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GLOSSARY OF REAL ESTATE TERMS

Active

 

This means that a property is currently on the market and available for sale. It may have received offers, but none has yet been accepted, which means that the opportunity is wide open for you to make an offer.

 

Adjustable-rate mortgage (ARM)

 

With ARM loans, interest rates can change after an initial fixed rate period as they adjust based on the interest rate index the ARM is tied to (e.g., LIBOR, COFI, etc.). This loan type is less predictable than a traditional fixed-rate mortgage, but it can potentially yield lower interest rates during certain periods.

 

Appraisal

 

An appraisal is required to gather the estimated value of a piece of real estate. During the home sale, the mortgage lender sends out an appraiser to get a professional opinion of the value of the property. This helps the lender decide if the property is worth the amount of the loan the potential buyer is seeking.

 

Appraisal contingency

 

An appraisal contingency is a clause that allows a buyer to dissolve a purchase agreement if a home’s appraised value is less than the sale price. An appraiser hired by the buyer’s lender evaluates the value of the home to ensure that the loan is secured by an appropriate home value. Lenders want to ensure they are not “over-paying” for a property.

 

As-Is

 

A property marketed in “as is” condition usually indicates that the seller is unwilling to perform most if not all repairs. It could also mean that it is priced “as is”, which is typically lower than market pricing in the area.

 

Back on market

 

A property that has come back on the market after a pending sale has fallen through.

 

Backup offer

 

When a buyer is interested in purchasing a property that is already under contract with someone else, that buyer has an opportunity to submit a “backup offer” in case the first transaction falls through.

 

Blind offer

 

When a buyer makes an offer on a property they haven’t seen, even when it was possible to see it, that offer is considered a “blind offer”. It is most commonly used in a highly competitive area and/or circumstance, and used as an attempt to be first and win quickly.

 

Buyer’s agent

 

A buyer’s agent, also known as a selling agent, is a licensed real estate professional whose job is to locate a buyer’s next property, represent their interests by negotiating on behalf of that buyer to obtain the best price and purchasing scenario for that buyer as possible. This agent is a fiduciary for the buyer.

 

Comparative market analysis (CMA)

 

A CMA is a report that shows prices of homes comparable to a subject home that were recently sold. The sold prices, known as comps, can help homeowners determine how much their home is worth in the current market.

 

Closed

 

The property is sold and is no longer available.

 

Closing

 

Closing is when the home sale is considered final, which typically includes all parties’ signatures on all required documents, all monies conveyed, and, when a lender is involved, with full lender’s approval. In some areas, recording the deed with the county clerk’s office is the ultimate and final step of closing.

 

Closing costs

 

Closing costs are an assortment of fees, including fees charged by a lender, the title company, attorneys, insurance companies, taxing authorities, homeowner’s associations, real estate agents, and other closing settlement related companies. These closing costs are typically paid at the time of closing a real estate transaction.

 

Contingency

 

A provision of an agreement that keeps the agreement from being fully legally binding until a certain condition is met. One example is a buyer’s contractual right to obtain a professional home inspection before purchasing the home.

 

Contingent

 

A contingent status means that the seller has accepted an offer, and the home is under contract, but the sale is conditional upon certain criteria being met by the buyer and/or seller before the deal can close. Examples of contingencies are home inspections, attorney review, buyer financing, appraisal, and title search, among other reasons.

 

Conventional loan

 

A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs).

 

Debt-to-income ratio

 

Debt-to-income, or DTI, ratio is a number used by mortgage lenders which is determined by the total of your debt expenses, plus your monthly housing payment, divided by your gross monthly income, and multiplied by 100. This helps lenders determine affordability based off of their available loan programs, and allows them to estimate how much you can afford to pay monthly for a mortgage.

 

Down payment

 

The lump sum in cash that you can afford to pay at the time of purchase. Traditionally, down payments are 20% of the purchase price. It is possible to put less than 20% down, but mortgage insurance may then be required.

