Real estate terms and definitions
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Over 34 percent of all homebuyers in 2021 were first-timers. It’s likely that many of them found the process intimidating. In addition to being one of the biggest, most complex financial transactions of your life, real estate in general — and buying or selling a home in particular — is rife with unfamiliar jargon and slang.
Here’s a glossary of the most common real estate terms, with definitions. So you need never wonder again.
General real estate terms
Residential real estate: Residential real estate is property specifically developed as a place for people to live. It ranges from single-family houses to multi-family apartment buildings.
Real estate agent: A real estate agent is someone who is licensed in a state to represent buyers and sellers of property. During the buying process, they help you find and tour properties that meet your criteria, submit offers and negotiate with the seller’s agent. During the selling process, they help get your house ready for sale, list, and market it, manage showings and open houses, negotiate with the buyer’s agent and draw up a purchase and sale agreement.
Realtor: A Realtor is a real estate agent or other professional who belongs to the National Association of Realtors (NAR). Belonging to the NAR isn’t required to be an agent, but membership and agreeing to the NAR’s code of ethics is required to use the Realtor designation.
Real estate commissions: While some agents work for a flat fee, most real estate agents are paid through a commission, a percentage of the sale of your property. Figures vary, but are typically three to six percent of a home’s sale price.
Real estate broker: A real estate broker is a real estate agent who has gone through additional licensing and training that legally authorizes them to conduct transactions involving property. The broker is the one who reviews the final contracts (and in fact, may have drawn up the original boilerplate contract) to ensure that they are compliant with state and local laws and regulations. Real estate agents must work under or through a real estate broker, if they are not one themselves.
FSBO: For sale by owner (FSBO), pronounced “fizz-bow,” is a term for people who sell their homes themselves without using a real estate agent. Sometimes buying a home that is FSBO can result in significant cost savings, but it varies significantly based on the seller’s personality, experience, and the timeline for selling.
Mortgage: A mortgage is a type of loan specific to real estate. A long-term debt that’s repaid in monthly installments, it uses the property you’re purchasing as collateral. Mortgages charge fixed or variable interest rates.
Commercial real estate: Commercial real estate is property on which a business is operated; it’s designed to generate income. Types of commercial real estate include retail spaces, warehouses, factories, office buildings and apartment complexes of more than four units.
Buyer’s agent: A buyer’s agent represents a person or party seeking to purchase real estate.
Contingencies: Contingencies are clauses in a purchase and sale agreement specifying an action or requirement that must be met (or met within a certain timeframe) for the transaction to close. Common ones include home inspection, mortgage approval, sale of prior home/purchase of new home, appraisal and title search. If the contingency is not fulfilled, it allows you to back out of the contract with minimal or zero consequences.
Counter-offer: A counter-offer is a response to a buyer’s bid. It’s a part of the negotiating process between buyers and sellers.
Home inspection: A home inspection usually occurs after a home is in contract — that is, buyer and seller have signed an initial agreement. Conducted by a professional inspector, it evaluates the home’s condition, reviewing the property to make sure it is safe, inhabitable and up to current building codes and regulations. It indicates any dangers or need for repairs.
Real Estate Purchase Contract (REPC): A real estate purchase contract or REPC (pronounced “rep see”) is a legally binding document that outlines the terms and conditions of a property sale or transaction. It will include things like the price the buyer’s willing to pay, the timeline for buying the property, any repairs or other concessions for the seller to make, and any contingencies that must be satisfied for the sale to conclude. Some states refer to REPC as a purchase and sale agreement (the initial contract) or a purchase agreement (the final contract, signed at closing).
Walk-through: The walk-through usually refers to the final tour of the property a buyer takes right before the closing. The goal is to ensure the home is in the same condition it was when you agreed to buy it, or that the seller has indeed made agreed-upon repairs.
Appraiser: A home appraiser is a qualified individual who determines the value of a home, usually either to assess property tax or as a basis for a mortgage. They will consider the size, quality, and location of the property as it compares to other similar properties nearby.
Closing costs: Closing costs are the cost of making the transaction of buying or selling a home happen. They can include real estate agent commissions, lending fees, mortgage discount points, property taxes and title fees.
Down payment: The down payment is the amount of cash a buyer is paying towards the property; the rest is being financed by a mortgage. Conventional mortgages typically require a down payment that’s 20 percent of the home purchase price.
Escrow: During the home buying process, escrow refers to funds being held in a neutral place, by a disinterested third party (neither the buyer nor the seller). Earnest money, the purchase sum and administrative fees might all be held in escrow. Usually, a title company or closing agent will manage the escrow account and handle transferring funds to and from sellers, buyers and their respective lenders throughout the transaction.
