Real Estate Terms and Definitions
- In Plain English
The “language” of real estate can be confusing. ARM. CMA. CC&R. Offer. Counter Offer. Fixed-rate mortgage. If these abbreviations and terms all seem like a foreign language to you, it’s no surprise.
It is a good idea to be familiar with terminology used during the real estate transaction process to feel more knowledgeable and at ease with your decisions. Here is a glossary of real estate terms you’ll find helpful whether or are buying or selling a home:
Adjustable Rate Mortgage (ARM): this type of mortgage has an interest rate that will change periodically along with the changes in the index it is tied to.
Addendum: In real estate terms, an addendum is a document that is attached to the original contract and becomes part of it. It is used to provide additional information or indicate other requirements of the buyer or seller that aren't included in the original contract.
Appraisal: A written statement justifying the current price of the home based on an analysis of comparable homes and home sales in the neighborhood.
As-Is: Refers to the physical condition of a home being purchased. The home seller is selling the home without any warranties or guarantees relating to the home’s condition and will not pay for repairs or improvements.
Caveat Emptor: is a Latin phrase meaning “let the buyer beware.” Typically used in real estate transactions warns a buyer to perform proper due diligence prior to purchasing a property.
CDD Fee: Community Development District fee is charged by a developer of a subdivision/neighborhood to finance the cost of amenities and improvements for a community that could not be accomplished without the CDD fees.
Certificate of Title: A document issued by a title insurance company that states their opinion of the status of the title after the records have been examined.
Closing: A meeting where both the buyer and the seller sign all the documents and money is exchanged. In some states, the transaction is not considered "closed" until the documents are recorded.
Closing Costs: Closing costs are those fees that must be paid at the time of closing on a home purchase. These costs include fees associated with the purchase and the loan as well as any pre-payment of recurring costs such as property taxes and homeowners insurance.
Comparative Market Analysis (CMA): A process to help determine a listing price for a home or an amount to offer when buying a home based on sales of similar homes in the area. This is similar to an appraisal, but less formal.
Comps: Short for "comparable sales", comps are recent homes that have sold nearby and are one tool used to determine the current market value of a home.
Contingency: A condition that must be met in order for a contract to be enforceable. Common contingencies include home inspections and obtaining a mortgage.
Counter Offer: A way to decline an initial offer while continuing with negotiations. A counter offer includes new prices and/or terms and renders the initial offer void.
CC&R: An abbreviation for "covenants, conditions, and restrictions". These real estate terms all describe limitations placed on a group of homes (like a neighborhood or condominium association) and often include things like maintaining a uniform appearance, whether pets are allowed, and parking restrictions.
Disclosures: All known facts that affect the value of a property that may or may not be obvious or observable to the buyer. For mortgages, disclosures include all known facts that would affect your ability to obtain a loan.
Deed: A document that gives ownership of a property.
Down Payment: The portion of the purchase price of the home that the buyer pays up front and does not include in the mortgage.
Due Diligence: The period of time that a buyer has to thoroughly investigate a property and either propose solutions to any problems that are discovered or cancel the purchase.
Earnest Money Deposit: A deposit made with an offer of purchase to show that the buyer is serious about the transaction.
Escrow: Items or cash amounts that are deposited with a third party to be delivered when conditions are met. For example, earnest money is placed in escrow and only given to the seller at closing.
Escrow Impounds: Additional monies that are held in an escrow account for payment of things like property taxes and insurance. Generally, your monthly mortgage payments include an amount paid into the escrow account, and when items become due the lender will pay them out of this account.
FHA Loan: A mortgage that is backed by the U.S. Federal Housing Administration that helps borrowers who are unable to come up with the standard 20 percent down payment. FHA Loans allow for down payments as low as three percent of the purchase price.
FICO® Score: A type of credit score that is calculated using FICO (Fair Isaac Corporation) software to determine the risk of extending a loan to an individual.
Fiduciary Duty: The obligation of an individual to act in the best interests of the beneficiary, or the person who placed the trust to the fiduciary.
Final Walk-Through: The final inspection of a property by a buyer right before closing.
Fixed-Rate Mortgage: A mortgage with a defined interest rate that does not change during the entire term of the loan.
GFE: An abbreviation for "good faith estimate", or an estimate of the amount due at closing by a borrower.
HOA Docs: An abbreviation for "home owners association governing documents". These include CC&Rs that govern what owners may do, Bylaws that define how the Association is run, and Rules and Regulations that clarify CC&Rs.
Loan-To-Value (LTV) Ratio: In real estate terms, the LTV is a financial term used to describe how much of the value of the home has been mortgaged.
Mortgage: A pledge that a buyer makes to a bank whereby the bank retains a claim to the ownership of a home in exchange for extending a loan to facilitate the purchase. The bank retains this claim until the loan has been repaid in full.
Mortgage Insurance: An insurance policy compensating lenders if a buyer defaults or fails to comply with the terms of a loan.
Offer: In real estate terms, an offer refers to the written proposal to purchase a home that includes a price, legal descriptions, terms, and other conditions.
Pending Contract Status: Means a seller has accepted an offer from a potential buyer but the transaction has not yet closed. Contract Pending Status is frequently seen when contingencies are involved including buyer financing, property inspection, and title insurance.
PITI: The actual amount of a mortgage payment that includes the Principal, Interest, Taxes, and Insurance.
PMI (Private Mortgage Insurance): Similar to Mortgage Insurance, most lenders will require PMI when the loan-to-value ratio is more than 80% and protects lenders against default.
Point: An amount equal to one percent of the total loan, points are often paid at closing to lower the interest on the loan.
Pre-Qualification: A certificate that a buyer can receive from a bank that specifies an amount the bank has qualified the buyer to borrow. Pre-qualification gives buyers credibility to potential sellers and helps them to shop for affordable homes within their budget.
REO Foreclosure: (Real Estate Owned Foreclosure) is defined as real estate that is taken back from a borrower who could no longer make the required bank payments.
Short Sale: Often considered as an alternative to foreclosure, a short sale is a sale that results when earnings generated are less than the amount owed to the lender for the property.
Title Insurance: Covers the loss of rights to a property from legal problems with the title. Title Insurance is usually required for properties under mortgage and protects the lender from their claim to the property.
Transaction Brokerage: Provides third-party real estate services to buyers and sellers or both in a real estate transaction without being the exclusive representative to either. A transaction broker is required to remain neutral and typically charges a flat fee as opposed to receiving a commission.
VA Loan: A home loan guaranteed by the U.S. Department of Veterans Affairs issued to qualified veterans or surviving spouses.