Real Estate Terminology and Definitions You Need to Know

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Real Estate Terms You Need to Know

Whether you are buying or selling, if you plan to make a real estate transaction, you will run into real estate terminology and definitions you are unfamiliar with.

To make things a little easier, we’ve put together a list of standard real estate terms – and not-so-common words – that you can reference as you move forward with your purchase or sale.

These are the glossary of real estate terms that come up in most sales.

You might want to consider it a real estate terminology sheet. It is filled with real estate terms to know as a buyer, seller, or real estate agent.

Keep in mind some of these real estate definitions are obscure enough that your real estate agent might not even know how to handle them properly.

In fact, many of the real estate terms on the list are often misunderstood.

The real estate terminology found here is often critical to understanding for a transaction to go off smoothly.

Unfortunately, many are not appropriately educated regarding real estate lingo.

Please grab a cup of coffee and become more educated on some vital real estate keywords and their respective definitions.

Real Estate Terminology Sheet With Meanings

Let’s take a deep dive into some essential real estate terms to know when buying or selling a house. All real estate professionals should be able to explain these real estate definitions to you.

This real estate glossary of terms should better help you understand the process of closing on a house. These real estate terms and definitions are in no particular order.

It could be looked at as a course in real estate terms 1o1.

Financial Real Estate Terminology

Fixed-Rate Mortgage

A fixed-rate mortgage is a loan whereby the mortgage interest rate charged by the lender does not change. Your mortgage payments will stay the same throughout the life of the loan.

Standard terms for fixed-rate mortgages are ten, fifteen, and thirty-year time frames. Fixed-rate mortgages are popular with consumers because of the consistent monthly payments.

You can have financial consistency throughout the life of the loan.

Adjustable-Rate Mortgage

An adjustable-rate mortgage (ARM) is a housing loan with an interest rate that can change. The initial interest rate is fixed for a specific time period with an adjustable-rate mortgage.

After that, the mortgage interest rate applied on the loan balance resets periodically, typically at yearly intervals.

Adjustable-rate mortgages usually have lower interest rates, but that can change quickly when rates are rising.

The fixed and adjustable-rate mortgage terms are likely to be discussed by your mortgage broker or loan officer.

Both adjustable and fixed-rate loans have an annual percentage rate that shows the loan’s actual cost.

FHA Loans

An FHA mortgage is one of the most popular types of loans for first-time home buyers. The loan’s popularity stems from the fact it has a low down payment requirement of 3.5%.

It is a government loan that the Federal Housing Administration underwrites. If you are buying a fixer-upper, an FHA 203k loan allows you to roll any home improvements into one final mortgage.

Credit Score

Your credit score is one of the most significant factors lenders use when lending money. Having a good credit score can help borrowers get better mortgage interest rates and terms.

Having a bad credit score will do just the opposite.

The FICO score system will determine your credit score. The three major credit bureaus are Experian, Equifax, and Transunion. There is a minimum credit score to buy a house, so it becomes essential to improve your score.

Buying a house with bad credit can be very challenging. Your credit score will impact many facets of your life, both short and long-term. Your scores will undoubtedly influence your mortgage agreement with the lender you choose.

Companies like Credit Karma can help with improving your credit before buying a home.

Real Estate Appraisal

When buying or selling a house, there is likely to be a real estate appraisal when getting a home loan through a mortgage lender. Lenders will want to know the property’s fair market value they are granting a mortgage.

The lender will hire a real estate appraiser who is considered an unbiased third party. The appraiser will look over public records of other similar properties sold to determine the current appraised value.

Appraisers will also analyze the current housing market conditions to determine whether home values are moving up or down.

Comparative Market Analysis

A comparative market analysis is similar to a home appraisal, but a real estate agent performs it.

An agent will use real estate comparables in order to determine the market value for a particular property. The acronym for this real estate term is a CMA.

The CMA is one of the real estate terms agents will often learn while studying for their real estate exam.

Closing Costs

Whether you are buying or selling a house, you’re will likely want to know the costs involved. Many folks ask what is a closing cost. Depending on whether you’re a potential buyer or seller, it will be crucial to understand the amount of money it will cost you.

Closing costs are the fees you pay as part of a purchase agreement for residential property. Sellers have closing costs as well related to the transfer of property.

Closing Cost Credit

A closing cost credit is a real estate term that comes up quite often for sellers.

When selling a home, closing cost credits are a common request you will get from buyers.

