Each industry has it’s own jargon and real estate is no different. If you do not understand the definition of a specific term, phrase or acronym that is being used, ask for its meaning. It may be the difference in gaining or losing in a real estate transaction. Below are some of the important real estate terms (explained simply) you should be familiar with before buying or selling real estate.
Real Estate Terms Glossary
Adjustable Rate Mortgages
An adjustable rate mortgage is a loan with an initial low interest rate. After a set term (such as 3 or 5 years) the rate will be subject to adjustment by the lender. This means the interest rate may increase, as could the monthly mortgage payments.
Broker’s Price Opinion (BPO)
This is when a real estate broker is hired to determine the selling price of a piece of real estate. This is typically used when a lenders or mortgage companies do not feel the expense and delay of a full appraisal is warranted.
A real estate agent that is representing the buyer side of a real estate sales transaction. Depending upon the relationship agreement between the buyer, seller and the agent, the real estate agent may represent both the buyer and the seller in a sales transaction.
This is a clause in an offer for a property that must be met in order for the homebuyer or the seller to continue the home buying process. An example would be requiring the seller to give you enough time for a home inspection before you will purchase the house.
Comparative Market Analysis (CMA)
A tool used by real estate agents to determine the price range for a listing price or an offer price on a given piece of real estate by using nearby comparable sales and active properties for sale.
An offer made in response to another. Any change of verbiage, dates or calculations can be considered a counter offer.
A borrower’s inability to repay a loan. Generally a borrower who has defaulted must forfeit their rights to the property.
This is an initial amount of cash or funding that is paid down against the total loan amount for a mortgage. Some non-conventional loans come with ‘no down payment’ options, but may require mortgage insurance.
This is an amount of money the homebuyer sets aside in an escrow account in order to prove to the seller that they are legitimately interested in buying the home. If the deal is approved, this money may be put toward the down payment amount. If a deal is not reached, this money may be returned to the buyer (if they have made this a condition in their initial offer).
An objective third party company that specializes in holding funds for a specific purpose. An escrow company will only release these funds to a party that has been approved by the fund holder, and only at a time designated by them.
Fix and Flip
This is when an individual buys a home that is in need of repairs with the intent of fixing it up or remodeling it, and then selling it (‘flipping’ it) to another party for a profit.
Fixed Rate Mortgages
These are loan options with an interest rate that is the same throughout the life of the loan (unless the homeowner refinances). This means the monthly mortgage payments are also the same throughout the life of the loan.
This is a property that has been seized by a lender or bank when a homeowner can no longer afford their monthly mortgage payments and cannot payoff the remainder of their loan. Properties that have been foreclosed on are often put back on the market at a reduced market value, in order to help the lender sell the home and recoup their losses as quickly as possible.
The costs associated with holding ownership to a property; mortgage payments, taxes, insurance, etc.
Loan to value ratio (LTV)
This is the amount of your loan compared to the value of the property, expressed as a percent. If a homeowner borrows $80,000 in order to buy a property that has been appraised at $100,000, their LTV is 80%. LTV ratios may exceed 100% if the borrower finances more than the cost of the loan.
Multiple Listing Service (MLS)
The service provided by an association of real estate brokers that allows each of them to list and market properties to one another.
Mortgage Insurance aka: PMI
This is insurance a “high-risk” homeowner buys in order to offset a risk for the lender. When a high-risk borrower has been paying mortgage insurance and defaults on their loan, the company providing MI is partially responsible for helping the lender recover from their losses.
This is an official notice to the seller that states what amount a homebuyer is willing to pay for a particular property along with any terms or contingencies they require before agreeing to purchase the home.
This is when a lender has reviewed a potential borrower’s information and has agreed to approve any future loan up to a specific amount.
This is when a potential borrower appears to meet the borrowing criteria or qualifications for a particular type of home loan.
This is the interest (amount of money) you will be charged for holding an open line of credit. It is based on total loan amount, market values, and risk for the lender.
REO (Real Estate Owned) Property
This is a property that is owned by a lender- typically a bank or government agency. Usually the lender has acquired the property after the original homeowner has defaulted on their mortgage.
This is a real estate agent that works for the seller and helps them to sell a specific property. Agents may be both buyer’s and seller’s agents.
This is when a home is sold for less than the amount owed on it. Please see our page on Short Sales for more information.
An introductory interest rate that is very low in order to appeal to potential homebuyers.
The bundle of property rights and proof of ownership for a specific property. It declares the owner and well as the rights that owner has; such as whether or not they may use the property for specific purposes. See our page on Understanding Titles for more information.
As time goes by, we will be adding new and other important words to our real estate terms glossary. If there’s a term you’ve heard and do not understand, or if you would like us to expand on any of the definitions offered here, please feel free to contact us and ask!