Below are 33 common real estate terms to know for Real Estate Investing for beginners:
The listing is active and on the market in the MLS. Related terms are active contingent, which means the seller has accepted an offer and is awaiting the contingencies to clear, such as a mortgage, inspection, and appraisal.
The ARV means the average repair value of the home after renovation.
- Adjustable-Rate Mortgage
An adjustable-rate mortgage fluctuates based on the index rate.
The amortization schedule is a breakdown of the borrower’s mortgage payments over the lifetime of the mortgage-5, 10, 15, 20, 25, or 30 years.
It’s a report of the home’s estimated current market value. It is a requirement by the lender for any home loan.
- “As Is”
The seller is not willing to do any repairs.
- Blind Offer
When a buyer submits an offer to purchase without physically seeing the property, it is a sight-unseen offer.
- Cash flow
Cash flow is the revenue from a rental property. Net cash flow or NOI is the income after paying all taxes, repairs, professional services, and supplies.
- Cap rate
Capitalization rate (Cap Rate) is a formula to divide the NOI by the property value.
- Comparative Market Analysis (CMA)
CMA is a tool used by Real Estate Agents to compare similar properties to decide on a listing price or a purchase price for their clients.
Contingencies are clauses in the Real Estate Contract that specify actions that need to occur, such as a home inspection, mortgage approval, and appraisal.
- Counter Offer
A counteroffer is when a seller rejects the buyer’s offer and proposes one with different prices, terms, or contingencies.
A deed is a legal document that transfers ownership of property.
A seller in certain states may have to disclose the property’s condition and the existence or status of lead paint.
- Down Payment
A down payment is a percentage ( between 3.5% and 20%) to purchase the property. FHA loans require a lower down payment and most conventional loans require a 20% down payment.
Common Real Estate Terms (Cont’d)
- Earnest Money Deposit (EMD)
The EMD is an amount of money the buyer and seller agree to deposit in escrow until the purchase is complete. If the buyer defaults on the sale, the buyer may lose the EMD funds. A buyer can use contingencies in the deal to back out and receive the EMD back. An example of this is a 10-day inspection contingency.
An easement is the right to use someone’s property. For example, an easement is for a landlocked home, and the homeowner needs to walk a trail of the neighbor’s property to get to a road.
Equity is the home’s value after mortgages and liens that may exist.
- Escalation Clause
An escalation clause supplements the purchase price when there is a similar offer. For example, if the buyer’s offer is $100,000 and there is a similar offer for $100,000, the escalation clause will state the buyer’s offer increases by $5,000 with a maximum bid of $110,000. Real Estate Agents do not like this clause in general, but it is a great way to win a competitive offer.
Foreclosure is a legal process the bank initiates to obtain property ownership if the homeowner stops paying the mortgage for at least three consecutive months.
Interest is the cost of borrowing money.
A leaseback gives the seller more time to move by renting the house back from the new owner.
A lien on a home means the home is collateral. For example, a common lien is a mortgage.
- Multiple Listing Service (MLS)
The MLS is a detailed online listing of homes for sale in a particular market.
- Planned Unit Development (PUD)
A “PUD” is a subdivision that a homeowners association operates, and there will be required association dues for homeowners in the community.
- Real Estate Owned (REO)
An “REO” is a bank-owned property that went into foreclosure.
Refinancing means acquiring a new loan under a different term and paying off an existing loan.
Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an asset or compare the efficiency of several different investments. ROI tries to directly measure the amount of return on a particular investment relative to the https://www.investopedia.com/terms/r/returnoninvestment.aspinvestment’s cost.
- Seller Assistance
Seller assistance occurs when the seller gives the buyer a percentage of the purchase price towards closing cost. For an FHA loan, the maximum seller assist allowed by law is 6%. It is best to consult with the lender for the requirements for other loan products.
Settlement is the closing of the sales contract. It is the final step in the Real Estate Transaction.
- Short Sale
A short sale is when the property’s market value is less than what the homeowner owes on the property. The lender agrees to accept less upon an appraisal and lengthy approval process. Despite the name, a short sale is a long process and can take months to years for final approval.
- Title Insurance
A title insurance policy will assure that you are acquiring a property with free and clear title (no liens or judgments).
A walkthrough is when the Real Estate Agent takes the client on a walk through the home to confirm that any repairs requested are done and make sure the house was in the same condition when the client submitted the offer. A walkthrough should be done two times, with the final walkthrough an hour before settlement or closing.
In conclusion, above you have 33 common real estate terms that will help you understand the terminology when buying or selling a home. I hope to keep the glossary up to date and add on to the list as needed, so come back often.