Real Estate is a complex industry that utilizes hundreds of real estate terms, acronyms, and lingo. There’s various terms used throughout the real estate field. Additionally, some terms utilized by realtors, investors, mortgage companies, or anyone who participates in real estate. In this blog post, we’ll explain common real estate terms and definitions. Therefore, our readers become well-prepared to succeed in the real estate industry regardless of their job description.
Real Estate Terms and Definitions
In real estate, there are common terms that are used by individuals who participate. Additionally, there are terms and acronyms dedicated to one particular portion of the real estate field. Any agent should learn the real estate terms and lingo to pass their real estate exam and best assist their clients. In addition, to be a successful investor, it’s appropriate to understand what these real estate terms mean and how to properly utilize each phrase.
Real Estate Terms for Sellers Agents
As a seller’s agent, there are real estate terms used when listing a house on the market. Additionally, there are terms utilized when negotiating an offer and the process to close on the deal.
- As-Is: The seller is listing the property in its current condition. Therefore, the seller will not make any repairs, and the buyer will purchase the home as-is.
- OBO: When an agent lists the property, to draw more attention to the listing, they may use the phrase OBO or best offer, which means the seller is considering offers below the asking price.
- Under Contract and Sales Pending: Under contract means offer accepted, working on the contingencies. While “sale pending” states all contingencies are met, and it’s close to the final steps.
- MLS: MLS is an acronym used for “Multiple Listing Services,” an online platform used by agents to list properties and discover listed homes for their buyers. Agents pay a monthly fee to use the MLS.
- CMA: Comparative Market Analysis, a report that helps agents determine the value of a home based on recently sold comps. Based on homes with similar features, sold within 180 days, also within a quarter mile up to a half mile radius.
- FMV: Fair Market Value, what the house may sell for in the current market. Similar to CMA, although the value of the FMV may be lower than the comps.
- Seller’s Disclosure: A legal document where the seller states all the home defects they’re aware of in the house.
- Counter Offer: When a buyer submits an offer, the seller may counter the contract terms or the requested sales price.
- DOM: Days on market, the number of days a property is active on the market.
- Sellers Concession: Usually a way to benefit the buyer. Often offsetting or decreasing the buyer’s closing costs or other expenses.
Common Real Estate Terms for Buyers Agent
- Inspections: When an offer’s accepted, one of the next steps will be hiring a home inspector to ensure the home’s livable and any defects identified and, at times, addressed.
- Home Appraisal: One of the steps in buying property on the market is completing a home appraisal, that a mortgage lender knows the true value of the home when issuing a loan.
- EMD: An acronym EMD stands for earnest money deposit. When your offer’s accepted, you need to place a deposit with the title company or sellers brokerage. The EMD is typically between 1-3% of the sales price, although 5% placed down to show how serious the buyer is about purchasing the property.
- Closing Costs: The fees and expenses owed at closing. Both sellers and buyers are responsible for their portion of closing fees, although at times the buyer covers the entire amount.
- Down Payment: When buying property, the sale requires a portion of the money down to get the process started. A down payment’s usually 20%, although with a first-time home buyer it requires only 3% down.
- Title Insurance: A way of protecting buyers and lenders from previous debt or liens owed by the prior owner.
- Escalation Clause: When submitting an offer, you can attach an escalation clause which can raise your offer price to beat out the next best offer. A great way to win a deal without drastically overpaying, since the clause can be in any money increments.
- First time home buyer: An individual who has never purchased property before. These buyers are subjected to lower downpayments. Furthermore, potential for fixed interest rates and tax benefits.
- Walk-through: One of the final steps in buying property. You’ll conduct the walk-through to make sure there’s no squatters and the homes are in the same condition as when contracted.
Terms to know for Investors
- ROI: Return on Investment measures the profitability of a real estate investment, comparing total profit to overall investment costs.
- ARV: The acronym ARV stands for “after-repair value,” essentially the value of the property after renovations and repairs.
- Fix-and-flip: A concept used by investors. Furthermore, the investor will purchase a property, make necessary updates or repairs, and then sell the home for profit. One of the best ways to make substantial money in a few months process. However, it comes with many risks if not experienced or has unseen obstacles.
- Cash Offer: Investors tend to submit all-cash offers, which means they skip utilizing a mortgage company or lender with many fewer stipulations. Cash offers allow for a quicker closing process, fewer contract contigencies, the ability to waive inspections, and sell the house as-is.
- Cap Rate: A metric and real estate terms used to estimate an investor’s rate of return. On average, investors aim for 10% cap rate. A cap rate is determined by dividing the net operating income by the market value.
- Wholesaler: A person who works as the middleman between the home seller and investor. A wholesaler reassigns the rights to the property for a flat fee.
- Landlord: An individual who owns a property and rents it out to tenants for investment purposes.
- Housing Hacking: A concept of purchasing a multi-unit home, living in one unit, and renting out the others. An excellent way to minimize the cost of living expenses while keeping a close eye on your rental property.
- Property Manager: An individual or company who oversees a rental home. Handling the everyday tasks; placing a tenant, collecting rent, and handling any concerns.
Mortgage Terms to Understand
- Mortgage Interest Rates: When receiving a mortgage, the lender or mortgage company needs to get paid. The mortgage company charges a percentage known as the interest rate. Therefore, these rates are usually between 5%-7% of the loan amount. Although it depends upon multiple factors such as market conditions, credit score, and down payment.
- Foreclosure: The concept of falling behind on your mortgage or taxes, which leads to the person losing the property.
- LTV “Loan to Value”: Tells how much of a property’s value is currently being financed by a loan. Lenders use this tool to assess the risk and to figure out the loan terms.
- Debt-to-Income Ratio: Comparing your monthly debt to your monthly gross income. Lenders want your income to be at least three times your monthly living expenses.
- Home Equity Line of Credit: An additional loan that allows homeowners to borrow money by utilizing the equity built up in the home over time. Usually used for home improvements, paying off debt, & purchasing another property, including a rental home.
- Pre-approval: Before searching for a house to buy, you want to know the loan amount you can receive. That way, you know your budget and can eliminate housing options that exceed your budget.
- Refinance: When a homeowner refinances, they replace their current mortgage with a new one. Usually, more favorable terms, like a lower interest rate, shorter loan term, or a way to cash out equity in the home.
Importance of Real Estate Terms to Know
Whether you’re a realtor, investor, homeowner, or property seller, it’s vital to know and understand the various real estate terms to have success. Agents are required to know these phrases and lingo to pass their exam and best serve their clients. In addition, investors must understand these real estate terms to continue participating in rentals and other investment opportunities.
If the time comes to buy or sell your home, you want an agent aware of every aspect of real estate for the best results. Real estate can be rewarding but also risky; the more knowledge you possess the more prepared you are to navigate real estate terms and the industry. Don’t be shy about requesting real estate professionals’ help or conducting your own research on real estate phrases and lingo!