Buying or selling a home can be very exciting.
It can also be quite daunting, even in you’ve done it before, but even more so if you’re a first-time homebuyer.
You’ll encounter plenty of terms and jargon throughout the real estate process.
Familiarity with key terminology is paramount for both buyers and sellers.
Whether you’re navigating the complexities of purchasing a home or listing a property for sale, a solid grasp of these terms can empower you to make informed decisions and confidently engage in real estate transactions.
You’ll inevitably encounter words, terms and phrases that you’ve never heard before.
What do they all mean?
In this comprehensive guide, we’ll delve into essential real estate terms across various categories to equip you with the knowledge necessary to navigate the market with ease.
Our aim is to help you better understand the terms commonly used in the real estate and mortgage marketplace.
This is not an exhaustive list of real estate terms.
We’ve tried to stick to the terms you’re most likely to encounter throughout your home-buying or selling journey.
General Real Estate Terms:
Real Estate Agent:
A real estate agent is a licensed professional who facilitates real estate transactions between buyers and sellers. They act as intermediaries, representing either the buyer or the seller in negotiations and guiding them through the intricacies of the process.
A Realtor is a real estate agent who is a member of the National Association of Realtors (NAR), adhering to a strict code of ethics. While all Realtors are real estate agents, not all agents are Realtors.
Real Estate Commission:
The real estate commission is a fee paid to the real estate agent or broker for their services in facilitating a real estate transaction. It is typically 5-6% of the final sale price and is negotiated as part of the listing agreement. It is usually split between the buyer’s and seller’s agents and is paid by the seller at the time of closing.
Real Estate Broker:
A real estate broker is a licensed professional who has completed additional education beyond the agent level and has passed a broker’s license exam. Brokers can work independently or hire agents to work for them.
FSBO stands for “For Sale By Owner,” referring to a property that is being sold directly by the owner without the representation of a real estate agent or broker. While FSBO transactions can save on commission fees, they often require the owner to take on additional responsibilities and risks.
A mortgage is a loan secured by real estate, typically used by buyers to purchase a home. The borrower agrees to repay the loan amount plus interest over a specified period, with the property serving as collateral for the loan.
Multiple Listing Service (MLS):
The Multiple Listing Service (MLS) is a database used by real estate agents to share information about properties for sale. It allows agents to cooperate with one another, increasing the exposure of listings to potential buyers.
An iBuyer, or instant buyer, is a company that uses technology to make quick cash offers on homes. These companies typically purchase homes in as-is condition, providing sellers with a convenient alternative to traditional listing methods. The iBuyer category was launched by Opendoor in 2014 and has continued to expand into an industry all its own.
Days on Market (DOM):
Days on Market (DOM) measures the number of days between a property being actively listed for sale and the contract being signed by the seller and buyer. It’s helpful in differentiating between a buyer’s vs. seller’s market. For example, a low DOM is better for sellers and a high DOM is better for buyers.
A buyer’s agent is a real estate agent who represents the interests of the buyer in a real estate transaction. They assist buyers in finding suitable properties, negotiating offers, and navigating the real estate closing process.
Contingencies are conditions that must be met for a real estate transaction to proceed. Common contingencies include home inspections, financing, and appraisal contingencies, which allow buyers to back out of the deal if certain conditions are not satisfied.
Buyers submit a formal offer for the home they wish to buy, which can either be the full list price or a fair market value agreed upon by both parties and their agents. The buyer’s agent then presents the written offer for your signature and submits it to the seller’s agent. The seller may accept the offer immediately, resulting in a purchase contract, or they may make a counteroffer, initiating the negotiation process documented in writing.
A home inspection is a thorough examination of a property’s condition, typically conducted by a qualified inspector. It helps buyers identify any potential issues or defects with the property before completing the purchase.
Real Estate Purchase Contract (REPC):
A Real Estate Purchase Contract is a legally binding agreement between a buyer and seller outlining the terms and conditions of the property sale. It includes details such as purchase price, contingencies, and closing date.
A walk-through is a final inspection of the property conducted by the buyer shortly before closing. It allows the buyer to ensure that any agreed-upon repairs have been completed and that the property is in the expected condition.
A listing agent is a real estate agent who represents the seller in a real estate transaction. They are responsible for marketing the property, coordinating showings, and negotiating offers on behalf of the seller.
Comparative Market Analysis (CMA):
A Comparative Market Analysis (CMA) is an evaluation of similar properties in the area to determine a realistic listing price for a home. It takes into account factors such as location, size, condition, and recent sales data.
Fair Market Value:
Fair Market Value is the price that a willing buyer and a willing seller would agree upon in an open and competitive market. It is determined by factors such as supply and demand, comparable sales, and property condition.
An open house is a scheduled event where a property is made available for potential buyers to tour without needing an appointment. It allows sellers to showcase their home to a wide audience of interested buyers.
Seller concessions are incentives offered by the seller to the buyer as part of the purchase agreement. They can include contributions towards closing costs, repairs, or upgrades to the property.
A seller disclosure is a document in which the seller discloses any known defects or issues with the property to the buyer. It helps buyers make informed decisions and can protect sellers from future legal disputes.
Mortgage & Financial Terms:
Adjustable Rate Mortgage:
An Adjustable Rate Mortgage (ARM) is a type of mortgage loan with an interest rate that adjusts periodically based on market conditions. It typically starts with a lower initial rate that later fluctuates according to specified terms.
Debt-to-Income Ratio (DTI):
The Debt-to-Income Ratio (DTI) is a financial metric used by lenders to assess a borrower’s ability to manage monthly mortgage payments in relation to their income. It is calculated by dividing total monthly debt payments by gross monthly income.
