Real estate terms defined
Real estate terms and definitions you may encounter when you buy or sell a house
One of the things that may be confusing when dealing with real estate transactions is all the real estate terminology you’ll encounter. Add that unfamiliar vocabulary to all the decisions you have to make, and it can become one of the most stressful experiences a person can endure.
We’re experts in taking all the stress and hassle out of selling your house, but let’s start with getting you familiar with some real estate terms and their definitions.
Here are definitions for real estate terms you’ll probably encounter.
Amortization
Mortgage loans, commonly used to buy houses, are amortized, which refers to the process of scheduling regular payments that eventually pay off a loan’s balance and interest over a specified period of time, normally 15 or 30 years. Home buyers who buy their houses with a mortgage receive an amortization schedule which shows, month by month, the amount of each payment that goes toward the payment of interest and toward the principal (see definition below). Paying the interest is front-loaded, so more of the monthly payment goes toward interest at the beginning of the loan, and more goes toward the principal at the end of the loan. The amortization schedule is a forward-looking “snapshot” of the loan and won’t show how you can pay off the loan faster by making extra payments, or the consequences of missing or being late on payments.
Appraisal
An appraisal is an estimate of the value of a property, provided by a licensed professional. A seller may have an appraisal done to determine or justify the asking price for their house. More commonly, they are required by the buyer’s mortgage lender to determine if the property will be worth more than or as much as the loan amount, in case the homeowner defaults on the mortgage, resulting in the lender’s becoming the owner of the property.
Appreciation
This is an economic term that refers to the increase in value of an asset. Generally, a variety of market forces cause houses to appreciate in value over time. With proper upkeep, in the future your house will likely be worth more than you paid for it.
“As is”
Houses can be sold “as is,” meaning no changes are made to the property before the sale. There is an understanding that any repairs, updates, or improvements to the property are the buyer’s financial responsibility. It is also stipulated that the house remains in the same condition when the sale closes as when the offer is made. Usually, houses sold “as is” sell at prices below those for otherwise comparable properties in the market that are in better condition. People who sell “as is” generally save considerable amounts of time and upfront expenses to get their houses ready to put on the market.
Buyer’s market
This term describes a market with conditions more favorable to buyers than sellers. In a real estate market, this normally occurs when the number of houses for sale exceeds the number of buyers, resulting in lower prices for houses than when demand is above supply. (See “Seller’s market” below.)
Cash home buyers
These buyers pay cash for houses direct to sellers, sparing the costs and delays normally required with traditional listing on the market.
Closing
There are several steps in the process of selling a home, and closing is the final one. It normally takes place at a title company or attorney’s office and is when all required signatures, contract stipulations, payments, insurance, approvals, and financing are secured and finalized. When the closing is finalized, the buyer legally becomes the new owner of the home. In some areas, recording the deed with the county clerk’s office is the final step of the closing, but this can occur after the actual closing appointment is completed and the new owner has taken possession of the home.
Closing costs
Many parties are involved in settling a real estate transaction, and several of them have fees that must be paid before the sale can close. Normally settled at the closing appointment, these can be real estate agent commissions and payments to insurance companies, the title company, attorneys, the lender, any taxing authorities, and others. Buyers and sellers have their own closing costs; these are negotiated and agreed upon during the contract process, then paid at closing.
Commissions
Both buyers and sellers can be represented by real estate agents in the sale of a house who are paid a percentage of the sale price of the home, typically 5%–6%. Which party pays which agent’s fees is part of the negotiation of the sale contract for the home. It is not unusual that the seller pays all agent commissions.
Comparable sales (Comps)
To arrive at the price for a home, sale prices of similar homes recently sold in the same area are compiled and considered. These are called comparable sales, “comps” for short.
Comparative Market Analysis (CMA)
Comparable sales and other factors provide the basis of a Comparative Market Analysis (CMA), which helps determine a range for a home’s selling price. It is normally completed by a real estate agent and is not as authoritative as an appraisal (see definition above).
Contingency
Certain conditions included in a contract that must be met before the sale can be closed are called contingencies. Contingencies commonly added to home sale contracts are for inspections, financing approvals, appraisals, and title search. They can also include the sale of a buyer’s current home. If a contingency has been agreed to and is not met, the sale contract can be completely cancelled.
