For anyone new to the home-buying journey or just curious to know the wording of a real estate transaction here are the top 35 basic real estate words you should know:
Addendum: Is an “add on” within a contract often clarifying an offer or offering a competitive edge. EX. An agent could make an addendum contingent on the buyer securing a loan.
Annual Percentage Rate: This is also known as APR, which refers to the interest rate on the loan for the year. Interest is the cost of borrowing funds. Typically shown in percentages of the overall borrowed amount.
Appraisal/Appraiser: The appraised value refers to the value of a home at that time. The value is determined by the appraiser during the loan origination process. The appraiser is often chosen by the lender.
Appreciation: Means a home increases in value over a period of time.
Borrower: Is the person in the transaction taking out a loan/ mortgage with means to pay it back with interest. Also known as the buyer.
Closing: Also known as settlement, this is the final step of the home buying process. This is where the closing documents are signed, funds are paid, and the transfer of title is completed.
Comps: This is short for a comparative market analysis. This is more well known when you are listing your home, to figure out how to price it. Comps take into account the size, condition, area, and features then, compare your home to similar homes around it. Potential buyers will look at comps to decide what kind of offer to put on the home they want to purchase.
Contingency: This means the seller has accepted the offer on the property but there are steps (contingencies) that must be fulfilled in order for the deal to go through. Common ones include: appraisal, home inspections, or pre-approval letter.
Counter Offer: Is what comes in response when a potential buyer puts in the initial offer. EX. Buyer puts in their offer and then the seller comes back with a counter offer until one is accepted or rejected completely.
Depreciation: Means a home decreases in value over a period of time.
Down Payment: Is the payment given to the lender at the beginning of the mortgage term. It is the agreed percentage in the contract. The higher the down payment, the more it will help the borrower and avoid paying private mortgage insurance.
DTI: Is known as your debt to income ratio. Which is your monthly debt (car payment, student debt, credit card) divided by your monthly gross income. Lenders use this to determine how likely you'll be able to pay back the loan.
Due Diligence: Is the period of time the buyer examines a home's condition and the area it is at before they are legally obligated to purchase. This is your time to discover any unwanted risks of the home. Virginia is a buyer beware state so this is important.
Earnest Money: Is cash held in escrow, that shows the seller you are serious about going through the transaction. This can give confidence to the seller to take the listing off the market. The deposit is typically 1% - 3% of the sales price.
Escrow: A third party account that holds everything within the transaction. Often used to move funds between buyer and seller, earnest money deposit, property taxes, closing costs, etc. Usually the title company, of the buyer's choice, holds the escrow account.
HOA: This stands for Homes Owners Association, this is a group of homeowners in a specific area who make decisions on shared issues that the neighborhood faces.
Home Equity: Is the difference between how much the borrower owes and the fair market value of the home. Another way of saying, how much the borrower has paid on their loans. Appreciation and depreciation do come into account.
Inspections: These occur when the home buyer or seller hires an inspector to evaluate the condition of the home based on their observations. They look at structural aspects, air conditioning units, visible walls, windows, siding, etc. Majority of the time, homes are contingent on passing a home inspection.
Interest Rate: Is the amount of money the borrower has to pay over a period of time in exchange for borrowing the funds. Typically shown as a percentage.
Lender: Is the person working with a financial institution that issues funds to the borrower with the expectation that the borrower will pay them back with interest.
MLS: Known as the Multiple Listing Service which is a collection of data from multiple areas that display all of the listings. It can only be used by real estate agents and brokers. This is necessary for agents to have the most up to date information about their market.
Negotiating: When the buyer and seller attempt to find a middle ground within the transaction.
Pre-approval: Occurs when a potential buyer establishes creditworthiness up to a certain amount by their lender. In order to secure the letter you need to provide credit, pay stubs, W2’s, ect and the lender will determine if they can give pre-qualification.
Private Mortgage Insurance: Is a type of insurance the lender requires the borrower to have if they can't afford to put at least a 20% down payment. This is important to protect the lender if the buyer defaults on their payments.
Proof of Funds: This is a letter the buyer presents to the seller when purchasing a home. It is proof that the buyer can cover everything within the transaction. Often used in all cash sales.
Real Estate Agent: The person who conducts the real estate transaction on behalf of the Broker or firm.
Real Estate Broker: Becoming a Broker requires more education and experience. Those who have the Broker license can operate independently or can hire real estate agents to conduct the transaction on their behalf.
Refinance: This occurs when a buyer reconsiders the mortgage on their home and takes out a second loan to pay off the home. Why this is appealing to buyers is because it is usually done at a better interest rate and makes the monthly payment lower.
Sales Price: The money agreed upon by the seller and the buyer during the sale.
Seller Subsidy/ Concessions: Also known as seller paid closing costs. This is when the buyer requests that the seller pays for 1% - 3% of the closing costs. This can entail negotiations within the contract.
Showing/ Tour: This is a big one. The best way your agent will do to sell your property is bring in potential buyers to the property. The selling agent lists the property and advertises it. A buyers agent will bring in their clients to “show” the property. This is essential to the home buying process, there's very few people out there willing to buy a home they've never walked in. This also gives them time to live in the neighborhood and surrounding area.
Staging: Every home has their own lifestyle in it. Within the selling process, it's essential that potential buyers can feel themselves living in the house. Unfortunately that means not seeing your decor and pictures in the home. Staging is when a professional comes to the home and either rearranges your furniture or brings in new furniture and decor to make the home more appealing to buyers. This helps buyers envision themselves living in the home.
Title Company: Is a third party that works on behalf of the lender and the buyer. They research and insure the title of the home buyer. The buyer gets to choose what title company to use.
TLC: This is very common in real estate, standing for some tender loving care. This means that the home will need repairs and renovations done to make the home livable. Often are seen on investor homes.
Underwriting: It involves the lender looking into your loan and credit worthiness. The underwriter looks into the finances, appraisal value compared to sale value, and more to determine how much of a risk the lender will assume approving the loan for a potential buyer.
