60 Real Estate Terms To Help You Become A Better Communicator
I’ll get straight to the point.
Understanding the basics and real estate definitions is important to have in your arsenal.
The easiest way to pass your real estate exam is to know all these real estate terms.
I say arsenal because words are powerful weapons. How you communicate to your clients, homebuyers, and sellers can make or break a sale.
You’re not just selling property. You’re guiding people to make better choices for their homes and improve their living. Developing excellent communication skills helps you simplify real estate concepts. This helps clients understand the terms and jargon easier along the way.
To get started, let’s breakdown how else you can use real estate terms.
How To Use The Real Estate Terms Listed Here
Apart from building your communication skills, there are 3 ways you can use them such as:
Create a guide for reference; copy this list or take screenshots for quick access.
You can use these real estate terms to help you study for the real estate exam.
Make flashcards for review and cement the knowledge in your brain.
Use real estate practice exams and test yourself.
Why Is This Important
The more simplified your explanations are, the less your clients will doubt you. The easier it sounds in your clients’ heads, the more they’ll enjoy working with you.
When you have both trust and transparency in a business relationship, driving sales becomes less blurry. When you deliver value in the right ways, your clients are happy.
When you can explain difficult terms such as mortgage insurance and the adjustable-rate mortgage it takes a lot of pressure and load off your clients.
In the end, you’re also empowering your relationships and fostering them with positive growth.
To help you create these relationships, we’ll go through 60 real estate terms. I’ve also sorted them into different categories for convenient referencing.
General Terms
As-is – This refers to the condition that the seller is unwilling to take care of most of the home repairs. This could also mean the purchase price is lower than the market price in the area.
Appraisal – An estimated value of how much the property is worth. To get an approved loan from the bank, you’ll need the home’s appraised so the bank loans you the correct amount. An appraisal can also provide clarification on the agreed purchase price between a buyer and a seller.
Closing – Refers to when a buyer and seller finalize a real estate transaction. During the real estate transaction, both the buyer and seller fill out legal paperwork to officially transfer ownership of the property.
Closing costs – Closing costs are a percentage of the property’s purchase price. This will cover additional costs such as processing fees, appraisal, excise tax, and title insurance. Closing costs usually fall between 2 – 5% of the purchase price.
Carrying costs – Costs that you record in the list of expenses from the time you purchase a property to the time you sell it. This includes any interest rate, taxes, insurance, and utilities.
Days on Market (DOM) – Is the number of days between the date a property is listed for sale on the Multiple Listing Service (MLS) and the date the seller signs a contract to sell the property with a buyer. A high DOM means a weak market and favors buyers, while a lower DOM is a strong market favoring sellers.
Due diligence – Is the time frame provided to a buyer for a full examination of the property. A buyer will want to inspect the property first before making the final decision.
Escrow holder -An escrow agent who safeguards any important documents, money, information, and things of value. Releasing them happens are the required conditions are met.
Exit Strategy – The type of strategy an investor will use to cash out on an investment property. One example is selling a rehabbed property.
Homeowner’s Association (HOA) – A private association that manages a planned community.
Multiple Listing Service (MLS) – A database that provides access to a real estate agent and broker members on information about properties for sale within the area. A buyer’s agent will use an MLS to check what is available on the market and the price similar homes have sold for.
Loan to Value (LTV) – A ratio used to measure the loan amount relative to the value of a property.
Offer – An initial purchase price the buyer offers to a seller. This real estate term is on your exam.
Proof of funds – An official statement used to verify the buyer has sufficient funds to proceed with a purchase offer. The statement is usually sourced from a financial institution.
Realtor – The word ‘realtor’ is different from a real estate agent. Not all real estate agents are realtors. A realtor is a real estate agent who is also a member of the National Association of REALTORS (NAR).
Real Estate Lien – A real estate lien is a legal right to take real estate property and sell it if the contract is not fulfilled.
ROI – Measures the net profit of an investment property relative to the total property cost.
Real Estate Terms For Homeowners
Adjustable-rate mortgage – A type of mortgage where the interest rate of a loan can change at different intervals over time. This can happen in 5, 7, or 10 intervals. An adjustable-rate mortgage is a risky loan since there’s no telling when the rates will skyrocket.