Curb appeal
The attractiveness of the front of a house when viewed from the street.
Days On Market (DOM)
The number of days a property has been offered for sale. For an individual house, higher DOM indicates that sellers might consider lower offers. DOM can also be an average of how long houses in a given real estate market take to sell. Markets with high DOM are considered less in-demand and therefore, lower in value. Lower DOM indicates a hot market where houses fetch higher prices.
Deed
A legal document that shows the owner of a property and contains a record of its previous ownership. For a property to be legally sold, the seller must sign the deed, transferring the property to the buyer. “Deed” is common shorthand for the official names “property deed” and “house deed.”
Default
This is the state of a loan with one or more missed payments. At this point, the lender can consider the terms of a mortgage agreement broken and that the homeowner has no intention to rectify the situation. This can be the first step in the foreclosure process (see definition below).
Delinquency
The term for when a loan payment is due and unpaid for 30 days or more. At this point, the lender may consider the loan in default (see previous definition) and can start proceeding on a foreclosure (see definition below).
Down payment
The amount of cash a buyer pays toward the purchase of a property. It is generally a percentage of the purchase price—normally ranging from 5%–20%—and is not part of the financing used to buy the house.
Due diligence
This is a term used in all types of investments to describe the reasonable amount of time, effort, and data to determine if any purchase is worth its price. In a home purchase, there is a due-diligence period agreed to in the sales contract when the buyer can have the property professionally inspected and verify the purchase price. Factors may arise during this time that can cause the buyer to renegotiate or even cancel the sale.
Earnest money
Earnest money is an amount a potential buyer deposits with the seller to indicate serious interest in buying a property. Earnest money is generally held in escrow (see definition below) at the title company and is credited toward the down payment when the sale closes. In most cases, it is not refundable if the buyer backs out of the sale, but it is refunded if the seller does not go through with the purchase.
Equity
This refers to the cash value that an owner has in an investment. In the case of a home, it is the amount the house could be sold for minus all the debts and liabilities it carries. Equity can increase as the principal of the mortgage is paid and if the property appreciates in market value. Equity can be regarded as the profit on investment when a house is sold; while the home is owned, the appraised equity can be used as collateral for loans.
Escrow
Money or other assets held in escrow are those entrusted by a buyer or seller to a neutral third party, usually a title company, until the closing of the sale. At that time, anything in escrow is released and applied in accordance with the sale contract, often to the down payment, closing costs, or other expenses of the sale.
Fair Market Value (FMV)
Fair Market Value is an estimate of what an asset would sell for, given normal market conditions. It is useful for home sellers to set an asking price and have an expectation of the final sale price.
Foreclosure
This is a legal process by which the ownership of an asset is transferred to the lender who financed it when the loan has gone unpaid. With houses, it often occurs after mortgage payments have not been made for an extended period, normally 3 months, and no alternative arrangements have been made. In foreclosure proceedings, homeowners forfeit all rights to the property, unless they pay the outstanding debt or execute a short sale (see definition below). In the foreclosure process, the house can become the property of the lender or be auctioned to another owner.
For sale by owner (FSBO)
This refers to a sale that is made directly between an owner and a buyer without an intermediary such as a real estate agent. In FSBO transactions, no commissions are paid to real estate agents, since none are involved. Sellers take on all the responsibilities and activities an agent would provide themselves, such as marketing the property and closing the sale.
Home inspection
Performed by a certified professional, this inspection is often made before a sale of a home is closed and can be a contingency (see definition above) of the sale. This assessment of the condition of the home can be required by the buyer or lender or both. The inspector estimates costs of any necessary repairs or improvements to justify or question the sale price. Issues that surface in the inspection can result in renegotiation of the contract, requiring the seller to pay for certain costs or make repairs before the sale can go through.
Homeowners insurance
These policies provide reimbursement for various types of damage to a home or injury to its visitors. It is normally required for the house to be sold. Homeowners can choose from a wide variety of types and amount of coverage and the premiums charged for them.
Lender
The party that makes a loan to a buyer to make a purchase. There is a variety of lenders who can make a loan for a home, but most often the financing comes from a mortgage company, bank, or credit union and has terms for repayment in a legally binding document.
