Real estate terms are words used by agents and brokers when buying or selling a property. Some terms explain the buying/selling process itself while others define features about the property. To ensure contracts, listings, ads, and negotiations are effective, every agent should know the real estate terms below.
Here are 32 real estate terms every agent needs to know:
1. Adjustable Rate Mortgage (ARM)
An adjustable rate mortgage allows for the increase or decrease of interest over the life of a loan or mortgage. The most common time frames for adjustable rate mortgages are five, seven, and 10 years.
An appraisal is a report that attests to the condition of a property and its assessed value based on a set of criteria. An appraisal is required by lending institutions to set the fair market value of a home before releasing loan money for a home purchase. It’s also critical to lending institutions as it determines likely resale value should the property need to be sold due to default of the borrower/buyer.
3. Balloon Payment
A balloon payment is the last payment of a mortgage or a loan that is larger than the others. This amount is larger because the borrower agrees to make smaller fixed payments for the life of the loan in exchange for paying off all accrued interest and principal as part of the final payment.
4. Buyer’s Agent
The buyer’s agent represents the potential homeowner making a purchase. The buyer’s agent represents the best interests of the purchaser of the property and is bound by the ethics code to do what is best for their client during the transaction.
5. Closing Costs
Closing costs are the fees paid by the buyer to cover items necessary to complete a property purchase. These include title searches, an escrow deposit, property taxes, home inspection, and appraisal. The closing costs are usually estimated between 2%-5% of the total purchase price
Collateral is money or assets pledged to secure a loan. In the case of a mortgage, collateral is the home being purchased; this can be forfeited to the lending institution in the event the buyer does not fully pay for it.
Contingencies are stipulations in a home sale contract that must be met to make the offer valid. If you need time to get a loan, for example, then a financial contingency would offer a timeline to do so. Similarly, if you want to make sure that a home inspection does not find major issues in a property under contract, then your offer letter should state those as appraisal/inspection contingencies.
A contract is a legal document that sets up the conditions under which one person buys a property from another person. Real estate agents often use the term “under contract” when a property is ready to close and the buyer/seller have an agreement for sale.
9. Debt-to-Income Ratio
The debt-to-income (DTI) ratio refers to your monthly debt payment as a percentage of your monthly income. Lending institutions will often assign a DTI to potential buyers; typically, your ratio must be 50% or less to be approved for a loan. This percentage number indicates whether or not a buyer can pay back a home loan within the required length of time.
Depreciation refers to the decrease in property value over time due to age, market changes, property damage, or other factors. Depreciation values can be deducted from homeowners’ taxes.
11. Due Diligence
Due diligence refers to all of the steps the people involved in a sale can be reasonably expected to take to make sure that the requirements of the contract are met. These steps might include things like title search, home appraisal, or home inspection. All due diligence tasks should be outlined in a home sale contract.
12. Earnest Money Deposit
An earnest money deposit is an amount put into an account to assure the seller that the buyer is serious about their offer. The earnest money can be forfeited if the buyer pulls out of the agreement without a good cause. Earnest money deposit amounts vary, but are usually $500-$1000.
Real estate property lines divide ownership between two properties. If there is a structure added to a property — like a fence or wall — that crosses a neighbor’s property line, then it is considered encroachment. The owner of the encroached property can take legal action in this instance to remove the encroaching structure from their property.
Equity is the value of the house minus the unpaid mortgage. As an owner pays off their mortgage loan, their home equity increases because they owe less on the house. If the house is resold, then the equity would be the sales price minus the mortgage.
An escrow is a third-party account that is the holding place for money and documents during the due diligence period of a home sale. An escrow account would typically house earnest money, a downpayment, and documents pertinent to securing a mortgage, such as a loan pre-approval. Funds deposited into an escrow account don’t change hands until a title/escrow company verifies due diligence is completed. This ensures both buyer/seller are compliant.
16. Fixed Rate Mortgage
A fixed rate mortgage is a property loan with a set interest rate; the predetermined rate of interest is good for the existence of the loan. The most common timeframe for a fixed rate mortgage is 25 or 30 years.
17. Home Inspection
A home inspection is a visual assessment of a property for pest or weather damage, material breakdown, or potentially costly repairs needed to retain the original value of the house. A home inspection is completed by an inspector trained to look for these types of defects and is typically conducted during the due diligence period before a sale is finalized.
