Real Estate Terms That Home Buyers Should Know

Below you’ll find an extensive real estate vocabulary list to help you understand when talking to real estate agents, loan officers, sub-contractors, and other industry players.  Knowing real estate terms and vocabulary can be helpful when you’re buying your first home.

Real Estate Vocabulary List:

• Adjustable Rate Mortgage – a loan product with a mortgage rate that adjusts annually up or down depending on the market instead of remaining fixed or locked in like a fixed rate mortgage.
• Agent – A real estate agent is a person who works for a seller, buyer, or both during a real estate transaction.
• Amortization – a period in which a loan balance is gradually paid off from a mortgage payment that includes both principal and interest.
• Appraisal – The estimation of a property’s market value by a licensed appraiser to assist banks in making loans to home buyers.
• Appraiser – The person who visits a property, analyzes it, and determines its approximate value
• Appreciation – The annual increase in a property’s market value.
• Assessment – The value assigned to your home by a government tax assessor, which is used to calculate property taxes.
• Buyer’s Agent – a realtor who works specifically for the buyer, representing the buyer in the transaction.
• Capitalization Rate – A rate used to determine property value based on net income typically used for apartment buildings. Cap Rate is calculated by dividing net income before debt by current market value of the property. If the market cap rate for apartments in your city is 8% then your net income is 8% of the property’s value.
• Closing – This refers to the process where the deed of the property is formally transferred from the seller to the buyer.
• Closing Costs – the costs associated with completing a real estate transaction such as commissions, inspection fees, title work fees, taxes, and more.
• Commercial – A zoning classification for property that refers to property used for business activities such as retail stores, farms, offices, etc.
• Comparable Market Analysis – An evaluation of similar, recently sold homes (called comparables) that are near a home intended to be bought or sold. It establishes a price estimate based on current market activity that can be used as a guide for pricing a home. Buyers, sellers, and real estate agents perform a CMA when they are preparing to buy or sell a home.
• Comparables (Comps, Sales Comps) – The prices of houses that have recently sold with similar characteristics to the house you are currently valuing.
• Construction Loan – a type of loan that covers the construction cost of a new home being built by a builder
• Contingencies – Clauses in a contract that allow a buyer to not be forced to purchase a property if certain conditions are unsatisfactory either structurally or financially.
• Counter Offer – when a seller sends back a new or adjusted offer that differs from the original offer sent by the buyer.
• Deed – The legal document that determines who has ownership of a property. This is the document transferred from seller to buyer at closing.
• Default – Failing to make loan repayments by the required deadline. Defaulting can lead to foreclosure where the lender takes back the property since the owner cannot make payments on time.
• Down Payment – The amount of money paid upfront for the property. Some lenders have a down payment requirement that has to be met such as 20% of the purchase price for example.
• Dual Agency – When a real estate agent represents the seller and the buyer in the same transaction
• Earnest Money – The sum of money that is submitted with an offer as an add-on to prove the buyer is serious and not wasting either party’s time.
• Equity – The financial value above what is owed on the property. As a loan is paid off equity is built so when the property is sold all proceeds pay off the remaining loan balance and the left over money is equity that goes in the owner’s pocket.
• Escrow – A neutral third party or attorney that handles the exchange of money and documents between a buyer and seller once a mutual offer has been accepted and the parties move to closing.
• Fixed Rate Mortgage – an interest rate that stays constant over the entire life of the loan.
• Foreclosure – A property that defaulted on loan payments and failed to make them up over the course of the foreclosure process ultimately leading the bank to reclaim the property from the owner.
• For Sale By Agent – A property listed for sale by a real estate agent. Upon selling, the agent receives a percentage commission for their services.
• For Sale By Owner (FSBO) – A property listed for sale by the owner. This method saves the seller costs associated with hiring a real estate agent but has its positives and negatives as well.
• Homeowner’s Association (HOA) – A group that manages a shared housing complex such as apartments or condominiums. The HOA board enforces community rules for the tenants to follow since they all share the complex.
• Homeowner’s Association Fees (HOA Fees) – Fees paid by tenants to the Homeowner’s Association to cover building repairs and operating expenses.