Equity is the difference between the market value of a property and the amount owed on the mortgage. It represents the owner’s financial interest in the property and can increase over time as the mortgage balance decreases and property values rise.
An FHA loan is a mortgage loan insured by the Federal Housing Administration (FHA), designed to make homeownership more accessible to low and moderate-income borrowers. FHA loans typically require lower down payments and have more lenient credit requirements than conventional loans.
A Fixed-Rate Mortgage is a type of mortgage loan with an interest rate that remains constant for the entire term of the loan. It offers borrowers predictable monthly payments and protection against interest rate fluctuations.
An appraisal is an assessment of a property’s value conducted by a licensed appraiser. Lenders require appraisals to ensure that the property is worth the amount being financed.
Closing costs are fees and expenses associated with finalizing a real estate transaction. They can include lender fees, title insurance, escrow fees, and prepaid expenses such as property taxes and homeowners insurance.
A down payment is an initial payment made by the buyer towards the purchase price of a property. It is typically a percentage of the total purchase price and is paid upfront at the time of closing.
Escrow is a financial arrangement where a neutral third party holds funds or documents on behalf of two parties involved in a transaction until certain conditions are met. It provides security and ensures that both parties fulfill their obligations.
An escrow account is a separate account held by the lender to collect and manage funds for property-related expenses such as property taxes and homeowners insurance. Borrowers make monthly contributions to the escrow account as part of their mortgage payments.
A mortgage broker is a licensed professional who acts as an intermediary between borrowers and lenders. Mortgage brokers help borrowers find suitable mortgage products and guide them through the application process.
An online lender is a financial institution that offers mortgage loans and other financial products. They operate exclusively through digital platforms, and the entire mortgage loan process is done remotely. Online lenders typically streamline the application and approval process, offering convenience and competitive rates.
Pre-Approval is a preliminary assessment conducted by a lender to determine the maximum amount a borrower is eligible to borrow. A borrower’s eligibility is based on their income, credit history, and financial situation. It provides buyers with a clear understanding of their purchasing power and strengthens their offer in the eyes of sellers.
Pre-Qualification is an informal assessment of a borrower’s creditworthiness based on self-reported financial information. While pre-qualification can provide buyers with an estimate of their borrowing capacity, it does not guarantee loan approval.
Principal is the original amount of money borrowed in a loan, excluding interest and other charges. It is the portion of the loan balance that is repaid over time through regular mortgage payments.
Purchase & Sale Agreement:
A Purchase & Sale Agreement is a legal contract between a buyer and seller outlining the terms and conditions of a property sale. It includes details such as purchase price, contingencies, and closing date, and is signed after mutual acceptance of an offer.
Title insurance is a type of insurance policy that protects buyers and lenders against financial loss resulting from defects in the property title, such as liens, encumbrances, or ownership disputes.
A VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA). These loans are only available to eligible veterans, active-duty service members, and certain surviving spouses. VA loans offer favorable terms, including no down payment and competitive interest rates.
Additional Real Estate Terms:
Earnest money is a deposit made by the buyer to demonstrate their sincerity and commitment to purchasing the property. It is typically held in escrow and applied towards the down payment or closing costs at the time of closing.
An easement is a legal right that allows someone to use another person’s property for a specific purpose, such as accessing a driveway or utility line. Easements can be granted by the property owner or established by law.
Homeowner’s insurance is a type of insurance policy that provides coverage for damage to the home and its contents, as well as liability protection for the homeowner. It is typically required by lenders as a condition of the mortgage loan.
HOA stands for “Homeowners Association,” a governing body established within a residential community to manage common areas, enforce rules and regulations, and collect dues from homeowners to fund maintenance and amenities.
A house title is a legal document that serves as evidence of ownership of a property. It outlines the rights and interests of the property owner and may include details such as property boundaries, easements, and encumbrances.
Property taxes are taxes levied by local governments on real estate property, based on its assessed value. Revenue from property taxes is used to fund public services such as schools, roads, and emergency services.
Real Estate Property Types:
A single-family home is a standalone residential dwelling designed to accommodate a single household. It typically includes a single unit with its own private entrance, yard, and utilities.
A multi-family property is a residential building with multiple separate housing units, each intended for individual occupancy by different households. Examples include duplexes, triplexes, and apartment buildings.
A condominium, or condo, is a type of housing unit that is individually owned within a larger complex of units. Condo owners have ownership of their unit as well as shared ownership of common areas and amenities.
A townhome, or townhouse, is a multi-level residential dwelling that shares one or more walls with adjacent units. Townhomes are typically individually owned and may include amenities such as shared common areas and homeowners association (HOA) fees.
A manufactured home is a type of prefabricated residence. Its various parts are built and assembled in a factory and then transported to a site — a piece of property that is either rented or owned.
A stick-built home is an individually-constructed residence, built from scratch on-site. Its walls and roof are framed with beams or sticks (hence the name) — traditionally of wood. Stick-builds are still the standard for detached American houses, though they are more expensive than pre-fab homes.
Wrapping Up Our List of Essential Real Estate Terms You Should Know
Familiarity with essential real estate terms is essential for anyone involved in buying, selling, or financing real estate property.
By understanding these terms and their implications, buyers and sellers can navigate the real estate market with confidence, making informed decisions and avoiding potential pitfalls.
Whether you’re a first-time homebuyer, a seasoned investor, or a homeowner looking to sell, arming yourself with knowledge is the key to success in the dynamic world of real estate.
To learn more about buying a home or if you have questions that weren’t addressed in this post, give us a call at (817) 923-7321 or contact us.
Helen Painter Group Realtors is here to offer our knowledge and expertise to help facilitate your home-buying journey.
With over six decades of success behind us, you’ll surely have peace of mind knowing your best interests are being represented throughout the home-selling process.