Real Estate Terminology: A Comprehensive Glossary for Homebuyers and Sellers
Are you feeling overwhelmed by the complex world of real estate? Don't worry, you're not alone. The property market can be full of confusing jargon and unfamiliar terms that can make the buying and selling process seem like an uphill battle. But fear not! We have compiled a comprehensive glossary of the most essential real estate terms you need to know. Whether you're a first-time homebuyer or a seasoned investor, this guide will help you navigate the world of real estate with confidence.
General Real Estate Terms
As-is
When a property is marketed "as-is," it means that the seller is unwilling to perform any repairs or improvements. It could also indicate that the property is priced lower than market value due to its condition. However, if any changes occur to the property between the offer and closing, the seller may be responsible for restoring it to its original condition.
Buyer's agent/listing agent
A buyer's agent, also known as a selling agent, represents the buyer's interests in a real estate transaction. They help find suitable properties, negotiate offers, and guide the buyer through the buying process. On the other hand, a listing agent, also known as the seller's agent, represents the seller and assists with marketing the property, negotiating offers, and ensuring a smooth sale.
Closing
Closing is the final step in a real estate transaction, where all legal and financial obligations are fulfilled, and ownership of the property is transferred from the seller to the buyer. This typically involves signing various documents, paying closing costs, and recording the deed with the appropriate authorities.
Closing costs
Closing costs are fees and expenses associated with the purchase or sale of a property that are paid at the closing. These costs can include lender fees, title insurance, escrow fees, appraisal fees, and more. It is important for buyers and sellers to budget for these costs, as they can add up to a significant amount.
Days on market (DOM)
Days on market (DOM) refers to the number of days a property has been listed for sale on the market. This metric is often used to gauge the health of the real estate market and the demand for properties. A high DOM may indicate a slower market, while a low DOM suggests a more active market.
Due diligence
Due diligence is the process of conducting a thorough investigation and analysis of a property before completing a real estate transaction. This may involve inspections, reviewing property records, researching zoning regulations, and assessing the property's condition. Due diligence allows buyers to make informed decisions and identify any potential issues or risks.
Escrow holder
An escrow holder is a neutral third party, typically a title company or an attorney, who holds funds and documents on behalf of the buyer and seller during a real estate transaction. The escrow holder ensures that all terms and conditions of the purchase agreement are met before releasing the funds and transferring ownership of the property.
Homeowner's association (HOA)
A homeowner's association (HOA) is an organization that manages and governs a community or condominium complex. HOAs establish rules, regulations, and fees for property owners within their jurisdiction. These fees typically cover the maintenance and upkeep of common areas and amenities.
iBuyer
An iBuyer is a company that uses technology and data analysis to make instant offers on homes. These companies often purchase homes directly from sellers, allowing for a quick and streamlined selling process. iBuyers offer convenience and speed, but sellers may receive lower offers compared to the traditional market.
Multiple listing service (MLS)
A multiple listing service (MLS) is a database used by real estate agents and brokers to share information about properties for sale. It allows agents to access comprehensive property listings and share them with potential buyers. The MLS is a valuable tool for both buyers and sellers, as it provides a centralized platform for property information.
REALTOR (C)
A REALTOR is a licensed real estate professional who is a member of the National Association of REALTORS (NAR). REALTORS adhere to a strict code of ethics and professional standards, providing a higher level of service and expertise to their clients. Working with a REALTOR can ensure that you receive knowledgeable and ethical representation throughout the real estate process.
Listing & Property Info
Conventional sale
A conventional sale occurs when a property is sold in the traditional manner, without any special circumstances or financing arrangements. In a conventional sale, the seller typically owns the property outright or owes less on their mortgage than the market value of the property.
Land lease
A land lease refers to a situation where the land on which a property is located is leased rather than owned. The property owner pays rent to the landowner for the use of the land. Land leases are common in certain areas where land ownership is restricted or expensive.
Probate sale
A probate sale occurs when a property is being sold as part of the probate process, which is the legal process of settling the estate of a deceased person. In a probate sale, the property is typically sold by the executor or administrator of the estate, with court approval. These sales can be more complex and time-consuming than traditional sales.
