Real Estate Terms And Definitions
Real estate terms include a wide variety of terms a home buyer will likely see and hear while house hunting – learn more about the essential terms and definitions to know about buying a house.
General Real Estate Terms
Home buyers may encounter general real estate terms like these when reading a listing.
As-Is
Buying a home as-is sounds just what it sounds like – buying a home in its current condition, without renovations, repairs or other brush-ups. You may not get a home in perfect condition, but the benefit is that you may get a less expensive home than other houses in the area.
Broker
A broker refers to an agent that has passed a broker license examination. Brokers can manage their own firm. Real estate brokers can hire real estate agents to work for them or they may work independently.
Homeowners Association (HOA)
A homeowners association (HOA) is a private organization that enforces rules and regulations for a residential community. An HOA protects common areas and maintains standards for planned neighborhoods, townhouses, condominiums and other neighborhoods.
HOAs charge residents monthly or yearly fees to cover the costs of upkeep of common areas such as swimming pools, tennis courts, clubhouses, elevators and other common areas.
Financial Real Estate Terms
Financing is a major part of real estate, and you’ll likely encounter a few of the following terms: amortization, balloon mortgage, cash-out refinance, debt-to-income ratio, default and home equity line of credit.
Amortization
Amortization is a fancy name for calculating the amount you pay toward interest and principal on your mortgage each month over the life of your loan.
Principal is the amount of money a borrower borrows from a mortgage lender and interest refers to the fee you pay your lender for borrowing. Interest rates vary depending on various factors, including your credentials and the prevailing market rates.
Balloon Mortgage
A balloon mortgage requires you to make a lump-sum payment on your loan at some point, usually at the end of the loan term.
Unlike a fixed-rate mortgage in which you make very equal payments over the life of the loan, you pay the remainder of your balance all at once in a balloon mortgage. You may pay just interest or a combination of interest and principal before you pay your principal balloon at the end of your loan term.
Cash-Out Refinance
A cash-out refinance is a type of refinancing method that allows you to borrow money in the equity you’ve built up in your house. Equity is the amount of your home that you own – not the amount you owe.
A cash-out refinance means you take out a new mortgage, larger than your current mortgage balance. You pay off your first mortgage and the difference between the two loans goes to you, the homeowner, to do what you wish.
Debt-To-Income Ratio (DTI)
Debt-to-income ratio compares your monthly debt and your gross monthly income. You can find your debt-to-income ratio (DTI) by adding up your minimum monthly debt payments (mortgage, credit card, personal loans, auto loans, student loans, child support, etc.) and dividing by the income you have coming into your home each month.
DTI is one of the qualifications lenders consider to determine whether to lend money to you (in addition to other credentials like income, credit score and more). DTI requirements vary by lender and mortgage type, with maximums ranging from 45% – 57%, or even higher on some government loans.
Default
A mortgage default means failing to uphold the terms defined in the promissory note or deed of trust when you get your mortgage. A default may occur when you are delinquent, or behind, on monthly mortgage payments.
Home Equity Line Of Credit (HELOC)
A home equity line of credit (HELOC), like a cash-out refinance, lets you borrow against the equity in your home. A HELOC is a type of second mortgage you can receive as a line of credit, similar to a credit card. A HELOC has two main periods: The draw and repayment periods.
During the draw period, you can withdraw from your account, and during the repayment period, you pay the loan back (with interest) monthly.
Offer And Contingency Terms
You’ll likely encounter offer and contingency terms among real estate listing terminology. Take a look at the types of terms you may find.
Addendum
An addendum, or a rider, goes on a purchase and sale agreement (PSA). A PSA document outlines this information after a buyer and seller agree on a real estate transaction price and terms.
Backup Offer
A backup offer allows a seller to have a second buyer lined up. If the first offer doesn’t go through, a seller could accept a buyer’s backup offer. Buyers often make an earnest money deposit – money deposited to show the seller they’re serious about buying the home if the first offer doesn’t go through. The earnest money goes into an escrow account, an independent account that a third party holds until closing.
Comparables
Comparables, often shortened to “comps,” compare bought and sold homes to other homes in the area. Comps help ensure that a home lists for the right sale price. Comparables come from recently sold homes in the area. Comps may have the same size, age, number of rooms and condition.
