Real estate is a jargon-heavy industry and can be difficult to navigate if you’re a new agent or if you haven’t brushed up on your terminology in a while. Take a look at the glossary of real estate terms below for brief, clear definitions on each of these topics that will help you make more educated decisions for your clients in 2020.
Table of Contents:
- General Real Estate Terms
- Financial Real Estate Terms
- Listing Real Estate Terms
- Other Real Estate Terms
58 Real Estate Terms to Know by Category
To make things easier for you, we’ve broken up the 58 real estate terms by category below. Use the jump-to links above to navigate between the sections.
General Real Estate Terms
If one or both parties wants to make a change to a legal agreement, such as a lease, they can add an extra section detailing the new information without altering the whole document. This additional section is the addendum, and doesn’t affect the rest of the agreement.
Sellers can offer goods “as is,” meaning that the buyer is responsible for accepting them in their current state. While the buyer can examine the goods, such as a property, before buying, any defects discovered after purchase are not the responsibility of the seller.
Brokers are real estate professionals who have taken advanced courses and licensing to understand real estate and property management law. They manage a team of real estate agents, who are required by law to work under the supervision of a brokerage.
Closing is the last step in a real estate transaction, typically used most often in buying a property. On the agreed-upon closing date, the property officially transfers ownership from the seller to the buyer.
A contingency is a part of the agreement that must be met, otherwise the other party can cancel the contract. For example, a buyer interested in a home may place an offer that is contingent upon the building being cleared by a certified home inspector. If it isn’t cleared, the contingency has not been met and the buyer can negate the agreement.
- Days on the Market (DOM)
DOM measures the number of days between a property being actively listed for sale and the contract being signed by the seller and buyer. It’s used to determine whether the market is, on average, better for sellers (low DOM) or for buyers (high DOM).
A deed is a legal, written document detailing ownership of a piece of property. When a property is sold, the deed is transferred from the seller to the new buyer.
- Deed-in-Lieu of Foreclosure
When a homeowner can’t afford to pay their mortgage, they risk foreclosure, wherein the lender (usually their bank) reclaims the property and forces the homeowner to relocate. In order to avoid these often public and embarrassing proceedings, the homeowner can instead ask for a deed-in-lieu of foreclosure, where they transfer the title of the property to the bank willingly while given time to relocate.
Defaulting or being in default of a loan is when a borrower, such as a homeowner, doesn’t make their required payments. For homeowners, this typically happens when they don’t pay for three months or more. When a loan is in default, the lender can demand the full repayment of the sum.
A delinquent loan is when a borrower fails to make the required payments. A loan is typically considered delinquent when the repayment is over a month late. Borrowers can clear their delinquent status by repaying all outstanding bills. Loans that remain in a delinquent state will be declared defaulted after several missed payments.
- Due Diligence
Due diligence is the reasonable steps you would expect a person to take when considering buying or selling a property. Many legal agreements include language about both parties conducting their due diligence. For example, if a buyer didn’t ask for a home inspection before purchasing and then found something wrong with the property, the seller may not be responsible because it is the buyer’s job to reasonably investigate.
- Home Inspection
A home inspection is carried out by a qualified third party to determine the state of the property and identify if there are any major defects with the structure, safety, heating and cooling systems, and more. Most lenders will require a home inspection before granting mortgages to prospective buyers to make sure it’s a sound investment.
- Homeowner’s Association (HOA)
HOA’s are private organizations that take charge of general maintenance and governance of areas of property, usually for condos or gated communities. Buyers who purchase a home in an HOA community must join the association and pay yearly or monthly dues.
- Multiple Listing Service (MLS)
The MLS is a comprehensive database of local and regional properties for sale. It is a paid service only accessible by real estate agents who are able to post, review, and share listings across districts.
A realtor is a real estate agent that has registered and become a member with the National Association of Realtors (NAR). The NAR requires membership dues and abides by a strict code of ethics. Not all real estate agents are realtors.
- Real Estate Agent
A real estate agent is a state-licensed professional that is certified to represent individuals in the buying and selling of real estate. Real estate agents are required to work under the supervision of a brokerage, and may become realtors by registering with the NAR.
Financial Real Estate Terms
- Adjustable-Rate Mortgage (ARM)
With an adjustable-rate mortgage, the interest on the loan changes from month to month depending on the market. It may start low and rise or the opposite. This is the opposite of a fixed-rate mortgage, where the interest rate stays the same for the duration of the loan.
Amortization is the process of paying off a loan over a set period of time with equal installments. It tracks the amount of money that is dedicated to the principal and interest for each payment. A loan’s amortization rate is the length of time it will take to pay off the loan, which is typically 30 years for a mortgage.
- Annual Percentage Rate (APR)
APR is the total amount of interest owed on a loan each year. It’s a helpful estimate to see before committing to a loan repayment plan.
Appreciation is how much the value of a piece of property increases over time. For example, a townhouse purchased in a subdivision 30 years ago may have greatly appreciated if the subdivision has become a popular destination and the homes around it increased in value as well.