Amortization – The process of spreading payments over multiple periods to reduce debt. When you take a home loan from a bank, for example, amortization occurs once you start paying mortgage payments.
Assessed value – Value that a public assessor determines for tax purposes.
Buyer’s agent – Is a real estate agent who represents the buyer in a real estate transaction. The buyer’s agent can also act on behalf of the buyer like in a Purchase and Sale Agreement with the seller’s agent. The seller’s agent is known as a listing agent.
Cash reserves – Are leftover funds after paying for the down payment and closing costs. Cash reserves are funds set aside for emergency purposes.
Escrow – An escrow is a financial account where an impartial third party (independent person) holds something of value during a transaction.
When you make an offer to purchase a home, the earnest money check you write is placed in escrow. The earnest money check doesn’t go to the seller, but to an impartial third party until you (the buyer) and the seller close the deal. This protects both parties in the process.
FHA mortgage – A Federal Housing Administration (FHA) loan is a mortgage issued by an FHA lender to help first-time homebuyers. Getting a home loan from a bank can also be an expensive option. The advantage of an FHA loan offers lower down payment, low closing costs, and easier credit qualifications.
Fixed-rate mortgage – A fixed-rate mortgage means the interest rate will stay the same over time. A fixed-rate mortgage is safer than an adjustable-rate mortgage but the rates may also be slightly higher.
Interest – is a rate given to the borrower by the lender as a privilege of borrowing money. A loan, for example, carries monthly mortgage payments with an interest set by the lender. The interest on the monthly mortgage payments also carries principal payments on the loan.
Mortgage – A mortgage is a loan usually given by a bank or other financial institution to help finance the purchase of a property or home.
Mortgage Broker – A mortgage broker is like a middleman between a mortgage borrower and mortgage lender. If you’re looking for the best mortgage before buying a home, a mortgage broker is a great option. They help you find mortgage lenders and a competitive interest rate best suited to your needs.
Mortgage brokers are also licensed finance professionals who do a lot of legwork on your behalf like gathering documents, verifying income, and apply for loans.
Mortgage pre-approval letter – Provides documentation stating how much mortgage you’re approved to borrow.
Pre-Approval letter – If you’re new to buying a home, this carries significant weight to agents and sellers in a transaction. The letter will state the loan amount a lender is willing to loan to you, the borrower. This can boost credibility in transactions when you purchase a home or property.
Private mortgage insurance – If a buyer makes less than a 20% down payment on a home, you have to pay for a private mortgage insurance fee. The fee is usually taken as a percentage from the mortgage loan and will stop once the buyer reaches 20% equity.
Title insurance – A title insurance is typically part of the closing process in a transaction. To have a title insurance is important for lenders and real estate owners. This protects them from property damage, loss, and issues due to liens or defects in the title of the property.
Most insurances work by protecting you against future events. In contrast, a title insurance protects you from any events in the past that caused property damage and to the people who owned it. Title insurance policies are paid through a one-time premium at the close of an escrow.
Real Estate Terms For Property Listing & Info
Conventional sale – When the owner’s property has no mortgage remaining or is less in terms of the mortgage amount than what the market indicates the property sells for. A conventional sale offers smoother transactions than foreclosures, short sales, and probate related sales.
Land lease – The condition where you own the home but must pay rent to the landowner for the land.
Probate sale – A type of sale that occurs when the owner of a property or home dies without writing a will that would state who the property belongs to after the owner’s passing. This results in the probate court authorizing an estate attorney to hire a real estate agent to sell the property.
Rent back – A rent back agreement practically gives sellers more time to live in a home after closing a sale or deal. This is an arrangement where once the seller sells the home to the buyer who is now the new homeowner, agrees to let the seller stay by paying rent as a tenant.
This happens if you sell your home and have to move out before closing a deal on your new home or haven’t found a place to live yet.
Subject to inspection – A condition where the seller does not make the property or home available for viewing unless there’s an accepted purchase offer.