 

Earnest money deposit (EMD)

 

An earnest money deposit (EMD), sometimes referred to a “good faith deposit”, is the initial funds that a buyer is asked to put down once a seller accepts the buyer’s offer. It shows not only that the buyer is serious about buying, but that they are also willing to put their money where their mouth is.

 

Escrow agent

 

The escrow agent is the third-party who collects the money, written instruments, documents, personal property, or other things of value to be held until the happening of specified events or the performance of described conditions, usually set forth in mutual, written instructions from the parties.

 

Equity

 

This is the investment a homeowner has in their home. To calculate equity, take the market value of the home and subtract any mortgages or liens against the property. The amount leftover is the amount of equity you have in the home.

 

FHA loans

 

FHA loans are part of a group of loans that are insured by the federal government. This means that instead of actually lending money, the FHA insures banks and private lenders that they will cover losses they might incur in the event that the borrower does not repay the loan in full or timely.

 

FHA 203k rehab loan

 

This is a “fixer-upper” or “rehab” loan, which combines the mortgage loan with a loan to help pay for repairs or updates, such as structural repairs, or energy-related updates. It is not intended to lend based off of luxury upgrades such as adding a swimming pool or tennis courts.

 

Fixed rate mortgage

 

With fixed rate mortgages, your interest rate stays the same for the duration of the loan. They are often available as 10, 15, 20 & 30-year terms. The 15 and 30-year loans are by far the most popular type of home loans, accounting for about 75% of all U.S. residential mortgages.

 

Fixture

 

Anything of value that is permanently attached to or a part of real property. Fixtures include wall-to-wall carpeting, light fixtures, window coverings and landscaping.

 

FSBO

 

For sale by owner.

 

Full bath

 

A bathroom with a toilet, a sink, and a bathtub.

Half bath

 

A bathroom that only has a toilet and a sink.

 

Hard money loan

 

Hard money loans are a way to borrow without using traditional lenders. Hard money lenders finance the loan based on the property in question, not on your credit score, and typically require higher interest rates, a large down payment, and a short repayment schedule.

 

Home sale contingency

 

A home sale contingency is for a buyer to indicate to a seller that part of their condition to purchase the seller’s property relies on the buyer’s ability to finalize a close on their current property.

 

Homeowner’s association (HOA)

 

A homeowner’s association is a private association that manages a planned community or condominium. When you purchase a property that is managed by an HOA, you agree to abide by the HOA’s rules and pay its monthly or annually HOA dues.

 

Inspection

 

An inspection happens when buyers pay a licensed professional inspector to visit the home and prepare a report on its condition and any needed repairs. The inspection often happens as part of the due diligence period, so buyers can fully assess if they want to buy a particular home as is, or ask the seller to either complete or pay for certain repairs.

 

Interest

 

The monthly interest fees charged on a loan used to purchase property.

 

Listing

 

An agreement between a real estate broker and a home owner that allows the broker to market and arrange for the sale of the owner’s home. The word “listing” is also used to refer to the for-sale home itself.

 

Listing agent

 

The listing agent, also known as the seller’s agent, is a licensed real estate professional whose job is to market the seller’s property and to represent the seller’s best interest by negotiating on behalf of the seller to secure the best price and selling scenario possible. This agent is a fiduciary for the seller.

 

Loan contingency

 

A loan contingency is a clause or addendum (also known as a mortgage contingency) in an offer contract that allows a buyer to back out of a deal and keep their deposit if they are unable to secure a mortgage with specified terms during a fixed period of time.

 

Lock box

 

Locked key-holding device affixed to a for-sale home so real estate professionals can gain entry into the home after obtaining permission from the listing agent.

 

Multiple listing service (MLS)

 

An MLS is a database that allows real estate agent and broker members to access and add information about properties for sale in an area.

 

Pending, showing for backup

 

This means the property’s owners are actively taking backup offers in case the first one falls through.

 

Points

 

Points, also known as discount points, are purchased by a buyer from their lender to reduce their interest rate. One point typically costs 1% of your loan.

