which the agent will sell the home. This agreement defines the responsibilities of both parties and establishes the commission rate the agent will earn upon a successful sale. There are three main types of listing agreements:
- Exclusive Right-to-Sell Listing: The agent has the exclusive right to represent the seller and earn a commission, regardless of who finds the buyer.
- Exclusive Agency Listing: The agent represents the seller, but if the seller finds a buyer independently, the agent does not receive a commission.
- Open Listing: The seller can work with multiple agents, and only the agent who brings in the buyer earns the commission.
Key Elements of a Listing Agreement:
- Listing Price: The price at which the property is listed for sale.
- Commission Rate: Typically 5-6% of the sale price, shared between the seller’s and buyer’s agents.
- Contract Duration: The length of time the agreement is valid, usually 3-6 months.
- Marketing Strategy: How the agent plans to market the property (MLS listing, social media, open houses, etc.).
- Termination Clause: Conditions under which the agreement can be canceled.
Example: Sarah, a homeowner in Detroit, signs a six-month exclusive right-to-sell listing agreement with her real estate agent. The contract states that the agent will receive a 5% commission upon the successful sale of her home. The agent lists the property on the MLS, markets it online, and hosts open houses to attract
2. Fair Market Value (FMV)
The fair market value is the estimated price a property would sell for on the open market under normal conditions. It is determined by comparing similar properties in the area, recent sales, and market trends.
Example: John’s home is valued at $250,000 based on recent sales of similar properties in his neighborhood in Ann Arbor.
3. Comparative Market Analysis (CMA)
A CMA is a report prepared by a real estate agent that analyzes recent home sales in your area to help determine a competitive asking price for your home.
Example: Before listing her home, Emily’s agent provides her with a CMA showing that similar homes in her area have sold for $275,000 to $300,000.
4. Appraisal
An appraisal is an official property valuation conducted by a licensed appraiser to determine its fair market value. Lenders typically require an appraisal before approving a buyer’s mortgage.
Example: Mike’s buyer secures a mortgage, but the lender requires an appraisal. The appraiser values the home at $280,000, which matches the sale price.
5. Home Inspection
A home inspection is a detailed examination of a property’s condition, including the foundation, roof, plumbing, and electrical systems. Buyers often request an inspection before finalizing a purchase.
Example: During the inspection, the inspector finds minor plumbing issues in Lisa’s home, leading the buyer to negotiate a $2,000 reduction in price.
6. Seller’s Disclosure Statement
Michigan law requires sellers to provide a Seller’s Disclosure Statement, which outlines any known issues with the property, such as structural defects, water damage, or previous repairs.
Example: Tom discloses that the basement occasionally floods during heavy rain, helping him avoid legal issues after the sale.
7. Title and Title Insurance
The title is the legal document proving ownership of a property. Title insurance protects both buyers and lenders from legal issues related to property ownership disputes or outstanding liens.
Example: A title search on Maria’s home reveals an old unpaid property tax, which she resolves before selling the home.
8. Earnest Money Deposit (EMD)
An earnest money deposit is a payment made by the buyer to show serious intent to purchase the home. This deposit is typically held in escrow and applied to the purchase price at closing.
Example: The buyer of David’s home deposits $5,000 in escrow to secure the deal while completing financing.
9. Escrow
Escrow is a neutral third party that holds funds, documents, or property until specific conditions of the real estate transaction are met. It ensures both buyer and seller meet their obligations before the deal is finalized.
Example: Jennifer’s sale proceeds are held in escrow until the buyer’s financing is confirmed.
10. Closing Costs
Closing costs include various fees and expenses paid at the end of a real estate transaction. These may include agent commissions, title fees, transfer taxes, and recording fees.
Example: Bob pays $8,000 in closing costs, which includes agent commissions and title transfer fees.
11. Transfer Tax
A transfer tax is a fee imposed by the state and sometimes local government when property ownership changes. In Michigan, the state transfer tax is $3.75 per $500 of the home’s sale price.
Example: Selling her home for $200,000, Lisa pays a transfer tax of $1,500 at closing.
12. Contingencies
Contingencies are conditions that must be met before a real estate transaction can be completed. Common contingencies include financing, home inspections, and appraisals.
Example: Jake’s offer is contingent on securing a mortgage within 30 days, giving him time to finalize his loan.
13. For Sale By Owner (FSBO)
FSBO is when a homeowner chooses to sell their property without using a real estate agent, aiming to save on commission fees.
Example: Alex lists his home on Zillow and negotiates directly with buyers, avoiding agent commissions.
14. Capital Gains Tax
Capital gains tax is a tax on the profit made from selling a home. Homeowners can exclude up to $250,000 ($500,000 for married couples) of gains if they have lived in the home for at least two of the past five years.
Example: Since Susan lived in her home for 10 years, she avoids capital gains tax on her $100,000 profit.
15. Multiple Listing Service (MLS)
The MLS is a database used by real estate agents to list and find properties for sale.
Example: Mark’s agent lists his home on the MLS, making it visible to potential buyers and agents.
16. Pending Sale
A pending sale means an offer has been accepted, and the home is under contract but has not yet closed.
Example: Emma’s home status is marked as “Pending” after accepting an offer but before final paperwork is signed.
17. Short Sale
A short sale occurs when a home is sold for less than the remaining mortgage balance, usually due to financial hardship.
Example: John owes $300,000 on his mortgage but can only sell his home for $250,000, requiring lender approval for a short sale.
18. Home Warranty
A home warranty is a service contract covering repairs or replacements of major home systems and appliances for a set period.
Example: To attract buyers, Maria offers a one-year home warranty covering HVAC and plumbing systems.
19. Deed
A deed is the legal document transferring property ownership from the seller to the buyer.
Example: At closing, James signs a warranty deed ensuring the buyer receives clear ownership.
20. Closing Disclosure
The closing disclosure is a document outlining the final details of a mortgage loan, including terms, monthly payments, and closing costs.
Example: Before closing, Susan reviews her disclosure, confirming her loan terms and final costs.
Conclusion
Understanding these real estate terms will help you feel more confident throughout the home-selling process in Michigan. If you’re looking to sell your home quickly and hassle-free, Brick by Brick Investments is here to help! Contact us today to learn more about how we can assist you in getting the best deal for your property