- Assumable Mortgage
An assumable mortgage is when a buyer “assumes” or takes over the mortgage from the seller. Instead of the owner selling off the property to pay off their mortgage and the buyer taking out a new loan, the buyer instead takes over the terms of the original loan.
- Balloon Mortgage
A balloon mortgage is a less common type of mortgage, wherein the buyer is responsible for very low monthly payments (often just the accrued interest), but then must pay off the entirety of the loan at the end of the period (AKA the balloon payment). Balloon mortgages are used for short-term loans, usually when the buyer doesn’t expect to own the property for very long.
- Bi-Weekly Mortgage
A bi-weekly mortgage is similar to most mortgages, except the buyer makes a loan payment every two weeks instead of every month. This actually allows the buyer to pay off the amount faster, as they end up making the equivalent of 13 monthly payments (26 weeks divided by two) each year instead of 12.
- Bridge Loan
Bridge loans are used to provide immediate cash flow, and as such are usually short-term with high interest rates. The most common example of a bridge loan is a homeowner needing funds for a new down payment while they wait for their current home to sell. Bridge loans are usually borrowed against a type of collateral, such as the existing property.
A buydown is when the seller of a property offers to pay down part of the potential buyer’s mortgage as a selling tactic, therefore lowering the mortgage payments and making the buyer more likely to qualify for the loan. This also allows the buyer to obtain lower payments for at least the first few years of the mortgage. In return, the seller will usually raise the price of the property.
- Cash-Out Refinance
A cash-out refinance is when a homeowner refinances their mortgage for more than it’s worth. You typically hear about homeowners either refinancing to a shorter term to pay off the loan faster, or for a longer term to reduce their monthly payments. In this case, they refinance to a new loan that is more than what they currently owe in order to cash out the difference and use that money for something else, like home remodeling.
A co-borrower, similar to a co-signer, is typically a close family member or friend of the borrower who legally promises to pay their loans if they’re unable to. For example, someone with a low credit score may have difficulty getting approved for a mortgage, so adding a co-borrower on their behalf can help them qualify. The co-borrower guarantees the loan and has the same legal responsibilities as the primary borrower.
- Cost of Funds Index (COFI)
COFIs are the average interest rates on checking and savings accounts in a particular regional area. They’re used by banks and other lenders to determine variable interest amounts for loans.
- Debt-to-Income (DTI)
DTI ratio compares a person’s gross monthly income (before taxes and deductions) to their total monthly payments. It’s calculated as a percentage and used by lenders to determine whether someone is qualified for a loan. A low DTI is considered less risky while a high DTI is riskier, and therefore makes the person less attractive to lenders.
Equity is the percentage of a home that a buyer actually owns. Until the mortgage is paid off in full, the lending institution has a stake in the property. For example, if a buyer puts down $20,000 on a home priced at $100,000, they have 20% equity in the home. Equity increases as the buyer pays off the mortgage.
- Fair Market Value (FMV)
Generally speaking, fair market value is how much a piece of property is worth on the open market. It assumes that both the buyer and the seller are at least somewhat knowledgeable about the property and that this number is an accurate valuation of its worth.
- Federal Housing Administration (FHA) Loan
FHA loans are a government program aimed at helping first-time homebuyers qualify for a better mortgage rate and lower down payment. The FHA insures the loan which gives lenders more confidence in the buyer’s ability to afford the loan.
- Fixed-Rate Mortgage
The opposite of an adjustable-rate mortgage, a fixed-rate mortgage is one of the most common types of loans. The interest rate on a fixed-rate mortgage stays the same for the duration of the loan. Though the interest rate may start higher than for an adjustable-rate mortgage, many homeowners prefer the assured stability of a fixed rate.
- Home Equity Line of Credit (HELOC)
A HELOC is a revolving line of credit that can be used to pay for large expenses like student loans or credit card debt. A HELOC can be thought of as a type of credit card, where you can continually borrow against your home equity as long as you also continue to make regular payments. Though HELOCs can be an important line of credit, they also come with variable interest rates and the cost of defaulting on payments is, of course, losing the home.
- Jumbo Loan
A jumbo loan or jumbo mortgage is a larger-than-usual loan that is typically used to afford luxury properties. It exceeds the limitations set by the FHFA (Federal Housing Finance Agency) and isn’t guaranteed by federal mortgage companies, making it a much riskier investment. To qualify for a jumbo loan, the potential buyer is held to more stringent requirements like a low debt-to-income ratio and high credit score.
A lien is a legal notice of action from a lender to the borrower for unpaid property debts like overdue bills or taxes. If the debt remains unpaid, the lender may be able to claim the property as collateral.
Listing Real Estate Terms
- Active Under Contract
When a property is listed as “active under contract” it usually means the seller has accepted an offer, but the buyer has yet to fulfill all the contingencies in the agreement. The seller remains open to other offers in case the buyer isn’t able to meet their terms and the deal falls through.
An appraisal of a property is conducted by a third party (an appraiser) to make sure that the property is accurately valued. Most lenders will require an appraisal before granting a loan to a homebuyer to make sure the loan is for an accurate amount.
