Let’s get into the details. Before you embark on any real estate-related journey as a buyer, seller, broker, or agent, there are just some terms and definitions you’ll need to add to your vocabulary. Knowing the lingo will ensure you understand every step of the process. We’ve broken down some of the most commonly used real estate terms, so you can have a reference library of definitions at your disposal.
General Real Estate Terms
There are some general real estate industry terms that are often used among brokers, agents, lenders, buyers, and sellers. These definitions will help shed light on what these terms mean, so you can be sure you have a complete understanding.
Buyer’s Market (Seller’s Market:) These real estate terms will refer to the current real estate market and who it favors most, the buyer or the seller. When there is a much greater supply of homes on the market than there are buyers, it’s a buyer’s market. Alternatively, when there is more purchase demand than there are listings, it’s a seller’s market.
Commission: Any representing agents associated with the final purchasing transaction will collect a commission or payment based on the finalization of the home sale. At the time of closing, commission amounts are allocated to participating real estate agents and can vary depending on the terms of the contract.
Exclusive Listing: An exclusive listing is a real estate term used to describe the scenario in which a home seller contractually agrees to only work with one preferred broker. Alternatively, an open listing will allow several brokers or agents to list the home and/or provide representation.
Financial Real Estate Terms
When you’re on the real estate transaction journey, there are certain financial terms you’ll need to be familiar with as they pertain to lending, financing, and purchasing. Here are a few of the most common terms used among lenders, brokers, buyers, and sellers.
Assessed Value: When real estate market professionals use the term assessed value, they’re referring to the estimate of the home’s market price for purposes of determining property taxes. Considerations may include the house’s particular location as well as neighboring property values.
Debt-to-Income Ratio: In terms of securing a loan, a lender will review the borrower’s debt-to-income ratio. This is a calculation of the borrower’s monthly debts, like housing payments, credit cards, or student loans. That total is divided by the borrower’s monthly gross income. This percentage will serve as a benchmark for lenders who gauge someone’s ability to handle and pay for a mortgage.
Lien: A lien is a method a lienholder might use to secure payment, and until payment is made, the lien holder can have legal claim to a property. A mortgage is a lien since the lender can repossess the property in the event of defaulted or delinquent payments.
Mortgage-Related Real Estate Terms
When securing a mortgage, there are some real estate terms you’ll need to know. These few terms are connected to the home mortgage side of the real estate purchasing journey. And they can be helpful to you as you navigate yours.
Amortization: This real estate term refers to the payment schedule that outlines how much of the payments apply toward the principal amount versus interest. In most cases, payment is first applied to interest, then the principal balance.
Private Mortgage Insurance: Often referred to as PMI, private mortgage insurance is a policy that protects the lender should a borrower in question default on the loan. Down payments, less than 20%, usually translate to a borrower also paying for PMI.
Underwriting: This real estate term refers to the process used to verify loan conditions and assess financial risks to the lenders issuing loans on properties. The process might include the borrower’s employment and credit history, as well as the property’s condition.
Offers & Negotiation-Related Real Estate Terms
During the offer and negotiation process, you might hear certain real estate terms that are new to you. Here is a quick breakdown of a few of those terms, so you know how to provide or consider an offer and negotiate the best purchasing deal.
Seller’s Disclosure: This is a legal document that home sellers must complete, outlining any known defects of the property that might adversely affect its value.
Earnest Money: The home buyer will include earnest money as part of the down payment prior to closing to demonstrate a serious commitment to finalizing the purchase. It’s also called a good faith deposit.
Contingency: This term refers to a condition that has to be met before the home purchase transaction can be finalized. A satisfactory home inspection report is an example of a contingency.
This list of real estate terms is, by no means, exhaustive, and there are plenty of other common phrases and lingo you might hear during the home purchasing process. Let New Door Property Transfer help answer all your real estate transaction questions, including definitions of the terms parties need to understand most.