Below are the definitions of some terms that you often hear in the real estate industry. Understanding real estate terminology can be of great assistance in buying or selling a home, commercial property or investment property. In order to help you understand words commonly used in a real estate transaction, I have prepared a list of real estate terms you should become familiar with.
Agent
An authorized person who manages or transacts business for another. Laws governing real estate–especially relating to agents–vary considerably from state to state. While some standardization has been achieved, it is best to check the particulars in each state.
Amenities
Features that enhance the value or desirability of a property.
Amortize
To pay a debt in periodic amounts until the total amount, including any interest, is paid.
Appraisal
A qualified party’s opinion of the value of a property.
Appreciation
An increase in value.
ARM (Adjustable Rate Mortgage)
A financing technique in which the lender can raise or lower the mortgage interest rate according to a set index, such as six-month Treasury bills.
Assessment
An official valuation of property for tax purposes. Payments made by condominium or cooperative owners for their share of building maintenance expenses.
Broker
An independent business person who sets real estate office policies, hires employees, determines their compensation, and supervises their activities.
Buyer Agent
An agent who represents the buyer in a real estate transaction. A buyer agent may be paid by the buyer, seller, or listing agent at closing, provided all parties consent.
CLO (Computerized Loan Origination)
A computer network of major lenders that allows agents to initiate mortgage applications in their office. HUD has approved the procedure as long as 1) full disclosure is made of the fee; 2) multiple lenders are displayed on the computer screen to give borrowers a basis for comparison; 3) the fee charged is a dollar amount rather than a percentage of the loan.
Closing
The point at which real estate formally changes ownership. Closing costs are fees paid for services associated with a home’s closing such as title insurance, surveying fees, recording fees, deeds, and affidavits.
CMA (Competitive Market Analysis)
A method of determining the value of a property by comparing the prices paid for similar properties.
Code of Ethics
A written standard of ethical conduct embraced by the NATIONAL ASSOCIATION OF REALTORS®, a trade organization of more than 700,000 members representing all branches of the real estate industry.
Commission
Compensation paid to a real estate agent (usually by the seller) for services rendered in connection with the sale, exchange, or lease of property.
Condominium (Condo)
Individual ownership of a portion of a building, with common areas shared by all owners. Maintenance fees, called “assessments,” are paid to the condominium association to maintain, repair, or improve the property.
Conventional Loan
A fixed-rate, fixed-term loan that is not insured by the government.
Co-operative (Co-op)
An arrangement in which a corporation made up of residents owns a building. The buyer owns a proprietary lease, rather than real property, and a corresponding number of shares in the corporation.
Counter Offer
A new offer as to price, terms, and conditions, made in response to a prior, unacceptable offer. A counter offer terminates an original offer.
Deed
A legal document transferring ownership of a property from one party to another.
Disclosure
A disclosure reveals what previously was private knowledge. Any statement of fact that is required by law.
Down Payment
A percentage of the purchase price paid in cash by the buyer.
Dual Agent
An agent representing both parties in a transaction. In almost every state, dual agency is illegal without the written consent of both the buyer and the seller.
Earnest Money
A buyer’s partial payment to the seller as a show of good faith in completing the transaction.
Equity
The difference between the current market value of a property and the claims–such as the unpaid portion of a mortgage–that exist against it.
Escrow
The closing of a real estate transaction through a neutral third party who holds funds and/or documents for delivery after specific conditions have been met.
Exclusive Listing
A written agreement in which the seller appoints only one agent to market the property for a specific period of time. If the owner sells the property himself, he is not required to pay a commission.
Exclusive Right of Sale Listing
A written agreement between an agent and a property owner stating that the owner will pay a commission to the agent if the property is sold during a specific time period–whether or not the agent is responsible for the sale.
Fannie Mae (Federal National Mortgage Association)
Fannie Mae purchases home mortgages, thus serving as a source of funds for mortgage lenders. It is a privately owned corporation whose shares are traded on the New York Stock Exchange, but it is subject to the strict supervision of the Secretary of the U.S. Department of Housing and Urban Development (HUD).
