Roughly 28 million Americans plan on buying a home this year, and many of them will be first-time homebuyers.
Perhaps you’re one of these homeowner hopefuls and are curious about how real estate works before you dive into your house hunt. Today, we’re breaking down the basics of real estate so that you can begin your journey to homeownership with confidence.
Keep reading to learn more!
Real Estate: Defined
The real estate industry encompasses the following properties:
- Natural resources found on the property (crops, water, etc.)
The real estate market consists of any of these properties that are for sale within a locale.
Many of us think of the terms ‘the housing market’ and ‘the real estate market’ as synonymous. However, the housing market is only one part of the real estate market and only covers residential property.
Types of Real Estate
The properties within the real estate market can be broken down into the following four categories.
Residential Property: Consists of domestic resident properties such as condos, townhomes, mobile homes, single-family homes, and vacation rentals.
Commercial Property: Consists of properties used for stores, hotels, offices, and various businesses.
Land Property: Consists of properties like ranches, farms, reclaimed sites, and vacant land.
Industrial Property: Consists of properties used in manufacturing like warehouses, research centers, and factories that produce or distribute commercial goods.
How Real Estate Works
Property is a finite resource that tends to gain value over time. This depends on various factors such as location, renovation potential, age, and any natural resources on the property.
The sale of real estate property is facilitated by a real estate agent, a professional who is an expert in the local real estate market. Their job is to ensure that the transaction follows all applicable regulations and laws while negotiating on behalf of their client (the buyer or seller).
The Buying and Selling Process
The process of a real estate transaction generally follows these steps:
- The homeowner hires a listing agent who creates a listing for the house on the local MLS (multiple listings service).
- The potential buyer’s agent will contact the listing agent for information.
- The listing or buyer’s agent will show the buyers the home and provide information on the property.
- If the buyer decides to put in an offer, the buyer’s agent and the listing agent will negotiate the terms of the sale.
- Once the buyers and sellers settle on the final price and the terms of the sale, the agents file the legal paperwork to facilitate the sale.
- The final step is to sign the closing paperwork, transfer the property deed, and pay commission to the agents.
In some states, it is mandatory to have an attorney present at closing. Whether your state mandates it or not, you may want to hire a real estate attorney to ensure you understand all the terms of the sale.
Real Estate: Demystified
On a fundamental level, we’ve covered how real estate works. Whether you’re a buyer or a seller, it pays to understand the basics of the real estate industry.
If you’d like to dive deeper into the ins and outs of real estate or other interesting topics, check out our blog!