• Homeowner’s Insurance – Protection from damages to the home and liability protection from accidents that may occur at the owner’s property.
• Home Warranty – a warranty that protects the buyer/seller in case the home has defects and items need serviced or replaced like plumbing, heating, and other fixtures of the property that can be expensive to fix.
• Inspection – A thorough inspection of a home by a licensed inspector to discover any issues or repairs that need to be made before buying the home.
• Interest – the cost of borrowing money. It is the money owed in addition to the loan amount being paid back.
• Loan – Borrowing money from another person or institution to pay for the property.
• Lien – a right to keep possession of property belonging to another person until a debt owed by that person is discharged.
• Listing – A term for the property, or land being put up for sale for others to see.
• Listing Agent – a real estate agent who works with the property owner to list their property for sale on the market.
• Mortgage – the charging of real (or personal) property by a debtor to a creditor as security for a debt (especially one incurred by the purchase of the property), on the condition that it shall be returned on payment of the debt within a certain period.
• Mortgage Broker – the company or person who helps a home buyer qualify for a loan and handles all aspects of getting the loan creating / lending in place for the borrower.
• Multi-Family – A type of home or building with multiple units owned by one or more parties such as an apartment complex or condominium complex.
• Multiple Listing Service – The MLS is a local or regional service that compiles available real estate for sale by member brokers along with detailed information brokers and agents can access online.
• Net Income – The amount of income left over after operating expenses have been subtracted from revenues. Some people use net income as income before debt is subtracted while others subtract debt as an expense and then come up with the final net income.
• Offer – the price that a buyer offers to the seller to purchase their property as well as any special terms the buyer requires as part of their offer to the seller.
• Pre-Approval Letter – a document buyers should obtain from a lender that provides proof they can afford to buy a home up to a certain amount so agents/sellers do not feel like they are being tricked or time wasted.
• Principal – The amount borrowed for a mortgage loan. Monthly mortgage payments include both the repayment of the principal and interest owed.
• Private Mortgage Insurance – a monthly payment added to the mortgage payment when a buyer has less than 20% as a down payment on the property. It protects the lender (insurance) in case the buyer defaults on the loan.
• Property Tax – An annual or semi-annual tax paid to one or more government agencies based on the property value assessment.
• Real Estate Broker – A real estate agent who is licensed by the state to represent a buyer or seller in a real estate transaction. A real estate broker gets paid a commission. Most real estate brokers also have agents working for them. Licensing for a broker and an agent are different in case you are confused.
• Real Estate Owned (REO) Properties – If a foreclosed property is not sold off during the foreclosure auction, the bank will take ownership of the real estate. This bank owned property is known as a real estate owned property.
• Real Estate Purchase/Sale Agreement – A legal document that obligates a buyer to buy and a seller to sell. This contract between a buyer and seller details the property being sold, contingencies, purchase price, and more.
• Refinance – getting a new loan from the lender with better terms such as a lower interest rate or a lower monthly payment. When home values rise, owners can pull out equity (cash), known as a cash out refinance.
• Residential – used as a residence or by residents. It’s a term for how property is zoned by the local zoning board in a city.
• Seller’s Agent – also known as a listing agent, the seller’s agent works for the seller to help them list their home on the market and get it sold to a buyer.
• Single Family – A single independent property that is used by a single family for living such as a house. In simple terms, the property is used by one family only.
• Title – A legal document listing the history of ownership of the home. Buyers get a preliminary title report from an escrow agent or attorney within a week after they reach mutual acceptance on an offer.
• Title Insurance – Title insurance protects against losses resulting from problems with the title.
• Zoning – Laws that govern how a real estate can be used. Properties can be zoned for residential, commercial or industrial usage or a combination of two or more uses.
• 1031 Deferral – IRC Section 1031 states that a properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. Simply stated, you can sell your property for a profit and transfer all that money into a new property without paying capital gains tax if done properly.