An iBuyer is a person or organization that uses an online agent or real estate technology to make an offer on a property. These include individual investors and real estate investment organizations that amass properties for rentals, vacation home sales, or resale after renovation. iBuyers usually have all-cash offers and do not require outside funding/loans.
19. Listing Agent
The listing agent is the person who represents the seller’s interest in the property. The listing agent is there to make sure that the seller gets a good deal and is required to ethically do what is best for their client when selling the property.
20. Multiple Listing Service (MLS)
The Multiple Listing Service (MLS) is a database that houses property listings from real estate agents across the United States; this is broken down by area for more effective use by agents in specific locations. Agents pay a monthly fee for access to an MLS service in their local area; this allows them to post their own listings and review other listings to create comparative market analyses (CMAs) and track agent competition.
21. Offer Letter
An offer letter is written by the agent/buyer to the seller to make an offer on a property. The offer letter includes the price the buyer is willing to pay, the timeframe for purchase, the financing details, and any contingencies. The offer letter is a legal document that outlines the intentions of the buyer for the seller. The seller may accept or decline the buyer’s offer letter.
22. Pre-Approval Letter
A pre-approval letter is a letter from a lending institution or bank with the amount that the buyer is authorized to receive for a home loan. Sometimes called a letter of credit, the pre-approval letter gives the buyer an idea of how much they can spend and the seller confidence in a purchase offer.
The principal is the amount loaned to a person for buying a property before interest and other fees are tacked onto the amount. The principal also refers to the amount of your outstanding mortgage minus any interest payments.
24. Real Estate Investor/Investing (REI)
REI — or real estate investor — is a person who buys properties for the purpose of renting or reselling to make a profit. Sometimes, real estate investors become members of clubs that buy several residential properties or commercial buildings on their behalf.
25. Real Estate Owned
Real estate-owned properties are houses that have been taken over by the lending institution due to the buyer’s inability to make payments. In this instance, the owner might be the bank, the government, or a third-party loan provider that is trying to sell the foreclosed property.
26. Seller Concession
A seller concession agrees to take on part or all of the closing costs in a sale in order to motivate the buyer to complete the sale. Seller concessions might include paying for home inspections, appraisals, transfer taxes, or any part of the closing costs for the buyer.
27. Short Sale
A short sale is the sale of the property for less than the amount needed to cover the loan debt. Some property owners — like banks and government agencies — are willing to take a loss of the sale to recoup a portion of the loan. A short sale is usually executed to avoid foreclosure costs or get a portion of the debt back.
28. Tax Lien
A tax lien is a property hold imposed by the government to secure payment of taxes. This means the owner cannot sell their property until back taxes are repaid. If the taxes are not repaid by a predetermined deadline, the government can possess the home and sell it to cover the amount owed in taxes. Existing tax liens are usually uncovered during the due diligence phase of a sale before a contract is signed.
29. Title Insurance
Title insurance is a policy that protects the buyer and the lending institution if there is an issue with the title/deed to the property. In the case of a problem with the title that delays the sale or causes a legal action, the insurance would cover damages and financial costs up to the policy limit.
30. Title Search
A title search is a method of reviewing documents — public and legal — to confirm the ownership of a property before the sale. Title searches comb records to establish a sales history that leads to the current owner, ensuring there are no liens or legal actions that might make a sale impossible. This clears the seller to legally contract with the buyer who wants to purchase the house.
31. Variable Rate Mortgage
A variable rate mortgage (VAR) allows for the rate of interest attached to a loan to increase or decrease as the financial market fluctuates. Variable rate mortgage interest changes on a yearly basis to reflect the position of the economic index. If a mortgage is financed with a VAR, then the amount you repay monthly will change from year to year.
Zoning is dividing an area into different use cases, such as business or residential, as defined by the government. Business zoning requires that commercial enterprises occupy the property. Residential zoning states that a property can only be used as a domicile. Each comes with specific requirements, such as disability access (ADA compliance), minimum signage, and other fixtures/features.
Bottom Line – Real Estate Dictionary
The terms represented in a real estate dictionary are focused around property features and the buying/selling process. In most prep exam courses for licensure, real estate terms are a focus because there are so many words unique to the industry; these niche real estate terms give agents the tools they need to complete transactions and guide their clients through the sales process efficiently.
Learning real estate terms is only part of becoming a real estate agent. To get all of the instruction you need — including pre-licensing courses and continuing education — consider an online provider like Kaplan. Its dedicated and experienced team helps aspiring agents learn the terms, concepts, and strategies needed for a successful career in real estate. Find out more about Kaplan coursework and prep exams.