 

Pre-approval letter

 

A mortgage pre-approval letter is issued by the lender and identifies the terms, loan type and loan amount the buyer qualifies for after checking the buyer’s debt-to-income ratios along with cash on hand and credit history.

 

Pre-qualification

 

A pre-qualification is a lender’ estimate of the amount a home buyer can expect to be approved for during the loan process. Getting pre-qualified is a quick assessment by a lender of the buyer’s financial situation based solely off of what a buyer tells a lender, and not based with any proof or verifications.

 

Principal

 

The principal balance of a mortgage loan is the amount of money owed to the lender, not including interest.

 

Proof of funds

 

Documentation or proof that a buyer has sufficient cash to cover required expenses related to a real estate transaction.

 

Purchase and sale agreement (PSA)

 

A purchase and sale agreement is commonly referred to a written contract between the buyer and seller, which outlines the terms of the parties to sell and purchase real property. When a home is “under contract” it usually signifies that the Buyer and Seller have formalized their commitment to sell and purchase the real property.

 

Rate lock

 

An option to lock in an agreed-upon rate for a certain period, to protect you from short-term fluctuations in the mortgage market. A rate lock will remain in effect until closing, but only if you close by an agreed-upon deadline, typically 60 days.

 

Real estate agent

 

Anyone who earns a real estate license can be called a real estate agent.

 

Real estate associate broker

 

Someone who has taken additional education classes and earned a broker’s license but chooses to work under the management of another broker.

 

Real estate broker

 

A person who has taken education beyond the agent level as required by state laws and has passed a broker’s license exam. Brokers can work alone or they can hire agents to work for them.

 

Real estate salesperson

 

Another name for a real estate agent.

 

Real-estate owned (REO)

 

Real-estate owned is a designation given to properties which are owned by a lender due to an unsuccessful foreclosure sale at auction.

 

REALTOR®

 

An actively licensed real estate agent and REALTOR® are often used interchangeably, although not every real estate agent is a REALTOR®. A REALTOR® is a member of the National Association of REALTORS® (NAR).

 

Rent-back

 

Rent-back, or leaseback, refers to an arrangement whereby the buyer, who is now the new homeowner, agrees to allow the seller, the now-tenant, to stay in the house beyond the close of escrow. The terms are negotiated prior to the situation occurring and will often involve a lease deposit, a daily rental rate, and a length of time allowable.

 

Seller concession

 

Sellers may offer concessions to incentivize buyers to purchase the home, or sweeten the deal.

Concessions are most readily seen as a contribution towards the buyer’s closing costs, up to certain limitations and approvals by a buyer’s lender.

 

Short sale

 

In a short sale, the property is being sold for less than the debt secured by the property. Short sales will require the approval of the seller’s lender(s) as the proceeds of the sale will be “short” of the amount owed. Most lenders’ processes of approving short sales are long and drawn out, requiring more time to close than a traditional sale.

 

Termite report

 

Termites are small, pale, soft-bodied insects that feed on wood, and can be highly destructive. The WDI (wood-destroying insect) report, also known as the Termite Report, includes a diagram of the property and the location of active and/or previous WDI activity.

 

Title insurance

 

An insurance policy that protects a lender’s or owner’s interest in real property from assorted types of unexpected or fraudulent claims of ownership. It’s customary for the buyer to pay for the lender’s title insurance policy.

 

Title search

 

A title search examines public records for the history of the home, including sales, purchases, and tax and other types of liens. Generally, a title examiner will conduct a search using title plants, and sometimes the county records, to see who is listed as the record owner of the property. Such information, along with any liens or encumbrances that are recorded against the property, will be listed in the Preliminary Report for the parties to review prior to the close of escrow.

 

Under contract

 

The seller has an agreed-upon contract with a potential buyer.

 

VA loan

 

A VA loan is a loan guaranteed by the Department of Veteran Affairs and available to the military, active and retired, and even for some eligible spouses, at low-to-no down payment scenarios with competitive rates and fees.

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