This post will introduce you to 20 of the most common real estate terms. By knowing these terms, you’ll be able to better understand the real estate market and its current trends.
It is vital to be familiar with the language used in the industry. This will help you communicate more effectively with clients and colleagues.
By familiarizing yourself with these 20 terms, you’ll be able to communicate more effectively with clients and colleagues alike. From “closing” to “Zestimate,” this list has everything you need to get started with real estate transactions. So sit back, relax, and let’s get started!
Before we begin, here are several helpful tips when buying or selling a home:
- Remember that real estate is local. The market in your area may be very different from the market in another part of the country.
- This list is in no particular order.
- Most of these terms are commonly used in the United States and Canada; some may not be used outside of these countries.
- This list contains the most common terms currently being used, but there are more that weren’t mentioned.
20 Real Estate Terms To Be Aware Of
1) Capitalization Rate (Cap Rate): The annual rate of return for an investment property expressed as a percentage.
2) Closing Costs: The various fees associated with the real estate purchase, including attorney and inspection fees, but not taxes or mortgage insurance. These costs are typically paid by either the buyer or seller, depending on who pays the closing agent to represent them.
3) Contingency: An escape clause is a provision in a contract that allows one or both parties to terminate the agreement under specific conditions.
4) Credit Score: A three-digit number lenders use to measure an individual’s creditworthiness. The higher the score, the more likely it is that the individual will be approved for a loan and receive a lower interest rate.
5) Deed: The document that transfers ownership of a property.
6) Dollar-to-Mile Ratio (DTM): The number of dollars it will cost you to travel one mile in your city, as calculated by various websites like GasBuddy and Numbeo. This is often used for renters or buyers to compare costs between cities.
7) Down Payment: The initial cash outlay for purchase expressed as a percentage of the total cost. In North America, this will typically be 20% or higher but may vary per country or city.
8) Escrow: An arrangement where a third party holds and disburses funds according to the instructions of the parties involved in the transaction.
9) Equity: The difference between the current market value and the amount still owed on the mortgage.
10) Foreclosure: The legal process where a lender reclaims a defaulted property that has been used as collateral for a loan.
11) Home Equity Line of Credit: A loan in which the borrower uses the equity in their home as collateral. This type of loan can be used for various reasons, such as home repairs or renovations, paying off debt, or funding a college education.
12) Income Property: A property rented out to generate income instead of being occupied by the owner.
13) Interest Rate: The price paid for borrowing money expressed as a percentage over time. This is typically used in context with mortgages, car loans, etc.
14) Mortgage: A loan that uses real estate property as collateral to repay the debt.
15) Mortgage Insurance: An insurance policy protects the lender against total loss of interest and principal.
16) PMI (Private Mortgage Insurance): According to Consumer Finance, private mortgage insurance, known as PMI, is a form of mortgage insurance borrowers can be required to pay for if they have a regular loan.
17) Pre-Approval Letter: A letter from a financial institution outlining an individual’s pre-approved borrowing limit for a mortgage. This letter is typically required before a buyer can begin the house-hunting process.
18) Pre-foreclosure: The period in which the lender has started foreclosure proceedings and has given notice to the borrower, but has not completed them yet.
19) Principal: The amount of money borrowed, excluding the interest.
20) Zestimate: A theoretical estimate of a property’s worth, as calculated by Zillow. This number is based on public records and user-generated data.
As the world becomes more and more digitized, the real estate industry follows suit. There is now a slew of online tools to help you buy or sell a home, from property valuations to mortgage calculators. With this in mind, it can be helpful to know some of the most common real estate terms.
Some Additional Terms and Topics
You’re likely to encounter a real estate transaction as an agent. But what exactly goes into a real estate transaction? Well, let’s take a look!
First, there’s the pre-transaction phase. This is where you and your client will work together to identify and agree on the property they want to purchase.
Once that’s done, it’s time for the negotiation phase, where you work with the buyer and seller to agree on price and terms. After that, it’s time for the contract drafting and closing phases.
Finally, it’s time for post-transaction tasks like recording and billing once everything has been finalized.
Appraisal Contingency
An appraisal contingency is a clause wherein a buyer may cancel a home whose appraisal value does not exceed the selling price.
A buyer’s lender hiring a property expert determines the house’s value to guarantee the loan has a good home value. Lenders need to make sure that there are few properties with overpriced information.
Backup Offer
In case a buyer desires to purchase something of similar value that was already purchased by another, the person can make a backup offer should the initial sale fail.
The truth is that backup offers are quite common in today’s market. With so few houses available these days, something might happen that causes a buyer to be backed into a backup offer position if the first contract fails.
Blind Offer
For the most part, the purchaser is treated as a “blind offer.” A “blind offer” in real estate is one where the buyer submits an offer to purchase a property without knowing anything (other than virtually) about it other than the price.