They are also often referred to as seller’s concessions when a credit is given for something other than closing costs.

While, at first, it can seem strange to be asked to help a buyer purchase your home, closing cost credits can be quite helpful. They give the buyer more breathing room to take care of all the little things they need after purchasing a home, and they help you close a sale.

For instance, as a seller, you may be able to get a buyer to agree to purchase your home with existing problems by offering closing cost credits. The buyer can use the money saved to make the improvements after purchase.

Maybe the buyer would like to put in new carpets to the tune of $5000. They might not have a significant amount of cash, so they don’t need a closing cost credit.

Often, sellers get caught up in buyers’ semantics asking for a closing cost credit when they should be thinking about their net.

Here is the perfect example – your home is listed at $310,000. The buyer offers you $310,000 less a $5000 closing cost credit. This is the same thing as a buyer offering you $305,000. Not a bad offer, right? Don’t get hung up on the little things!

Earnest Money Deposit

Earnest money is one of the most critical real estate terms every home buyer and seller should understand—the earnest money an agent collects can best be described as the glue behind the transaction.

Like it sounds, earnest money proves to a seller that a buyer is “earnest” or serious about buying their home. The amount of earnest money collected can depend on the area of the country in which you are located.

As a general rule, you can expect to pay anywhere from one percent to five percent of the purchase price.

Earnest Money is Held in an Escrow Account

The earnest money is held in an escrow account until closing. Earnest money is typically controlled by a real estate broker or escrow company. An escrow agent is assigned and responsible to account for these funds until closing.

Buyers can lose their earnest money deposit if they do not follow the contract. Potential buyers should understand that earnest money is not the same as a buyer’s down payment.

With so much money at stake, it is one of the most important real estate terms to understand.

Pre-Qualification Vs. Pre-Approval

Sellers need to know the difference between pre-qualification and pre-approval letters from a lender. A pre-qualification letter is relatively easy to get and simply states the estimated borrowing ability of a buyer.

A pre-approval letter is more involved, requiring most of the documents and verification necessary to get a mortgage loan. When you are selling, you want a pre-approval letter to prove that a buyer is really in a position to purchase your home.

A pre-qualification letter is most useful for buyers who want to know what price range they can shop in. It is not adequate for a seller to consider offers from buyers. Do not settle for anything less than a pre-approval letter if you are selling.

With a pre-approval, you’ll mention that they have run the borrower’s credit and verified their income and employment.

Private Mortgage Insurance

Private mortgage insurance, also referred to as PMI, is insurance that a lender will force you to take out as a buyer if you put down less than 20% on your home.

PMI is there to protect the lender, who considers you a more significant risk based on your lack of down payment.

Unfortunately, private mortgage insurance can boost your monthly mortgage payment noticeably, so most homeowners are eager to get rid of it.

The most straightforward way to eliminate PMI is to reach 80% of your mortgage. You can also try creative options like refinancing, appraisal, and remodeling.

Many home buyers will go out of their way to avoid paying private mortgage insurance, often seeking other means of getting a loan that doesn’t require putting down twenty percent. Private mortgage insurance is a good thing. Without it, many buyers would not get into a home.

Escrow Holdback

An escrow holdback agreement lets the buyer hold back a portion of the seller’s proceeds in escrow. There are various reasons you may want an escrow holdback, like if the seller has not finished repairs to the home by the time of closing and you still want to close on time.

You may also choose an escrow hold-back if there are title issues, or you need to wait until a system has been approved, such as a septic system. The escrow hold-back motivates the seller to get things done so they can get the money while still letting you close on the home.

Typically, the holdback amount is commensurate with what the buyer thinks will motivate the seller to get something done. It is not uncommon for thousands of dollars to be held back from the seller.

General Real Estate Terminology

Home Inspection

A house inspection is a normal part of the real estate industry. A property owner can expect a potential buyer to perform due diligence when purchasing a home.

Part of the due diligence process in real estate will be hiring a professional home inspector to thoroughly investigate the property’s condition.

The property inspection typically takes place a short time after a real estate contract has been executed.

Escalation Clause

An escalation clause is real estate jargon a buyer can put in an offer that states that the buyer will outbid other offers on a home up to a specific price point.

For example, a buyer may initially offer $400,000 but state in an escalation clause that they will outbid other offers by $5,000, up to a ceiling of $425,000. That means that the buyer will most likely get the home as long as no one offers higher than the ceiling price. Unless, of course, the buyer has additional unacceptable terms.