Federal Fair Housing
Title VIII of the Civil Rights Act of 1968 (Fair Housing Act) prohibits discrimination in the sale, rental, and financing of dwellings based on race, color, religion, sex, national origin, or familial status. There are exempt properties such as housing developments for seniors that do not allow children.
FHA (Federal Housing Administration)
A federal agency established to improve housing standards and conditions. The FHA provides mortgage insurance to approved lending institutions.
Freddie Mac (Federal Home Loan Mortgage Corporation)
A federally chartered corporation established to purchase mortgages in the secondary, or resale, market. Freddie Mac’s policies are designed to serve the needs of savings and loan associations. It is subject to oversight by the U.S. Department of Housing and Urban Development (HUD).
Guaranty
A pledge made by one person (the guarantor) to ensure that another person (the obligor) will fulfill an obligation to a third party (the obligee).
HUD (U.S. Department of Housing and Urban Development)
A federal department active in a variety of national housing programs including urban renewal and public housing.
Improvements
Additions intended to increase the value of a property.
Inspection
An examination of a property by the buyer, agent, title insurance company, or other interested party.
Lien
A charge or claim by one party on the property of another as security for the payment of a debt.
Listing
A written agreement between a property owner and a real estate broker authorizing the broker to find a buyer.
Listing Agent
The agent who represents the seller.
Market Value
The price a property will command on the open market.
MLS (Multiple Listing Service)
A means by which agents are informed of the properties offered for sale by other agents.
Mortgage
A legal document pledging property as security for the payment of a loan.
Mortgage Insurance
An insurance plan that protects the lender if the borrower does not repay a loan. Mortgage insurance is required when a home buyer makes less than a 20% down payment at the time of purchase. Private mortgage insurance (PMI) covers conventional (fixed-year, fixed-rate) loans. The Federal Housing Administration charges a mortgage insurance premium (MIP) on FHA loans.
NATIONAL ASSOCIATION OF REALTORS®
A trade organization serving over 700,000 members from all branches of the real estate industry. Members subscribe to a strict Code of Ethics which governs their conduct.
Offer
A proposal to purchase property at a specified price and terms.
Open House
The common real estate practice of showing “For Sale” homes to the public during established hours.
Origination Fee
A lender’s charge for establishing and processing a new mortgage loan. It is generally computed as a percentage of the loan and may be tax deductible.
Owner of Record
The person named in the public record as the owner of a property or mortgage.
Points
A one-time charge paid to the lender for issuing a loan. Each point equals one percent of the loan amount and is used to obtain revenue in addition to the interest rate.
Principal
The amount of money upon which interest is paid.
Qualified Buyer
A buyer who has demonstrated the financial ability to afford the asking price of a home. Prequalifying with a lender can expedite the home buying transaction.
REALTOR®
A registered trade name that may only be used by members of the NATIONAL ASSOCIATION OF REALTORS®, an organization with over 700,000 members who represent all branches of the real estate industry. REALTORS® subscribe to a strict Code of Ethics which governs their conduct.
Refinance
Obtaining a new loan to pay off an existing loan. Refinancing is a popular practice when interest rates drop.
Selling Agent
The agent who obtains a buyer. A selling agent may represent the buyer, or may be a subagent of the seller.
Subagent
A salesperson who works for an agent.
Title
Lawful ownership of property.
Title Insurance
An insurance policy that protects against losses arising from title defects such as forged or misfiled documents
Title Search
An examination of the public records to determine whether the current title is clear or defective.
Town House
Also known as a row house, town house generally refers to a type of dwelling having two floors, with the living area and kitchen on the first floor and the bedrooms on the second. Town houses share a common wall between units.
VA (Veterans Administration)
A federal agency designed to help veterans enter the housing market, among other things.
VA Loan
A loan guaranteed by the U.S. Department of Veterans Affairs (VA). VA loans are made to honorably discharged veterans or their unremarried widows or widowers. Such loans require only a minimal, or no, down payment and offer lower interest rates.
Walk-Through
A final inspection of a property before it changes ownership.