Real-estate owned (REO)
Real-estate owned (REO) properties are properties that have been foreclosed on by the lender and are now owned by the bank or mortgage company. These properties are typically sold "as-is" and can often be purchased at below-market prices. However, financing options for REO properties may be limited.
Rent back
A rent back, also known as a leaseback, occurs when the buyer of a property allows the seller to remain in the property for a period of time after the sale has been completed. This arrangement can provide flexibility for the seller, who may need additional time to find a new home or complete their relocation.
Subject to inspection
A subject to inspection clause allows a buyer to make an offer on a property contingent upon the satisfactory completion of a home inspection. This clause gives the buyer the right to back out of the purchase if significant issues are found during the inspection. It is a common protection for buyers during the due diligence period.
Short sale
A short sale occurs when a property is sold for less than the outstanding mortgage balance. In a short sale, the lender agrees to accept less than what is owed on the mortgage as full payment. Short sales can be complex and time-consuming, as they require the approval of the lender.
Trust sale
A trust sale takes place when a property is being sold by a trustee of a living trust. This often occurs when the original homeowner has passed away or has placed their assets in a living trust. The trustee is responsible for managing the sale of the property and distributing the proceeds according to the terms of the trust.
Tenancy in common (TIC)
Tenancy in common is a form of joint ownership where two or more individuals own a property together. Each owner has a distinct and separate share of the property, which can be unequal. Unlike other forms of joint ownership, such as joint tenancy, tenants in common do not have the right of survivorship.
Financial & Documentation
Adjustable rate mortgage (ARM)
An adjustable rate mortgage (ARM) is a type of mortgage loan where the interest rate can change over time. The initial interest rate is typically fixed for a certain period, after which it adjusts periodically based on a specific index, such as the London Interbank Offered Rate (LIBOR). ARMs offer the potential for lower interest rates initially but can be riskier as the rates can increase in the future.
Debt-to-income ratio
The debt-to-income (DTI) ratio is a financial metric used by lenders to assess a borrower's ability to repay a loan. It is calculated by dividing the borrower's total monthly debt payments by their gross monthly income and multiplying by 100. Lenders use this ratio to determine the borrower's creditworthiness and affordability.
Earnest money deposit (EMD)
An earnest money deposit (EMD), also known as a good faith deposit, is a sum of money paid by the buyer to the seller as a sign of their commitment to the purchase. The EMD is typically held in an escrow account and is applied towards the buyer's down payment or closing costs at the time of closing.
Equity
Equity refers to the difference between the market value of a property and the outstanding mortgage balance. It represents the homeowner's ownership interest in the property. As the homeowner pays down their mortgage and the property appreciates in value, their equity increases. Equity can be used as collateral for loans or accessed through a home equity loan or line of credit.
FHA loan
An FHA loan is a mortgage loan insured by the Federal Housing Administration (FHA). These loans are popular among first-time homebuyers and individuals with lower credit scores or smaller down payments. FHA loans offer more flexible qualification requirements and lower down payment options compared to conventional loans.
FHA 203k rehab loan
The FHA 203k rehab loan is a type of FHA loan that allows borrowers to finance both the purchase of a property and the cost of renovations or repairs. This loan is designed for buyers who want to purchase a property in need of significant improvements. The loan amount is based on the projected value of the property after the renovations are completed.
Fixed rate mortgage
A fixed rate mortgage is a type of mortgage loan where the interest rate remains constant for the duration of the loan term. This means that the monthly mortgage payments remain the same, providing borrowers with stability and predictability. Fixed rate mortgages are popular among homeowners who prefer a consistent payment schedule.
Hard money loan
A hard money loan is a type of short-term financing that is typically used by real estate investors or individuals with poor credit. Hard money loans are secured by the value of the property rather than the borrower's creditworthiness. These loans often have higher interest rates and shorter repayment terms compared to traditional loans.
Mortgage pre-approval letter
A mortgage pre-approval letter is an official document issued by a lender that states the borrower's eligibility for a mortgage loan. Pre-approval is based on a thorough review of the borrower's financial information, including credit history, income, and assets. Sellers often require a pre-approval letter with an offer to ensure that the buyer is qualified to secure financing.