Escalation clauses are more common in seller’s markets. Escalators are designed to help a buyer win a bidding war, which has become quite common in hot real estate markets.

While an escalation clause can be helpful for the buyer, some sellers may find the addition of such a clause confusing. The seller may wonder why the buyer did not offer more if they were willing to pay the home’s ceiling amount. With an escalation clause, it becomes essential that the listing agent understand them – many do not.

See how does an escalation clause work for a complete explanation. An escalation clause can work well for both a buyer and a seller.

Realtor

You might be thinking, how could anyone not know what a REALTOR is? The fact of the matter is they don’t. Consumers and even real estate agents interchange the words “Realtor,” “Real Estate agent,” and broker all the time. These are three different real estate terms. They are NOT the same.

In this insightful resource, you can see a detailed explanation of how a Realtor is different from a real estate agent and a broker. A Realtor is a member of The National Association of Realtors.

One of the key differences between a real estate agent, broker, and Realtor is that Realtors pledge to follow the real estate code of ethics. A real estate agent is not required to follow the code.

Buyer’s Agent

A buyer’s agent works for a home buyer while purchasing real estate. A buyer’s agent is a fiduciary whose purpose is to look out for a buyer’s best interests throughout a transaction.

Buyer’s agency is the exact opposite of a seller’s agent, whose job is to represent the seller. See some of the tasks a real estate agent does for a buyer. The least essential function of a buyer’s agent is showing property.

Dual Agency

It is always important to clarify with a real estate agent who they represent – because it may not be you or just you.

In the case of dual agency, an agent will take over the buyer’s and seller’s agent’s agent, serving both the buyer and seller in a real estate transaction.

Some states have made dual agency illegal, while others have strict rules that must be adhered to during dual agency.

Whatever your state’s laws concerning dual agency, the fact is that it is an arrangement that does not serve your best interests.

In most transactions, the buyer wants to buy for as little money as possible, while the seller wants to sell for as much money as possible. Those two goals are at odds with one another, which means that a dual agent cannot effectively serve both parties.

Go With An Exclusive Real Estate Agent

You are much better off with an agent accountable only to you, whether you are a buyer or a seller.

Many real estate agents do not understand about dual agency is you CANNOT by law give either the buyer or seller any pricing advice. The agent essentially must become a neutral party.

In dual agency, both the buyer and the seller give up someone in their corner fighting for their best interests.

It is an awful arrangement. The only real winner in dual agency is the real estate agent.

One of the biggest problems with dual agency is lots of consumers agree to it. If buyers and sellers understand the dynamics of dual agency, they would never agree to allow it.

Unfortunately, they don’t get it, and the person explaining it to them is the real estate agent who benefits from them saying yes to it.

See how dual agency works for an in-depth discussion of why it should be avoided at all costs. Dual agency is one real estate term you want to understand completely. Buyers and sellers should always have their own dedicated real estate agent!

Contingent and Pending

Whether you are a buyer or a seller, knowing the most common real estate listing statuses is critical. A real estate agent will change the status in the multiple listing service when the buyer and seller have executed a contract.

The two statues that are confusing are contingent and pending. See what does contingent mean and what does pending mean of a complete understanding.

These listing statuses are confusing real estate terminology for those who don’t practice real estate every day. See pending vs. contingent to see the difference.

When a home is marked in MLS as pending, the days on market are frozen with contingent they may not be.

Backup Offer

A backup offer is real estate terminology both prospective buyers and sellers should understand.

In a hot real estate market, it is not uncommon for you to find the perfect home right as another buyer is signing a contract with the seller. While this can be frustrating, not all hope is lost.

Real estate deals fall through all the time for a myriad of reasons. You may not control whether the deal goes through, but you can make a backup offer that will put you first in line should the seller need another buyer.

A backup offer may not guarantee that you get the home you want, but it is a helpful tool to keep you in the running in the unpredictable world of real estate transactions. See how a backup offer works in real estate sales. Understanding a backup offer well could be the key to getting the home you want!

Right of First Refusal

Another confusing real estate term is the first right of refusal. A right of first refusal clause is a valuable tool for sellers who find themselves dealing with a home sale contingency.

A home sale contingency is a clause that some buyers will put into offers that state they will buy a home – but only if their home sells first.

While the home sale contingency is quite convenient for the buyer, it puts the seller in a weak position. But a right of first refusal clause provides an alternative for the seller.

The right of first refusal clause allows you to keep your home on the market.