Escrow account: An escrow account refers to the financial instrument, managed by a third party, holding in escrow various funds (see above) involved in a real estate transaction. While the home is in contract, the account usually holds a buyer’s initial deposit on the home. After the sale closes, an escrow account might hold a homeowner’s property taxes, mortgage insurance and homeowners insurance premiums. Some lenders require mortgage-holders to have these accounts, to make sure that certain bills are paid on time.
Mortgage broker: A mortgage broker acts as a middleman between buyers and lenders. They take your information and shop it around to multiple mortgage companies to get you a comparative listing of loans and their interest rates and terms.
Online lender: An online lender is a mortgage lender that doesn’t have a brick-and-mortar location. It operates via its website or platform, and the entire loan process is done remotely. Often its fees and interest rates are lower, because it has less overhead.
Pre-approval: A pre-approval is confirmation from a lender saying they agree in principle to extend you a mortgage, up to a certain amount. Some real estate agents require you to get pre-approved before they’ll take you on as a client, and many sellers require buyers be pre-approved before bidding on a house.
Title insurance: Title insurance is coverage for mortgage lenders and homebuyers against problems with a property’s deed once ownership is transferred. For example, if the wrong person inherited a property and then sold it to you, title insurance would help protect you against losing your home to the person who actually had the rights to it.
Comparative market analysis: A comparative market analysis (CMA) is something a real estate agent will complete to determine a home’s value and the asking price when preparing a listing. They will look at comparable homes in your area that have recently sold to determine.
Fair market value: The fair market value of a home is the price a buyer would be willing to pay a seller for a home in an open market. It tries to disregard current supply and demand conditions — that is, how hot the real estate market is in your area currently — to determine worth based on the home’s fundamentals.
Listing agent: The listing agent is the real estate agent who represents the seller and lists the home on the market.
Open house: An open house is a time when a home is available for public viewing. In other words, people don’t need to set up an appointment. Real estate agents often organize open houses.
Seller concessions: Seller concessions are items that the seller agrees to pay for on behalf of the buyer. These can include covering closing costs, or a stipend for a major expense, like a carpet replacement.
Seller disclosures: Depending on your state, there may be a mandatory disclosures form you have to complete to sell your home and show to prospective buyers. This is where you would list any repairs, defects, or issues with your home that you’re aware of.
Additional real estate terms
Earnest money: Earnest money is essentially a deposit a buyer makes when signing a purchase and sale agreement with the seller. It shows that you’re serious about buying a property. Earnest money amounts vary based on local real estate markets and personal preferences but are typically around 1 percent of the home’s purchase price.
Easement: An easement refers to a legal right that a property owner grants someone. It gives this other party the right to access or use portions of your property. Easements vary in scope and hassle. For example, an easement may be in place already on a property to give a utility company the right to access and repair a sewage line or electrical pole. Or, an individual owner can award an easement to a neighbor, letting them have the right to use your driveway.
Homeowners Insurance: Homeowners insurance is coverage that protects a residential property and items within it from destruction or damage; it also protects the policy-holder from liability should damage occur to a visitor to the home or to a neighboring home. Many lenders require mortgage applicants to take out homeowners insurance.
HOA: A homeowners association (HOA) is a neighborhood organization that manages common areas and facilities, and deals with issues that affect every local household. It maintains a series of rules, called covenants, and charges fees to residents to cover costs of maintaining the area. HOA fees will be dependent on your area and amenities offered.
House title: A house title is the formal way that ownership of a property is indicated — basically, it gives you a bundle of rights that dictates who has legal interest or equity in a property. It’s often recorded on a property deed.
Property taxes: Property taxes are set by your state. The amount you pay is based on your home’s value and local tax rates for your county or municipality. Property taxes typically fund schools, fire and police departments, city parks, and other amenities and services.
Common types of houses
Single family: Single-family homes are homes built for and occupied by one related group of people. They are typically detached dwellings.
Multi-family: A multi-family home is a building of at least two distinct units, designed to accommodate more than one family living separately. Buildings with more than four individual units are considered commercial properties; those with two to four are considered residential properties.
Condominium: A condominium, commonly called a “condo,” is an individual unit you can buy and own within a larger community of units, usually in a multi-story building. Condo communities almost always have an HOA managing them.
Townhome: Townhomes are narrow, multi-floor residences that share walls with adjacent homes, though they have their own entrances and sometimes a small front or back yard.
Manufactured: A manufactured home is a type of prefabricated residence. Its various parts are built and assembled in a factory and then transported to a site — a piece of property that is either rented or owned.
Stick-built: A stick-built home is an individually-constructed residence, built from scratch on site. Its walls and roof are framed with beams or sticks (hence the name) — traditionally of wood. Stick-builds are still the standard for detached American houses, though they are more expensive than pre-fab homes.
Now that you know some key terms, it’s time to take your first step into the world of real estate. Whether buying or selling, you might start by finding a real estate agent.