Common Real Estate Definitions And Phrases Explained
Being aware of the different real estate definitions and phrases will help you be able to speak the language better. Most of these definitions were from Investopedia, which is a great resource. Check out the real estate definitions below to learn the lingo!
Real Estate Definitions
Addendum – an additional document that is added to the contract. This will include any additional info or requests not put in the original contract.
Appraiser – a 3rd party in the real estate transaction who is typically assigned by the lender to assess the value of the property.
As-is Home Sale – a property being offered for sale with no warranties or representations by the seller. Meaning they will not pay for any repairs and the property will be sold in its current condition.
Assignment – when someone assigns a contract to another party, usually at a higher price. This is commonly done by wholesalers.
Buy and Hold – when an investor purchases a property for the purpose of renting it out over the course of one or more years.
Cash Buyer – someone looking to pay cash for a property as opposed to having to obtain financing from a lender.
Cash Out Refinance – when a loan is taken out on a property already owned and the loan amount is intended to exceed the current loan balance in order for the borrower to walk away from the transaction with cash.
Clear Title – a phrase used to state that the owner of a property owns it free and clear of encumbrances.
Closing – the date in which the ownership of the property is transferred from the seller to the buyer.
Closing costs – the various costs associated with buying or selling a property.
Comps (Comparables) – properties used for comparison in the appraisal process or in determining the fair market value of the property.
Contract – a binding agreement between a buyer and seller to purchase and sell a property.
Conventional Lender – a lender that offers institutional loan programs such as Fannie Mae, Freddie Mac, FHA, and VA loans.
Conventional Mortgage – a Fannie Mae or Freddie Mac loan made by a traditional lender.
Debt-to-income ratio (DTI) – this is a term primarily used in lending and refers to someone’s monthly debt payments relative to their monthly income.
Deed – a legal document that transfers the ownership of a property from a seller to a buyer.
Deed-in-Lieu – when the mortgagor (owner) conveys all interest in the property to the mortgagee (lender/bank) to satisfy a loan that is in default to avoid being foreclosed upon.
Default – when a person stops making their required mortgage payments.
Delinquency – when someone owes past due mortgage payments.
Due Diligence – the investigation and/or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party.
Due-on-sale Clause – a clause usually in place by a lender that forces the loan balance to be paid in full if the property is ever sold.
Earnest Money Deposit (EMD) – this is the security deposit that a buyer puts down at the beginning of a real estate transaction.
Encroachment – when someone builds something on or that hangs over a neighboring property.
Encumbrance – a claim against a property by a party that is not the owner. An example would be a contractor who has put a lien on a property because they did work and were not paid for it.
Equity – the difference between the market value of the property, and the amount owed to the lender(s) who hold the mortgage.
Escrow – an arrangement in which a 3rd party (typically a settlement company) receives and disburses money or property for the transacting parties.
Fair Market Value – a price that a property would sell for on the open market.
Fee Simple – the most common form of ownership for a property. The owner of the property has full and irrevocable ownership of the land and any buildings on that land.
Financing Contingency – a clause in the contract that gives the buyer the right to cancel the contract if they can not secure financing within a certain period of time.
Fix and Flip – when an investor purchases a property, does repairs and/or updates, and then looks to sell for a profit.
For Sale By Owner (FSBO) – the process of selling a property without the representation of a broker/agent.
Foreclosure – the action of taking possession of a mortgaged property when the mortgagor fails to keep up their mortgage payments.
General Contractor – someone responsible for the day-to-day oversight of a construction job from the start until completion.
Hard Money Loan – a type of loan typically made by a private investor or company for the purchase of a property needing extensive repairs. They generally come with higher interest rates and fees as opposed to traditional financing.
Home Equity Line Of Credit (HELOC) – a line of credit secured to a property that can be used to purchase various things.
Home Inspection – a limited, non-invasive examination of a property that is in connection to the sale of the home.
Homeowner’s Association – a private association usually formed by a real estate developer for the purpose of marketing, managing, and selling homes in a residential subdivision.