Short sale – A short sale happens when the owner sells their property or home at a lesser price than what it’s owed on its mortgage or less than what is owed to the lender. Homeowners and banks use this as an alternative to avoid any foreclosure expense.
Trust sale – A type of sale where the property or home sold is done by a trustee of a living trust. The term trust refers to an arrangement that allows a third party, a trustee, to hold assets on behalf of a beneficiary. Sales like these occur if the owner placed their assets in a living trust or passed away.
Tenancy in common (TIO) – Is a type of joint ownership of a property where the tenants all own the property but in different ratios. The properties owned can be a commercial building or a family property.
Real Estate Terms For Finance & Documentation
Debt-to-income ratio – A number used to determine the based off of available loan programs to estimate how much you can pay for your monthly mortgage. The computation is as follows:
(total debt expenses + monthly home payment)/ gross monthly income x 100
Earnest money deposit (EMD) – Also referred to as a good faith deposit. Your EMD represents the initial funds a buyer is asked to put down, usually between 1 to 5 percent of the price, once a seller accepts the offer of the buyer.
Equity – This is the investment an owner has in their property or home. Equity is the worth of your home minus property mortgages and liens.
Hard money loan – A hard money loan is a type of loan where you borrow from non-traditional lenders. Hard money lenders place more importance on the property rather than your credit score.
Preliminary report – Before issuing a title insurance, a preliminary report is a report that shows details such as ownership history, easements, and liens. The report will reveal any issues found in the title so that this can be dealt with by the seller to provide a clear title.
A preliminary report is necessary for a title insurance company to produce a title insurance policy.
Pre-qualification – An estimated amount a home buyer can expect to be approved during the process of a loan.
Pre-approval – This guarantees the lender will commit to providing you with the loan amount needed to finance your home. Basically, a pre-approval letter is a stamp of approval that states you have the credentials to purchase a home up to that price.
Principal – Is the amount of money that is owed to the lender, without interest.
Purchase and Sale agreement – Refers to a written contract between a buyer and a seller. The contract outlines any terms to sell and buy real property.
Seller disclosure – Disclosure information provided by the seller to the buyer, which also affect the buyer’s decision to purchase the property. Some of the information includes:
- Legal issues
- Major construction projects within the vicinity
- Pest problems
- Recent deaths
- Property disputes
- Unusual odors
Termite report – This is a diagram of the property along with the location of active termite activity.
Real Estate Terms On Offers & Contingencies
Appraisal contingency – In real estate, an appraisal contingency states that the home should be appraised at an amount equal to or higher than the sale price. If a home’s appraised value is lesser than the sale price, the buyer can dissolve the purchase agreement.
Backup offer – If you (the buyer) are interested in purchasing a home but is already under contract with another buyer, you can submit a backup offer. This is helpful in case the first transaction doesn’t work out.
Blind offer – This is when a buyer makes an offer to purchase a property they haven’t seen but could’ve seen. You’ll hear offers like this in real estate in highly competitive areas to be first and win swiftly.
Inspection – This happens when buyers hire a licensed inspector to inspect the condition of the home and prepare a report based on the findings.
Inspection contingency – Provides buyers with a predetermined amount of time to conduct necessary inspections during escrow.
Loan contingency – Allows buyers to step back from a deal and keep their deposit if they fail to secure a mortgage that satisfies the specified terms within the allotted time frame.
Seller concession – Seller concession is a real estate term for sweetening the pot. Sellers offer concessions to encourage buyers to purchase the property.
Title search – A title search is the process of determining the current status of general real estate taxes against the property. The purpose of a title search is to determine verification of the seller’s right to transfer ownership.
The title examiner will usually use title plants & public records to confirm the legal ownership of the property. Using public records, the title examiner can discover liens, claims, errors, debts, and other restrictions on the property. After all, a clean title is necessary if you want a real estate transaction to proceed smoothly.
Title Contingency – A title contingency is a contingency that aims to protect the buyer. In the event of a title search or examination revealing serious issues with the title, the buyer can opt to back out.
Confusing Real Estate Terms Explained
Real estate jargon can cause a serious headache. Especially for new homebuyers, they might ask you questions that carry a similar real estate definition to the other.