If you get an offer on the home, inform the first buyer and give them a specified amount of time to eliminate the home sale contingency and purchase the home – typically 24 to 72 hours.

Giving a buyer a right of first refusal only makes sense if the buyer can qualify to purchase your home without selling theirs.

See how a right of first refusal works and if it can be tailored to meet your needs.

Easement

An easement is the right to use another’s property without taking possession. A common type of easement in real estate is for utilities such as gas or electricity.

The companies providing such services have easements or an exclusive right to enter a property to perform work on such utilities if necessary.

Easements are established by performing a property survey. It is not uncommon for easements to traverse the owner’s lot boundaries. The easement becomes a written agreement recorded at the registry of deeds.

An easement is considered a legal encroachment on a property.

Title Search

A title search is performed by a title company or real estate attorney hired by the mortgage lender. The purpose of the title search is to ensure there are no encumbrances against the property and to determine legal ownership.

The process involves researching the chain of title, among other things.

It is a legal process that occurs as a regular part of doing real estate business in the United States. A title company will prove to all the parties involved in the transaction that there is a clear title.

Title Insurance

Another real estate term that very few people are familiar with is title insurance. Title insurance is real estate terminology every buyer should know. Real estate title insurance is a type of insurance that covers financial loss from defects in title to real property and the invalidity of mortgage liens.

If a lawsuit attacks your home’s title due to defects in the title, the insurance protects you financially. There are a few major title insurance companies to choose from. The lender you’re working with will often recommend a title insurance company.

Lenders will offer the option of purchasing title insurance when you take out your mortgage. It is a one-time fee for the insurance, which can be a substantial extra cost when added to all the other costs of buying your home.

While it is a significant one-time fee to a buyer, it’s worth it! Learn more about title insurance in this comprehensive article. See the pros and cons of title insurance.

Special Assessment

When it comes to real estate terminology, a special assessment is often associated with purchasing a condominium or a townhouse, where a homeowners association exists.

A special assessment is a fee charged for an unexpected expense. For example, if the roofs on the condo or townhouses need to be replaced and there is not enough money in the “reserve fund,” a special assessment would be collected from the owners.

Special assessments can be expensive, so they should be researched before buying a condo or townhouse.

Condominium or Condo

When it comes to real estate jargon, the definition of a condo is genuinely different from that of single-family homes. With a condo, you own individual units but share ownership of the common grounds and areas within a community.

Common areas typically include amenities such as swimming pools, tennis courts, or a gym.

Condos are usually run by an HOA. They are governed by a legal document that covers ownership rights, rules, and regulations of the community. Property management companies oversee some condo projects.

Townhouses or Townhomes

Many buyers wonder what exactly is a townhouse. Many people confuse the difference between a condo and a townhouse. They are not the same thing!

A townhouse or townhome is a property over multiple floors that shares a wall with neighbors on one or both sides. With a townhouse, you will typically own the land that the townhouse resides on.

It is also more common that you will be responsible for maintaining the property’s exterior. For example, you could be required to cut your own grass and mow your own lawn.

Short Sale

If you are heading towards foreclosure, a short sale is real estate terminology you’ll want to know. The real estate definition of a short sale is your mortgage lender allows you to sell your property for less than the mortgage balance.

The goal for property owners doing a short sale is complete debt removal. Sometimes a lender will not offer a complete cancellation of the mortgage.

Instead, the lending institution will ask you to sign a promissory note which is usually for much less than what you owe. Doing a short sale allows homeowners to avoid the ugly legal proceeding of a real estate foreclosure.

Many buyers look at how to buy a foreclosure because of their potential value. Short sales offer a similar situation.

Zillow Estimate

A Zillow estimate is a “fun” tool for home buyers and sellers because it is a free, easy-to-access tool to get an idea of a home’s value. However, it is essential to realize that a Zillow estimate is no substitute for a skilled real estate agent’s services.

The problem with the Zillow estimate is that it’s completely inaccurate. Their tool misleads both buyers and sellers on the value of a property.

Real Estate agents are left to explain to consumers constantly they should take a Zillow estimate with a grain of salt.

You have better odds of seeing Bigfoot than you do an accurate value unless you live in track housing.

Zillow uses a program based on averages that give a general idea of the price of a property.

In contrast, a real estate agent will calculate the value using detailed information and experience that the Zillow program does not.

A significant component of the Zillow algorithm is an assessed value, which most recognize does not correlate with market value.