Natural hazards disclosure (NHD) report
A natural hazards disclosure (NHD) report is a document that provides information about the potential hazards in the vicinity of a property. This report is typically prepared by a third-party company and includes details about flood zones, fire hazard areas, earthquake fault zones, and other relevant information. The NHD report is an essential part of the due diligence process for buyers.
Pre-qualification
Pre-qualification is an informal assessment of a borrower's financial situation to determine their potential eligibility for a mortgage loan. Pre-qualification is based on the borrower's self-reported financial information and does not require a thorough verification process. It provides buyers with an estimate of how much they may be able to borrow, but it is not a guarantee of loan approval.
Offers & Contingencies
Appraisal
An appraisal is a professional assessment of the value of a property conducted by a licensed appraiser. Appraisals are typically ordered by the lender to ensure that the property's value is sufficient to support the loan amount. Appraisals consider factors such as the property's condition, location, and comparable sales in the area.
Appraisal contingency
An appraisal contingency is a provision in a purchase agreement that allows the buyer to cancel the contract or renegotiate the purchase price if the appraised value of the property is lower than the agreed-upon sale price. This contingency provides protection for the buyer in case the property is overvalued.
Backup offer
A backup offer is an offer made by a buyer for a property that is already under contract with another buyer. If the first transaction falls through, the backup offer becomes active and can move forward. Submitting a backup offer can give a buyer the opportunity to secure a property if the initial deal falls through.
Blind offer
A blind offer is an offer made by a buyer on a property without having seen it in person. This strategy is often employed in competitive markets where properties sell quickly. Buyers may submit blind offers to be the first in line and increase their chances of securing the property.
Home sale contingency
A home sale contingency is a provision in a purchase agreement that allows the buyer to back out of the contract if they are unable to sell their current home within a specified time frame. This contingency provides buyers with flexibility and peace of mind when they need to sell their existing home before purchasing a new one.
Inspection contingency
An inspection contingency allows the buyer to conduct a professional inspection of the property and negotiate repairs or credits based on the inspection findings. If significant issues are uncovered during the inspection, the buyer can request repairs or terminate the contract. This contingency protects the buyer from purchasing a property with undisclosed or hidden defects.
Inspection
An inspection is a thorough examination of a property's condition conducted by a licensed home inspector. Inspections typically cover structural elements, electrical systems, plumbing, HVAC systems, and other components of the property. Inspections provide buyers with an objective assessment of the property's condition and help identify any potential issues.
Loan contingency
A loan contingency is a provision in a purchase agreement that allows the buyer to cancel the contract if they are unable to obtain financing on acceptable terms. This contingency protects the buyer in case their loan application is denied or if they are unable to secure a loan with satisfactory terms.
Offer/counter offer
An offer is a formal proposal made by the buyer to the seller to purchase a property at a specified price and under certain conditions. The seller can either accept the offer, reject it, or make a counter offer with revised terms. Negotiating offers and counter offers is a common practice in real estate transactions.
Option period
An option period, often seen in Texas, is a specified period of time during which the buyer has the right to terminate the contract for any reason. The buyer typically pays a fee for this option, which grants them the opportunity to conduct inspections and other due diligence during this timeframe.
Seller concession
A seller concession, also known as a seller contribution, is when the seller agrees to pay a portion of the buyer's closing costs. Seller concessions can help buyers reduce their out-of-pocket expenses when purchasing a property. The amount of the concession is typically negotiated as part of the purchase agreement.
Title Search
A title search is an examination of public records to determine the ownership history and any potential liens or encumbrances on a property. Title searches are typically conducted by a title company or an attorney to ensure that the seller has clear and marketable title to the property. Buyers often require title insurance to protect their interests.
Conclusion
Understanding real estate terminology is essential for navigating the buying and selling process with confidence. This comprehensive glossary provides definitions and explanations for the most important real estate terms you need to know. Whether you're a first-time homebuyer or an experienced investor, this guide will help you decipher the complex language of the property market. Remember, knowledge is power when it comes to real estate, so arm yourself with the right vocabulary and make informed decisions throughout your real estate journey.
This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.
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