Buying or selling a home is one of the biggest financial decisions you’ll ever make. But if you’ve ever felt like real estate has its own confusing language, you’re not wrong. Terms like escrow, contingency, CMA, appraisal, and closing costs come up often, and understanding them can save you stress, time, and money.
This guide breaks down six of the most important real estate terms every buyer and seller in Michigan (and beyond) should know — explained in plain English.
1. Contingency in Real Estate
A real estate contingency is a condition that must be met before a home sale can go through. It acts as a safeguard for both buyers and sellers.
Common real estate contingencies:
- Home inspection contingency – protects the buyer if major repairs are needed.
- Appraisal contingency – ensures the home’s appraised value supports the agreed purchase price.
- Home sale contingency – allows the buyer time to sell their current home before closing.
✅ Why it matters: Contingencies protect buyers from being locked into risky deals. Sellers should understand how contingencies can affect timing, negotiation power, and certainty of closing.
2. Real Estate Appraisal Explained
A real estate appraisal is an independent estimate of a property’s fair market value, conducted by a licensed appraiser. In Michigan, lenders require an appraisal before approving a mortgage.
What happens if an appraisal comes in low?
- The buyer may need to pay the difference in cash.
- The seller may agree to lower the price.
- Both sides renegotiate.
✅ Why it matters: An appraisal protects the bank from lending more than the home is worth. For buyers, it prevents overpaying. For sellers, it can impact negotiations or even cause delays.
3. Earnest Money Deposit (EMD) in Real Estate
The earnest money deposit (sometimes called “good faith money”) is a small upfront payment — usually 1–3% of the purchase price — that shows a buyer is serious.
In Michigan, the EMD is typically held by the title company in a trust account until closing. If the deal closes, it’s applied toward the buyer’s down payment or closing costs. If the buyer backs out without a valid contingency, the seller keeps it.
✅ Why it matters: For buyers, EMD strengthens your offer. For sellers, it adds financial security.
4. CMA vs Appraisal (Comparative Market Analysis)
A comparative market analysis (CMA) is a pricing report created by a Realtor, based on recent sales, active listings, and property features.
- CMA: Done by your Realtor, used to set listing prices or make strong offers.
- Appraisal: Done by a licensed appraiser, required by the lender for financing.
✅ Why it matters: Zillow estimates and online calculators can be inaccurate. A CMA gives buyers and sellers real-time, hyper-local data.
5. Escrow in Real Estate
In real estate, escrow refers to a neutral third party that holds money, documents, and instructions until all conditions of a sale are met.
During escrow:
- The buyer deposits earnest money.
- The seller provides a clear title.
- The lender wires funds.
Only when everything checks out does the escrow officer release money and transfer ownership.
✅ Why it matters: Escrow ensures both parties are protected and prevents funds or keys from changing hands too early.
6. Closing Costs in Michigan
Closing costs are the fees and expenses paid at the end of a transaction, on top of the home’s purchase price.
Typical closing costs in Michigan include:
- Lender fees
- Title insurance
- Property taxes
- Recording fees
- Transfer taxes
On average, closing costs in Michigan range from 2–5% of the purchase price. For a $400,000 home, that’s roughly $8,000–$20,000.
✅ Why it matters: Buyers should budget for closing costs in advance. Sellers should be aware of potential concessions or costs they may need to cover.
Final Thoughts
Real estate terms don’t have to feel intimidating. Whether you’re buying your first home or preparing to sell a waterfront property in Northern Michigan, knowing these six terms — contingency, appraisal, earnest money, CMA, escrow, and closing costs — will help you make smarter decisions.
The more you understand the language of real estate, the smoother (and less stressful) the process will be.