Terms like title search, short sale, lien, etc. aren’t very complex concepts to understand. But once you compare each term to another term that carries a similar concept, the confusion seeps in and both you and the homebuyer or client become lost in translation.
This section will put that confusion to ease. Explaining these concepts will give you a better understanding of the fundamental difference between these terms.
Pre-qualification vs. Pre-approval
These two terms almost have the same definitions so it’s easy to get these mixed up especially for first-time real estate agents.
A key difference is that pre-qualification is the first step or comes before the pre-approval.
Pre-qualification is based on consumer data that gives you an idea of how much of a loan you’re likely to qualify for.
Pre-approval, on the other hand, is verified consumer data where the loan you requested is granted with a commitment provided by the lender.
Fair Market Value vs. Appraised Value
Among most real estate terms, this can be the most confusing.
The fair market value (FMV) is the amount you expect a house to sell for. The appraised value is an independent assessment of the property, which determines the value of the home.
FMV looks at the supply and demand in the market while appraised value looks at the geographical location, home condition & features, and recent sales of similar homes in the vicinity.
While FMV shows data on the upward and downward trends in the market, the appraised value has data that tends to be more consistent.
An FMV is also performed by a real estate agent or broker and can even be done by a homeowner, whereas an appraised value is determined by a licensed appraiser.
Between the two, both give important detail when purchasing a property.
A high appraised value means the house is easier to sell because a buyer can secure a loan from a lender easily this way.
Fixed-rate vs. Adjustable-rate mortgage
A fixed-rate mortgage has a predetermined interest rate that lasts for the entire life of the loan. Typically, fixed-rates up to 30 years are the most common.
Adjustable-rate mortgages have a variable interest rate, which means the mortgage rates vary as the interest rates go up and down. Lower interest rates might be great for adjustable-rate mortgages, but high interest rates have the same effect.
If you plan to own your home for longer than 5 years, then a fixed rate is the better option. Although they’re generally more expensive, it’s safe and you won’t incur higher cost over time.
If you decide to sell your home before the 5-year introductory period, a variable-rate is better. Sure, it’s risky, but with lower interest rates for two years or so, this won’t be as risky as going for a variable rate that goes up to 10 years.
Buyer’s agent vs listing agent
A buyer’s agent represents the buyer while the listing agent represents the seller; however, the buyer’s agent can also be a selling agent.
This is the key difference between the two. Once you execute a contract in a real estate transaction, the buyer’s agent now becomes the selling agent. Why? Because a selling agent is an agent that has sold a home. This means the agent who represented you (the buyer) brought in a buyer and this buyer then purchased your home.
The difference lies in the use of both real estate terms. A selling agent is different from the seller’s agent. The terms selling agent and buyer’s agent are used interchangeably while seller’s agent refers solely to listing agent.
Conventional loan vs FHA loan
People think an FHA loan should always be the go-to option for first-time homebuyers. They also think a conventional loan is best for more established homebuyers. This is not always the case.
FHA loans are more lenient with lower credit scores. They have slightly higher down payments & higher property standards, and FHA mortgage insurance is mandatory.
Conventional loans are different. They require higher credit scores, have slightly smaller down payment rates, more liberal property standards, and the mortgage insurance is necessary only when the down payment is less than 20%.
If your credit score is below 620, FHA loans are the best option. If you have a credit score equal to and higher than 720, then a conventional loan is the best option.
Summary
With time and patience, real estate terms will be an automatic reflex for you. One of the best ways to practice your familiarization of the terms is through using them in sentences both mentally and through speaking.
If you have a partner you can practice these real estate terms with, even better. Using 60 of these real estate terms to brush up your fundamental knowledge about real estate can turn you into an excellent communicator.
Understanding your client’s problems and delivering explanations or solutions articulately is the goal. It changes the game of driving sales in different ‘real estates’, meaning different niches, and aspects within the real estate industry.
That being said, I’m positive you’re already a great communicator. So why not strive further and use these 60 real estate terms to guide you on your way to becoming even greater than you were yesterday.