If you’re new to the world of real estate, deciphering industry speak can be tricky.
The process of buying, selling, and investing in real estate is complicated and not surprisingly, so is all the terminology that comes with it. As a jumping off point, we’ve compiled 50 of the most common terms used in real estate and defined them for you.
Real estate terms:
Note: Letters of the alphabet without a relevant term are not listed.
This glossary isn’t exhaustive, but it does cover all the basic terms that are important to know for anyone who is learning about the industry. It doesn’t matter if you’re a buyer, seller, or even an aspiring broker, anyone can use this list as a go-to resource.
A through E
Starting from the top.
A
Adjustable-rate mortgage (ARM): A mortgage loan with an interest rate that can change throughout the loan’s lifetime.
Agent: A real estate professional that is legally licensed to buy and sell property on behalf of their clients. An agent cannot operate independently, they must work under a licensed broker.
Amortization: The process of gradually reducing mortgage loan debt over time by establishing scheduled monthly payments. The interest payment of an amortized loan will decrease as time goes on, while the principal payment will increase.
Assessed value: The value assigned to a real estate property that is used to determine its property tax rate.
B
Broker: A real estate professional that is licensed to represent clients and manage a brokerage in their state. Brokers receive extensive education and licensing, allowing them to manage individual agents through a firm or operate independently.
Buying agent: A real estate agent or broker that operates on behalf of a client buyer to help them find and purchase a property.
C
Capitalization rate, or cap rate: a metric used in real estate to evaluate the potential return on an investment property.
Cash reserves: Money that is set aside or saved by an individual or a business to use in case of an emergency.
Closing: The process of finalizing a real estate transaction. This includes finalizing mortgage agreements, paying applicable transaction fees and signing on the dotted line to close the deal.
Closing costs: The fees associated with finalizing a real estate transaction. Both the buyer and seller will have expenses during the closing process. Closing costs normally include an application fee, inspection fees, homeowner’s insurance, property taxes and the agents’ commission.
Commercial leases: A leasing agreement that is specific to commercial real estate. There are 7 different kinds of commercial leases that real estate agents should be familiar with.
Comparable, or comp: A term that refers to the prices of recently sold properties that are used to determine market value of other similar properties. A seller will refer to these “comps” when trying to figure out what their property is worth.
Comparative market analysis: A process used to determine the value of a home based on the sale prices of similar properties in the area.
Contingency: A condition that must be met in order for a real estate contract to be finalized.
Contract: A written and legally binding agreement between a buyer and seller outlining the details of a real estate transaction.
Curb appeal: The appearance and overall attractiveness of a property’s exterior.
D
Debt-to-income ratio: A percentage that helps lenders calculate the risk associated with giving out a loan to a borrower. It is the total of all monthly debt payments divided by monthly gross income.
Dual agency: A situation where a real estate agent or broker represents the buyer and seller.
Down payment: The amount of money that a buyer must pay upfront as part of a real estate transaction. It is usually expressed as a small percentage of the overall price of a property. Most mortgage lenders will require a down payment as collateral.
E
Earnest money: A cash deposit paid by the buyer during a real estate contract to indicate they are serious about purchasing the property. Sometimes called a good faith deposit.
Equity: A measure calculated by taking the market value of a property and deducting the amount that is still owed on the mortgage, if any.
Escrow: An arrangement in which a neutral third party provider holds the funds associated with a real estate transaction until a specific condition is met.
Exclusive Right to Sell agreement: A listing agreement where a property owner must pay commission to a real estate agent no matter who finds the buyer. If the owner finds a buyer, they must still pay a commission to the agent.
Exclusive agency agreement: A listing agreement between a property owner and a real estate agent where commission is paid if the agent finds a buyer. The owner is not responsible for paying commission if they find a buyer themselves.
F through J
Stay tuned – more real estate terms are coming your way.
F
Foreclosure: A legal process that occurs when a property owner fails to uphold their mortgage agreement and make their payments. The mortgage lender will claim the property and resell it as an attempt to recoup their losses.
FHA loan: A mortgage loan that is backed and administered by the Federal Housing Administration.
Fixed-rate mortgage: A home loan with an interest rate that stays the same throughout the loan’s lifetime.
H
Home appraisal: The process during which a licensed appraiser evaluates different elements of a property to determine its fair market value. An appraisal is ordered by a mortgage lender.
Home inspection: An examination of the overall condition of a property. It is ordered by a real estate buyer.
I
Interest: The profit a mortgage lender makes in exchange for the loan. It is quantified as a percentage.
K through O
Not too many terms fall in this next section, but you’ll find the most important ones below.
L
Listing: A property that is up for sale.
Listing agent: A real estate agent or broker that operates on behalf of the property owners to help them sell their property.
Listing agreement: A legally binding contract that allows a real estate agent to sell a property on behalf of their client, the property owner.
M
Mortgage: a long-term loan given by a lender to finance a real estate property. The property is used as collateral in exchange for the money that is borrowed.
Multiple listing service (MLS): A digital database of current real estate listings that is operated by a group of agents or brokers. An MLS provides accurate, up-to-date information about the status of local listings.
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TIP: Curious to learn more? Explore the best MLS software on the market.
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N
Net operating income (NOI): a value that determines how much profit a commercial real estate property generates.
O
Open listing: A situation in which a property owner chooses to sell their home on their own. There is no exclusive agreement, which means they can have listings with multiple agents.
Open house: An event run by a real estate agent that allows prospective buyers to visit a property without an appointment for a certain period of time. The goal is to generate interest and showcase the property in a casual setting.
P through T
What’s up next?
P
Pocket listing: a property that is up for sale but hasn’t been made publicly available to other agents or buyers.
Principal: The total amount borrowed in a mortgage loan.
Private mortgage insurance (PMI): An insurance policy that requires payment of additional premiums that protect the lender in case the borrower goes into default.
R
Realtor: an individual who is a member of the National Association of Realtors (NAR), a trade association for real estate professionals. By becoming a member, realtors agree to abide by a strict Code of Ethics laid out by the NAR.
Refinancing: The process of replacing a current mortgage loan with a new one under different terms and conditions. The goal is to get a better interest rate on the new loan.
Reverse mortgage: A loan that allows the borrower to relinquish home equity in exchange for money. This type of loan is only available to homeowners that are 62 and older.
S
Short sale: A property that is sold for less than the amount that is owed on the mortgage.
Staging: The process of organizing the interior of a home to be more attractive to prospective buyers.
T
Title insurance: A type of insurance that protects the buyer and lender in case the seller does not have full lawful ownership of the property.
Title search: The process of searching through public records to ensure that the seller of a property has lawful ownership of it. A title search can uncover possible deficiencies or defects in ownership that could greatly impact a real estate transaction.
U through Z
Last but not least.
U
USDA loan: A government-backed mortgage loan available to US residents that live in rural areas.
V
VA loan: A federal mortgage loan designated for veterans of the United States Armed Forces.
Now you’re in the know
While you may not be a subject matter expert just yet, you’re on your way there. Next time real estate jargon comes up in a conversation, you’ll be more than prepared.