Mortgage
Purchases of homes and other types of property are normally financed by mortgages, which are long-term loans amortized (see definition above) over a specified period of time. Buyers who use mortgages may have to wait for financing approval; if the loan is not approved, the sale can fall through.
Multiple Listing Service (MLS)
The MLS is a database created for real estate professionals to share information on all properties in their areas listed for sale. They often use it to formulate comps and Comparative Market Analyses (see definitions above).
Open house
An event when a house for sale can be toured by potential buyers and others without any need for an appointment.
Principal
In lending, this is the term for the total amount of money financed by a loan.
Property lien
This legal instrument records unpaid debt held against a property. Liens are typically filed for a mortgage that is in force, but they can also be filed by other parties, such as contractors who have not been paid for work they have done on the property. All liens must be satisfied and released before a sale occurs. Parties with liens can initiate legal action against the property and its owner to collect their debts.
Real estate agent
A person with a professional license to represent one or more parties in a real estate transaction and coordinate the sale.
Real estate broker
These professionals have received a higher level of training than agents and have legal license to draft contracts, review them for legal compliance, and conduct real estate transactions.
Sales agreement
The legally binding contract containing the terms and conditions required of a buyer and seller to complete a property sale. It can also be referred to as an agreement of sale, a contract of purchase, or a purchase agreement.
Seller concessions
These are considerations offered by sellers to make a property more attractive to buyers. They can range widely from including furnishings or appliances in the purchase price of a home to offering full or partial owner financing of the purchase to covering some or all of the buyer’s closing costs. Seller concessions can be expressed in the offering of the property or become part of the sale negotiations.
Seller’s disclosure
Sellers must disclose certain information about a property that buyers should consider before making the purchase. Such disclosures can include foundation work that has been done on the house, necessary termite treatments, certain conditions that the seller requires of any purchaser, and the history of the property and/or its surrounding area.
Seller’s market
This term describes a market in which conditions are more favorable to sellers than buyers. Commonly, it occurs when the supply of homes for sale is less than the demand for them, driving up prices and giving sellers the advantage in demanding higher offers and more favorable terms from buyers. (See “Buyer’s market” definition above.)
Short sale
A short sale is a tactic for a homeowner to avoid foreclosure by selling the home to pay off its outstanding mortgage, either completely or partially. It is normally executed very quickly for a price that is below market value.
Staging
Houses can be staged to make the best presentation to potential buyers. Professional stagers may be employed, performing deep cleaning, removing furniture and other items, and potentially redecorating with items rented solely for staging the house. Often, a professional photographer takes photos of the staged home to display in the home’s marketing materials.
Title insurance
This insurance specifically covers property buyers and lenders against any unforeseen issues that might arise with a property’s deed after the sale is closed.
Title search
An official examination of public records, a title search creates a history of a property’s ownership, taxation, liens, and other legal proceedings. It can identify various issues that might complicate or prevent a sale before it is transacted.
You can sell your house more easily than some of these real estate terms might make it seem.
HomeVestors® makes selling your house easy. We buy houses “as is,” fast for all cash. You don’t have to put time and money into repairs and staging, and you don’t have to worry about an inspection, whether the time is right to sell your house, or how long it will sit on the market. Because of our relationships with preferred lenders, you don’t have to wait for our financing to get approved. When we buy direct from you, an FSBO purchase, you don’t pay any commissions, and we pay typical closing costs. We can usually close in as little as three weeks, or later if that works better for your schedule.
There is simply no easier or faster way to sell your house.
Our process starts with a visit by our property specialists who live and work in your area. There’s no cost for this consultation, and we sometimes make a cash offer on the spot. You have no obligation to accept it, so you have nothing to lose but the stress and uncertainty of selling your house the traditional way.
We take a very personal approach, every step of the way, taking into consideration what’s most important to you when selling your house. That’s a big part of how we’ve become America’s #1 home buyer for our more than 25 years in the business. And people who sell to us have given us a 95%* customer satisfaction rating.
Contact us today. Click or call us at 866-200-6475 for your free consultation. And don’t worry—we don’t have to speak in complicated real estate terminology.