Homeowner’s Insurance – a type of insurance that covers losses and damages to an individual’s residence.
Inspection Contingency – this is a clause in the contract that gives the buyer the right to have the home inspected within a specified time period, such as 7-10 days. It protects the buyer, who can cancel or renegotiate the contract based on what is found on the home inspection.
Lease Option – an agreement that gives a renter a choice to purchase the rented property during or at the end of the rental period. Commonly referred to as “rent to own.”
Lender – an individual or company that makes a loan for the purchase or refinance of a property.
Lien – a legal claim on assets that allows the holder to obtain access to the property if debts aren’t paid.
Loan Originator/Loan Officer – an institution or individual that works with an underwriter to complete a home loan transaction for a borrower.
Loan Servicing – the process by which a company collects principal, interest, and escrow-related payments from a borrower.
Loan-to-value (LTV) – this is the loan balance relative to the value of the property.
Mortgage – a type of loan used to buy or refinance a home.
Multiple Listing Service (MLS) – a database established by cooperating real estate brokers to provide data about properties for sale.
Negative Amortization – an increase in the principal balance of a loan caused by a failure to cover the interest due on that loan.
No Cash-out Refinance – when a loan is taken out on a property that is already owned for the purpose of changing the rate, term, or monthly payment.
Offer/Counter Offer – an offer is when someone places a bid on a property and a counter offer is when the seller sends back an offer with different terms or price.
Owner Financing – a loan made by the seller of a property made to the purchaser.
Pending Sale – when a seller has accepted an offer but it has not changed ownership (sold) yet.
Per Diem – per day.
PITI (Principal, Interest, Taxes, Insurance) – these are the elements that make up a mortgage payment. Principal is what is applied to the loan balance, interest is what is owed to the lender, taxes refer to the property taxes held in escrow, and insurance refers to the property insurance and/or mortgage insurance.
Private Mortgage Insurance (PMI) – a type of insurance required by the lender if doing a conventional loan. This protects the lender in case of default.
Purchase and Sale Agreement (PSA) – a binding agreement between a buyer and seller to purchase and sell a property.
Purchase Price – the agreed upon price between the buyer and seller that the property will be bought and sold for.
Quitclaim Deed – a legal instrument that is used to transfer interest in a property.
Realtor – a person who represents a buyer or seller for the purchase or sale of a property.
Rehab – the repairs/updates done to a property. Rehab and renovation can be used interchangeably.
Renovation – the repairs/updates done to a property. Rehab and renovation can be used interchangeably.
Rent Back – when a property is sold and the buyer and seller arrange for the seller to be able to continue living in the property as a renter for a specified period of time.
REO – this refers to “real estate owned” and in the context of real estate refers to a bank or lender owned property that they acquired through foreclosure or something similar.
Reverse Mortgage – a type of loan for seniors age 62 or older used to access the equity in the home. Generally, a payment is received monthly by the person obtaining the mortgage and this is used to supplement their retirement income.
Settlement/Title Company – a 3rd party to the transaction who facilitates the terms of the contract, collects and disburses the funds, and records the transaction with the respective county.
Short Sale – A short sale is the sale of a real estate property for which the lender is willing to accept less than the amount still owed on the mortgage.
Title – a bundle of rights in a property in which a party may own either a legal or equitable interest.
Title Insurance – an insurance policy that protects lenders and buyers from financial loss due to defects in a title to a property. Most common claims filed pertain to back taxes, liens, and conflicting wills.
Traditional Home Sale – when someone lists their home with a realtor on the market in hopes of selling it.
Transfer Tax – a tax on the passing of title to property from one person to another.
Under Contract – this means that the buyer and seller have agreed to terms and signed a binding agreement to execute these terms.
Wholesaler – a person who goes under contract to buy a seller’s home, and then assigns the contract to someone else. The contract is assigned to a buyer at a higher price than the seller, and the wholesaler keeps the difference as profit.