Contingency
A contingency refers to additional criteria that a property must meet before closing. A potential buyer has made an accepted offer, but contingencies must be met for the sale to go through.
Inspection
A home inspection means a home inspector evaluates the condition of a home and its systems – the HVAC, plumbing, electrical features and overall structure. A home inspection is not a required part of the home buying process, but it can help you identify any future problems you have with the home after you purchase it.
You may back out of the sale as the buyer if the inspection turns up too many problems.
Seller’s Disclosure
A seller’s disclosure allows sellers to reveal any “issues” with their property, such as a leaky basem*nt or a damaged roof. Seller’s disclosures don’t guarantee defects that won’t arise after the home sale.
A Seller’s Disclosure Form, also called a Property Disclosure Statement, looks different for every state. It showcases anything that might negatively affect a home’s value.
Real Estate Listing Terms
Next, let’s look at real estate listing terms you may see.
Conventional Sale
A conventional sale occurs when a property is owned and no longer has a mortgage on it, or the mortgage balance is less than the sales price. The seller pays off the entirety of the loan they used to buy the house or they bought the house with cash. Alternatives to conventional sales includes foreclosures, short sales and probate sales.
Days On Market (DOM)
Days on market (DOM) refers to the number of days a property has been on the market. If the house hasn’t been on the market long, it could be a highly sought-after property. If it has been on the market for a lengthy period, it signals that there aren’t many interested buyers and a price adjustment is needed.
Land Lease
A land lease refers to when a homeowner pays rent for the land. Land leases are common in mobile home parks, where residents get charged lot fees.
Multiple Listing Service (MLS)
A multiple listing service (MLS) online platform stores all the real estate listings in your area. The MLS also feeds listing information to consumer sites that you can use to search for properties. Real estate agents and brokers are the only ones who can access the websites, but they can send buyers and sellers a link to review.
Real Estate Owned (REO)
When someone fails to make their mortgage payments, the lender sometimes has to take the property through foreclosure. The bank then sells the home to recoup the money owed on the loan.
However, a real estate owned/distressed property refers to a property owned by a lender because of a failed foreclosure sale.
Tenancy In Common (TIC)
Tenancy in common (TIC) refers to joint ownership of a property in which two or more people share ownership rights of a property. Each co-owner may control an equal or unequal percentage of the total property. For example, you and your partner may each own 30% of a property but a family member might own 50%. In a TIC, ownership percentages vary but nobody can claim ownership of any specific part of a property.
Additional Real Estate Terms To Know
Do you know the definition of other real estate terms, like commission, easem*nt, house title, property taxes or right of egress?
Commission
Real estate agents charge commission, a fee routinely split between the buyer’s agent and the seller’s agent. Real estate commission depends on your location and the brokerage, but total agent commissions usually range between 5% – 6% of a home’s sale price.
Easem*nt
An easem*nt provides an individual or company access to a property for a particular reason. For example, a construction company may gain access to a garage being built on your property. A neighbor may get a private easem*nt to cross your property line to get to their own driveway.
Those who benefit from the easem*nt are called the “dominant estate” or “tenement” and those whose property rights are affected by the easem*nt are the “servient estate” or “tenement.”
House Title
A house title describes the rightful owner of a property representing the ownership and use of a residential property. It is not a physical object, but legal purchases of homes transfer titles to buyers. If you buy a home, you’ll also get the house title.
A glimpse into the title of a home may uncover liens, or a third party that has a legal claim on the property. For example, if the homeowner never finished paying for the construction of a driveway, a contractor may put a lien on the property as collateral to repay a debt. Before a property can sell, someone must take care of the lien.
Property taxes
Property taxes go toward government entities like schools, roads and even pay public safety workers. Each county in each state has its own taxes, and each homeowner pays taxes “assigned” by an elected or appointed official called an assessor.
Right Of Egress
A right of egress refers to the owner of the property owner’s right to exit the property. The property deed outlines egress points (and ingress points, which refers to the right to enter the property). These, like easem*nts, can be difficult to understand, so make sure you get the right information from your real estate agent.