Brokerage
A real estate broker is a broker who helps to sell or buy real estate. Brokerages usually provide special units, such as relocation and maintenance, to clients.
The brokers operate on behalf of the owners but carry an error policy. Realty agents and real estate professionals must possess a broker license.
Buyer Representation Agreement
Upon signing the buyer representation agreement, an entrepreneur agrees to represent the entrant on real estate matters during the real estate purchase process.
This list includes timeframes and services offered by the brokerage to the client over a duration based on three months and the average.
Buyer's Agent / Listing Agent
Buyer’s agents are licensed real estate agents who can sign a purchaser representation contract with interested buyers.
All buyers should have access to the company and identify an excellent investment opportunity, including the ability to search and negotiate for their home and provide support. In simple terms, buyer’s agents serve the buyers’ interests as primary advisors.
Real estate agents represent the buyer in transactions involving selling the property to the buyer. The buyer can advertise this house and upload it to the MLS local marketplace or show its value by hosting an open house for potential buyers.
In addition, they are involved in weighing out offers submitted by the buyer, negotiating on their behalf, drafting the contracts, and managing all paperwork.
Home Buyer Agents have licensed home buying professionals whose role is to find buyers for your next home. For the seller or listing agent, the job involves the sale of sales properties. Buyer and List Agents Commission is typically between 2-3% per transaction for most sales.
Closing
Closing occurs once home sales are judged final, which generally includes all parties’ signatures in the required paperwork.
In several regions around the US, it may be necessary to record the sale deed at county court for the final stage of closing. Upon completion, these pieces can be acquired for sale, and the owner is considered the new homeowner.
Commission
Commissions are fees paid in exchange for supplying the services for buyers or sellers in selling and completing the sale of the property.
Typically 6% of the real estate expenses of a property are split equally among agents, but commission split and fees are available. Commission-linked financings must be paid out at closing.
Covenants Conditions & Restrictions (CC&Rs)
Typically, those are rules adopted by homeowner and neighborhood associations and developers or developers of homes or other buildings for the sale or lease of real estate. There may be fees that include an annual or quarterly fee or a specific adage.
Days on Market (DOM)
DOM relates to the number of days in which a home available for sale in a property listing database by a Realtor will have been sold by the buyer. High average DOM indicates stable market conditions favorable for sellers.
Seasonality is one thing. Homes tend to sell faster during Spring than Winter since many homes get buyers during more comfortable seasons compared to cold winter times.
Debt-to-Income Ratio
While reviewing a mortgage application, lenders often seek those individuals with an overall positive credit history, who pay at least 26 percent of their house-related debt or 36 percentage points. It can be measured using your total debt expense and monthly mortgage payments multiplied by ten.
For the most part, this helps lenders assess your monthly mortgage payments in light of the available funding. Buying a home may be more accessible, so there may also be the need to adjust a few thousand for that. If your balance payment falls below 35 percent, the debt balance is more petite.
Due Diligence
There may be an obligation due diligence period on purchase contracts that provides the buyer time to evaluate the property. These professionals may also perform research to examine and determine how to proceed.
The customer may also have opportunities to terminate the contract based upon their results or terminate in a designated elapsed period to avoid the contractual breach. It gives buyers better insight into what they’re planning to buy.
Earnest Money Deposit (EMD)
Earnest money deposits (EMD), sometimes called “good faith deposits”, are initial funds owed after buyers accept their offer.
This indicates the buyer’s desire to move on and that the price reflects their intentions in buying. The maximum amount is 0.5 percent if it is purchased at retail. The EMD may be stored in escrow or at any other point under the Purchase-Sell Agreement (PSA).
Federal Housing Administration and FHA Loan
A Federal Housing Administration (FHA) loan is a mortgage insured by the FHA, and approved lenders can issue them.
iBuyer
An iBuyer is simply called a seller who offers their services immediately using technology. They offer a chance to acquire a property at fair market value, then accept a fee and rent it out.
Listing Agreement
Listed property deals are agreements arranged between the seller and real estate dealer regarding their representation for sale or rental.
It specifies a date at the end of any term of the deal and defines compensation aimed at securing business opportunities and services.
Multiple Listing Service
There exists primarily an MLS system that provides information concerning a list of all of the available houses within a region that consists of multiple listed properties.
This is managed under the regional REALTOR® board. Agents, a broker or realty agent, can access the restricted information on the MLS if it exists and contribute that there is more than one brokerage in each region.
What does MLS mean in real estate?
It includes 580 regional databases that showcase the residential or commercial real estate listings. They can only be used for residential clients as that information must be accessed annually.
The Multiple Listing Service information should only become available when agents learn about each market segment.
Property Management
Management companies handle property transactions with tenant properties under a property management agreement.
A property management provider can sell any rental property available or be asked to look at any rent applications and process the rental agreement with its clients as a first call out.
