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Ultimate Guide to Real Estate Terminology

Real Estate can often be confusing to understand, to remedy this here is a comprehensive list of real estate terminology so that you can always know what is being talked about.

A

  • Absorption Rate: The rate at which available homes are sold in a specific real estate market during a given time period.
  • Amortization: The process of gradually paying off a debt, such as a mortgage, through regular payments that include both principal and interest.
  • Appraisal: An estimate of the value of a property, usually conducted by a professional appraiser.
  • Assessed Value: The value assigned to a property by a taxing authority for the purpose of calculating property taxes.
  • Assessment: The value of a property for tax purposes, determined by the local government.
  • Agent: A licensed professional who represents buyers or sellers in real estate transactions.

B

  • Buyer's Market: A market condition where there are more properties for sale than there are buyers, giving buyers an advantage in negotiations.
  • Broker: A real estate professional who has obtained a broker's license, allowing them to work independently or hire other agents.

C

  • Capitalization Rate (Cap Rate): A measure used to estimate the potential return on investment for a property by dividing the property's net operating income by its purchase price.
  • Closing: The final step in a real estate transaction where the property is officially transferred from the seller to the buyer.
  • Closing Costs: Fees and expenses paid by both the buyer and seller at the closing of a real estate transaction.
  • Contingency: A condition that must be met before a real estate transaction can be completed. Common contingencies include home inspections, financing, and appraisals.
  • Condominium (Condo): A type of housing where units are individually owned, and common areas are shared by all owners.
  • Cash Flow: The net income generated by a real estate investment after deducting operating expenses and mortgage payments.

D

  • Down Payment: The initial payment made by the buyer when purchasing a property, typically a percentage of the total purchase price.
  • Deed: A legal document that transfers ownership of a property from one party to another.
  • Dual Agency: When a real estate agent or broker represents both the buyer and seller in the same transaction.

E

  • Easement: The legal right to use someone else's property for a specific purpose, such as access to a shared driveway or utility lines.
  • Earnest Money: A deposit made by the buyer to demonstrate their serious intent to purchase the property. It is typically held in escrow until the closing of the transaction.
  • Equity: The difference between the market value of a property and the amount owed on the mortgage.
  • Escrow: A neutral third party that holds funds and documents during a real estate transaction until all conditions of the sale are met.

F

  • Fair Market Value: The price that a willing buyer and a willing seller would agree upon for a property in an open and competitive market.
  • Fixed-Rate Mortgage: A mortgage loan with an interest rate that remains constant for the entire term of the loan.
  • For Sale By Owner (FSBO): A property that is being sold directly by the owner without the representation of a real estate agent.
  • Foreclosure: The legal process by which a lender repossesses a property due to the owner's failure to make mortgage payments.
  • Fixture: An item that is permanently attached to the property and is considered part of the real estate.

G

  • Gross Rent Multiplier (GRM): A measure used to estimate the value of an income-producing property by dividing its purchase price by its gross rental income.

H

  • Home Inspection: A thorough examination of a property's condition, typically performed by a licensed home inspector before the sale is finalized.
  • Homeowners Association (HOA): An organization that manages and enforces rules and regulations for a community or condominium development.

I

  • Ingress/Egress: The legal right to enter and exit a property, typically granted through easements or rights-of-way.
  • Incentive Zoning: A zoning practice that allows developers to build larger or taller structures in exchange for providing public amenities or affordable housing units.

J

  • Joint Tenancy: A form of property ownership where two or more individuals have equal ownership rights, with the right of survivorship.

L

  • Lease Option: A rental agreement that gives the tenant the option to purchase the property at a predetermined price within a specified period.
  • Listing: A property that is for sale and is represented by a real estate agent.
  • Loan-to-Value Ratio (LTV): The ratio of the loan amount to the appraised value of the property, used by lenders to assess risk.
  • Land Use Restrictions: Regulations imposed by local governments that dictate how land can be used and developed.

M

  • Multiple Listing Service (MLS): A database used by real estate agents to share listings with one another, increasing exposure for properties.
  • Market Analysis: An evaluation of local real estate market conditions, including supply and demand, inventory levels, and pricing trends.
  • Mortgage Insurance: Insurance that protects the lender in case the borrower defaults on the loan. It is typically required for borrowers who make a down payment of less than 20%.

N

  • Net Operating Income (NOI): The income generated by an income-producing property after deducting operating expenses but before deducting mortgage payments and taxes.

O

  • Offer: A formal proposal to purchase a property at a specified price and terms.
  • Open House: A scheduled period of time during which a property is available for prospective buyers to tour without an appointment.
  • Option Agreement: A contract that gives one party the right, but not the obligation, to buy or sell a property at a predetermined price within a specified time frame.

P

  • Pre-approval: A lender's conditional commitment to provide a borrower with a specific loan amount based on their financial information.
  • Property Management: The operation, control, and oversight of real estate, including residential, commercial, and industrial properties.
  • Prepayment Penalty: A fee charged by lenders if a borrower pays off a loan before the end of the agreed-upon term.

Q

  • Quiet Title Action: A legal proceeding to establish clear title to a property and resolve any disputes regarding ownership.

R

  • Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-generating real estate.
  • Real Estate Owned (REO): Properties that have been repossessed by a lender after an unsuccessful foreclosure auction.
  • Refinance: The process of obtaining a new mortgage loan to replace an existing loan, often to take advantage of lower interest rates or to change the loan terms.

S

  • Seller's Market: A market condition where there are more buyers than properties for sale, giving sellers an advantage in negotiations.
  • Short Sale: A sale of a property for less than the amount owed on the mortgage, with the lender's approval. It is often used as an alternative to foreclosure.
  • Survey: A detailed map or drawing of a property that shows its boundaries, dimensions, and any improvements or encroachments.
  • Short-Term Rental: The rental of a property for a short duration, typically less than 30 days, often facilitated through platforms like Airbnb or VRBO.

T

  • Title: Legal ownership of a property.
  • Title Insurance: Insurance that protects the buyer and lender against any defects in the title of a property.
  • Title Search: An examination of public records to determine the legal ownership of a property and to identify any liens, encumbrances, or other issues that could affect the title.
  • Tax Lien: A legal claim against a property for unpaid taxes. Tax liens can be placed by local governments or other taxing authorities.
  • Tax Assessment: The process of determining the value of a property for tax purposes, conducted by local government assessors.

U

  • Underwriting: The process of evaluating a borrower's creditworthiness and risk factors to determine whether to approve a mortgage loan.
  • Urban Sprawl: The outward expansion of urban areas into previously undeveloped or rural land.

V

  • Vacancy Rate: The percentage of rental properties that are unoccupied at a given time.
  • Vesting: The legal ownership or entitlement to a property or asset.

W

  • Walkability: A measure of how easily accessible and pedestrian-friendly a neighborhood or property is.

Y

  • Yield: The income return on an investment, typically expressed as a percentage of the investment's cost or current value.

Z

  • Zoning Variance: Permission granted by local authorities to deviate from the zoning regulations for a specific property or project.

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