Pricing a home is one of the most critical parts of a sale. You want to get it right the first time, which means using the services of a Realtor experienced in your market.

Remember, Zillow doesn’t visit your home. Don’t expect an algorithm to know what your home is worth. You could dump $50,000 into your property tomorrow, and Zillow would never know about it.

iBuyer

An iBuyer or instant buyer is new real estate terminology you probably have never heard about. The real estate definition of an iBuyer is a real estate investor who uses technology to formulate an offer on a property.

There are advantages and disadvantages of engaging with an iBuyer worth reading.

Use and Occupancy Agreement

A use and occupancy agreement is an agreement that allows a buyer to use/occupy a property while protecting the seller.

The use and occupancy agreement let the seller remove the property’s occupant legally if circumstances dictate the need to do so.

For instance, if a buyer’s home has sold, and they want to move.

For instance, if a buyer’s home has sold, and they want to move into the seller’s property before closing, the seller can draft a use and occupancy agreement.

Ideally, the sale will close, and the buyer will take over ownership of the home. But if the deal falls through, the use and occupancy agreement will make it easier to remove the buyer if necessary.

The use and occupancy do not create a legal tenancy relationship, so removal is more straightforward.

The use and occupancy agreement are often used when someone is in a tough spot with their housing situation.

Sellers grant buyers the ability to use their homes until the closing.

See how a use and occupancy agreement works for a complete explanation.

Personal Property vs. Real Property

Personal property and real property are two real estate terms that you should grasp. Real property is considered “real estate” or part of the property. It is anything that is physically attached, such as lights or the heating system.

On the other hand, personal property is items that do not transfer as part of the property. Examples of personal property include furniture and home decor.

See what is a fixture in real estate to determine what should stay in a home sale. Real property is one of the real estate definitions that escape many agents. Unfortunately, the lack of understanding can cause problems.

Value Range Pricing

Value range pricing is a marketing and pricing strategy that involves listing a home with a price that ranges from low to high – encompassing the range of offers that the seller will consider for the home.

For instance, you could have a home worth $400,000 and list the home using value range pricing at $375,000 – $425,000. The idea is that you can bring in buyers that may not otherwise consider your home.

The general advice on value range pricing is that you start at a range of about 5 percent above and below your home’s estimated value.

You still want to consult an experienced Realtor to get an accurate price on your home based on your area and the current market.

Value range pricing is not a substitute for accurate pricing. Many home buyers feel value range pricing is deceiving because the lower price is usually published in MLS.

Only later does a buyer read the description and realize they have been duped.

Some Realtors swear by value range pricing. However, it can be argued that it is better to just price your home accurately from the beginning and forego all the hassle that is inevitable with value range pricing.

There will also be real estate agents who use value range pricing because they can’t price a home correctly. Not what you want as someone selling your home.

At times I have wanted to call it, “I don’t know what the hell I am doing pricing.” Always keep this in mind when picking a real estate agent.

Closing

The closing is the final consummation of a real estate deal. Buyers and sellers will sign the final closing paperwork transferring the title from seller to buyer. The seller will present a new deed which will be recorded at the local registry of deeds.

The typical time from an offer to a closing average is around 45-60 days.

RESPA

RESPA stands for Real Estate Settlement and Procedures Act. It is essential real estate lingo to understand. RESPA was established to ensure buyers and sellers understand their respective settlement costs in real estate transactions.

Final Thoughts on Common Real Estate Terms

These are some of the most critical real estate terms buyers and sellers should understand. Frankly, not knowing some of this real estate jargon can get you into a lot of hot water. When buying or selling a home, it is vital to be well educated.

Trust your instincts when dealing with real estate agents. Some exceptional agents have nothing but your best interests at heart. Others are just thinking about their next payday.

Other Helpful Buyer and Seller Resources on Real Estate Terminology

Terms a seller should know – see additional guidance on other terms a home seller should understand.
Contingencies in an offer you should know – it is vital for both buyers and sellers to understand contingencies commonly found in most real estate contracts.
How jumbo mortgages work – see what you need to know about a jumbo loan, which is quite common in areas of the country where homes are more expensive.
More jargon you should know when buying or selling – have a look at more common real estate terms buyers and sellers should know before getting involved in their next transaction.

Use these additional articles on real estate terms to be become more informed before, during, and after your real estate transaction.

About the author: The above Real Estate information on the real estate terms buyers and sellers should know was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for 35+ Years.

Are you thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.

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