Property management fees vary and usually start at 5% per unit rental revenue. Some brokers operate in this area and own their own business units.
Real Estate Brokers
Brokers are licensed real estate agents who have completed the additional training required to obtain a statewide broker license.
They can also supervise natural agents licensed under such an organization as a brokerage and ultimately act in their capacity to support their actions. They can provide consulting advice or mediation if requested.
Real Estate Agent
Real estate agents can assist with sales and purchases of properties by providing commissions, either by phone or in person.
Real estate agents are responsible for a variety of duties in the industry, from helping buyers find homes and negotiating contracts to assisting sellers in marketing their properties and handling the paperwork associated with a sale.
They must have extensive knowledge of the market in which they work and stay up-to-date on changes that could impact property values.
With so many facets to the job, it’s no wonder real estate agents are relied upon to handle some of the most important transactions in people’s lives.
REALTOR®
A REALTOR® is a licensed real estate agent who has joined the NARS and is committed to a strict ethical code. REALTORS® serve as board members at state and local levels, giving them better information regarding property markets and MLS (Multi-List Service) lists.
Relocation Department or Service
A relocation service/department helps customers move back and adjust to a new location by locating homes. Often these may be the property divisions or independently managed services. Companies in that sector need relocation solutions when an employee moves around.
Right of First Refusal Real Estate
The Right of First Refusal is a provision of lease and home agreements stating that interested persons are entitled to buy the property first before their prospective buyers.
The Right of First Refusal, or ROFR for short, is a contract clause that gives the first opportunity to buy an interest in real estate from someone who has it available.
This means you can’t just walk away after submitting your offer- if there are multiple buyers interested then they’ll take turns until one person gets approved!
Title Company
Title providers help consumers verify that buyers can purchase property before granting title insurance claims. The title buyer will receive assistance through payment of funds by the purchaser and transfer and receipt of the title for the transaction. This office also handles the security deposits at closing.
Title insurance claims can be a real hassle. You have to gather all the paperwork, make copies, send them in, and then wait. It may seem like forever to get your money back. But there are a few things you can do to speed up the process:
- Make sure you have all the information the title insurer needs.
- Send everything in as quickly as possible.
- Stay on top of the claim process by regularly following up with the title company.
What is ADU in Real Estate?
ADU means accessory house units. There is also an administrative expression for one-time housing buildings inland adjoining a primary residence. It has guest rooms. For ADU purchases, it’s not possible to rent an additional unit.
What is a Burden in Real estate?
For many people, encroachments are claims, restitution, and liability for the property. Burdens are often seen as an obligation affecting the land, which usually requires someone to do something or refrain from doing specific tasks for another person’s benefit.
What is CAM in Real Estate?
CAM stands for Common Area Maintenance – a charge the leaseholders could incur from CAM for the shared apartments in a multi-tenant building. For example, a pest monitoring fee is combined with other charges like forensic inspections and security maintenance.
What are Comps in real estate?
The term “Company” can be used whenever you prepare a home listing for sale on the net. In slang, this referred to comparison sales. Comps refer to houses with a unique location with similar dimensions, conditions, and feature characteristics. Homebuyer buyers look for comps when searching for bargain offers.
What is Earnest Money in real estate?
Earnest money will be paid out immediately to buyers as soon as the buyer has complied with the purchase agreement for the property.
Earnest monies have the capacity as deposits that are held until the final transaction. On its first day, the earning proceeds go towards down payments and closing costs for the business.
What is an Easement in Real Estate?
Easements define the rights of anybody who owns property without any ownership rights. The easement serves a particular function that cannot be fulfilled without any other purpose.
In some cases, utilities can offer easements to connect an apartment block with its street.
What is HOA in Real Estate?
HOAs are home association companies. A homeowners association is a community where homeowners form an association to resolve shared problems.
What is LTV in Real Estate?
LTV stands for loan-to-value ratio and is an instrument to measure commercial values of properties. The LTV is calculated when applying for credit from a lender before getting approved to buy real estate. Loans that offer more variable-time loan terms generally involve more volatility.
What is NOI in Real Estate?
NOI is also called earnings-in-kind. Its purpose is to evaluate financial statistics and to analyze potential properties. Upon its sale to the buyer, you subtract your expenses from every other income generated.
NOI determines how much is necessary or worthwhile the ownership of that specific asset.
What is a Short Sale in Real Estate?
A short sale is typically one that is sold at less than half its purchase price in the event of a foreclosure. All the profits will go directly through the homeowner who has to approve the sale. The cost of savings and efficiencies in selling houses is much lesser than foreclosure.
Conclusion
If you’re looking to start working as a real estate agent or something that interests you, we recommend learning the standard terms and phrases mentioned here that are used within the industry.
When you grasp the language used in your profession, it will be easier for you to communicate with clients and colleagues. This way, when someone asks you about their property value “in today’s market,” they can get a conclusive answer.