- Assessed Value
Assessed value is determined by tax assessors to determine the amount of property taxes a homeowner should pay. By comparing inspection notes and similar home prices, the assessor can determine the value of the home and the corresponding property tax under its particular local government.
Assignment is the legal process of transferring rights and ownership from one informed party to another. For example, a home seller will sign a written document transferring assignment from themselves to the new buyer.
- Chain of Title
A chain of title is the historical documentation of all previous owners of a piece of property. If all the data is available, it’s a record spanning from the very first owner to the current.
- Clear Title
Also known as a “clean” title, a clear title means that there are no liens from lenders against the current owner. If there were liens, then the ownership of the property could be thrown into question, but a clear title indicates that the current ownership is undisputed.
- Comparable Sales
Comparable sales are one of the metrics used by appraisers to determine a property’s value. By looking at properties in a similar area with similar assets that have recently been sold, an appraiser can reasonably assume that they are worth a similar amount.
- Exclusive Listing
An exclusive listing is an agreement between a seller and a specific real estate agent wherein the agent earns commission by finding a buyer in the agreed-upon period of time. This is opposed to an open listing, wherein agents compete with one another to find the best buyer with no guarantee of earning commission.
When a homeowner is unable to make their mortgage payments for an extended period of time, their lender will foreclose on the home. This means that they take possession of the home and sell it off in order to repay the remainder of the debt. Some real estate agents specialize in helping their clients purchase foreclosed homes.
- For Rent by Owner (FRBO)
For rent by owner properties, or FRBOs, are property owners who choose to rent out their spaces without the help of any agents, brokers, or other middle parties. They find tenants and handle all the paperwork themselves.
- For Sale by Owner (FSBO)
Similar to FRBO, for sale by owner, or FSBOs, are homeowners who choose to sell their homes without the help of a real estate agent or brokerage. They handle the marketing, open houses, and legal paperwork on their own.
- Judicial Foreclosure
A judicial foreclosure occurs when a mortgage agreement lacks the “power of sale” clause allowing the lender to sell the property to pay the remainder of the debt. Without the power of sale clause, the foreclosure instead takes place through the court system. Judicial foreclosures are typically in place to protect homeowners from lenders who may try to take advantage of them.
- Land Lease
A land lease is a type of lease extension that gives the renter (or “lessee”) the option to extend the lease longer than originally agreed upon while paying the same rate. With a land lease the lessee is not obligated to extend the lease, but they have the option to do so if they choose.
- Lease Option
A lease option gives the renter or lessee the option to buy the property at any time during the rental period for a predetermined rate. For example, a tenant could sign a lease stipulating a $1500/month rent charge for 12 months, with the option to buy the property for $300,000 at any time during those 12 months.
- Probate Sale
A probate sale happens when the owner of a property passes away without a will. The local courts then take charge of the property and sell it to pay off existing loans and/or provide remaining funds to the deceased owner’s beneficiaries. Probate sales work much like any other home sale, and are typically marked as such on their listings.
- Real Estate Owned (REO)
A property marked as “real estate owned” or REO is owned by a bank or mortgage lender. This happens after the lender takes possession of a property during a foreclosure, but fails to sell the property at the foreclosure auction.
- Seller Disclosure
A seller disclosure is a document provided by the seller of a property before closing that details their knowledge of the property’s condition, including any issues or repairs that need to be completed. Seller disclosures are typically required in addition to a third-party assessment.
Other Real Estate Terms to Know
Commission is earned by both the buyer’s and seller’s real estate agents for their work in coordinating the home sale. Commission is paid as a percentage of the total home cost (often around 6%) and is split equally between the two agents.
- Equal Credit Opportunity Act (ECOA)
The Equal Credit Opportunity Act is a law that was enacted in 1974 to protect loan applicants from discrimination. It states that lenders cannot refuse to give loans on the basis of race, religion, age, marital status, and a number of other demographic factors.
- Fair Credit Reporting Act (FCRA)
Established in 1970, the Fair Credit Reporting Act is a federal law that regulates how credit agencies can collect, share, and store consumer credit data. It works to protect consumer data by ensuring information is secure and shared fairly and accurately.
- Real Estate Settlement Procedures Act (RESPA)
The Real Estate Settlement Procedures Act was passed by Congress in 1974 as a way to protect and educate borrowers about costs that can inflate their mortgage payments. It requires lenders and mortgage brokers to provide information to potential borrowers about consumer protection laws, real estate transactions, and settlement services.
- Right of Egress
The right of egress legally allows someone to exit a property, while the right of ingress legally allows someone to enter the property. These terms are relevant to homeowners as they govern who is allowed to access the property, and are usually seen when temporarily allowing someone to use the property for a short period of time.
Whether you are brand new to the world of real estate or are an experienced agent, it’s always good to brush up on your real estate terms to make sure you continue to understand these complex proceedings accurately. When you’re ready to put your newfound knowledge to use, be sure to check out our handy rental application and tenant screening services.