Most essential terms you need to know in real estate and their meaning

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Terminologies in Real Estate

In this article we will talk about most of the terms and keywords you will always come across in the real estate business.
Some terms can be so confusing in real estate, this can keep you guessing or even lost, we have compiled this article to give you a better understanding of your real estate journey.
We currently have over 50 terms listed here and this list will keep being updated with newer terms over time, now is the time to get started.

The most commonly used terms and keywords in real estate transactions include:

The vendor and purchaser:

There are always two parties in a contract for the sale of property; the vendor(seller)and the purchaser. (buyer)

Realtor:

A realtor is a real estate agent that has registered and becomes a member of the National Association of Realtors (NAR). The NAR requires membership dues and abides by a strict code of ethics. Not all real estate agents are realtors.

Real Estate Agent:

A real estate agent is a state-licensed professional that is certified to represent individuals in the buying and selling of real estate. Real estate agents are required to work under the supervision of a brokerage and may become realtors by registering with the NAR.

Appraisal:

A written evaluation of a property's value is typically performed by a licensed appraiser.

Commission:

The fee paid to a real estate agent for their services in a real estate transaction. Real estate commission is a fee paid to real estate agents for their services to buyers and sellers of property. This fee is usually a percentage of the total sale price. It is customary, though not legally mandatory, for the seller to pay the commission.

Escrow:

A neutral third party, such as a title company, holds funds and documents related to a real estate transaction until the closing.

Inspection:

A detailed examination of a property's condition is typically performed by a professional inspector hired by the buyer.
An inspection happens when buyers pay a licensed professional inspector to visit the home and prepare a report on its condition and any needed repairs. The inspection often happens as part of the due diligence period, so buyers can fully assess if they want to buy a particular home as is, or ask the seller to either complete or pay for certain repairs.

Home/Site inspection

A home inspection is a non-invasive examination of a home’s condition and is often performed in connection with the sale of that home. They are normally done by a professional home inspector who has proper training and certifications to handle the inspection.
After the inspection, the inspector provides the client with a written report of the findings, which the client can use to make informed decisions regarding their pending purchase of the property.

Listing:

The process of offering a property for sale, typically through a real estate agent.
MLS (Multiple Listing Service): A database of properties for sale, managed by a local association of real estate agents.

Offer:

A written proposal to purchase a property at a specified price.

Appreciation:

The increase in a property's value over time.
Land appreciation is the increase in the value of a piece of land or real estate property over time. When the investor decides that the property will be sold in the future, one of the goals when investing in real estate is to achieve a positive return.
Appreciation allows you to sell your current property for a higher price than what you paid originally so you can get high Returns on Investment (ROI).

Proof of funds:

When you make an offer, sellers will require you to submit proof of funds. If you’re buying a house with a mortgage, it shows them that you have the cash available for your down payment and closing costs. If you’re paying all cash, your proof of funds shows you have the money.
The following documents qualify as proof of funds:

Original or online bank statements with bank letterhead.

Copy of a money market account balance with the bank’s logo or letterhead.

Certified financial statements, such as an income or cash flow statement that’s been signed off on by an accountant.

An open equity line of credit.

Closing:

The final step in a real estate transaction is in which the property is transferred from the seller to the buyer and the buyer pays the purchase price.

Zoning:

The regulations determine how a property can be used, including the types of buildings that can be constructed and the activities that can be conducted on the property.

Transfer of ownership:

This means that a property has a new owner who purchased it,
The transfer of real estate ownership is the process by which the legal rights of land and buildings are transferred from one person to another. The person transferring the property is known as the seller, while the receiver is known as the buyer.
Many terms will be discussed between a buyer and a seller, including the price, date of closing, financing arrangements, inspections, contingencies, and deed requirements before a transfer can be completed.

Cash Flow:

Cash flow is the amount of profit you bring in each month after collecting all income, paying all operating expenses, and setting aside cash reserves for future repairs. For buy-and-hold real estate investors, cash flow is the primary lever used to increase income.

When looking at a real estate investment, there are two main components you need to fully understand and be able to forecast: income and expenses. Understanding the key financials of a property allows you to understand exactly what cash flow is.

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Adjustable-rate mortgage (ARM)

With ARM loans, interest rates can change after an initial fixed-rate period as they adjust based on the interest rate index the ARM is tied to (e.g., LIBOR, COFI, etc.). This loan type is less predictable than a traditional fixed-rate mortgage, but it can potentially yield lower interest rates during certain periods.

Backup offer:

When a buyer is interested in purchasing a property that is already under contract with someone else, that buyer has an opportunity to submit a “backup offer”, in case the first transaction falls apart. A backup offer must still be negotiated and any monies, such as earnest money, submitted, to confirm it is the next offer in line. There can only be one backup offer legally, as you cannot have a backup to the backup.

Blind offer:

When a buyer makes an offer on a property they haven’t seen, even when it was possible to see it, that offer is considered a “blind offer”. It is most commonly used in a highly competitive area and/or circumstance and used as an attempt to be first and win quickly.

Conventional sale:

A conventional sale is when the property is owned outright (has no mortgage remaining) or the owner owes less on their mortgage than what the market indicates the owner could sell their property for. Such conventional sales are often smoother transactions than non-conventional sales, such as foreclosures, probate-related sales, and short sales.

Due diligence:

A due diligence period might be available in the purchase agreement, which is a time frame provided to a buyer to fully examine a property, often by hiring experts to inspect the property, perform tests, etc., so that a buyer may decide on how to proceed.
A buyer might also be allowed to renegotiate the contract based on their findings, or possibly even to terminate within a specified period, to not be considered in default of the contract. Due diligence allows a buyer to fully understand what they are buying.

Equity:

This is the investment a homeowner has in their home. To calculate equity, take the market value of the home and subtract any mortgages or liens against the property. The amount left over is the amount of equity you have in the home.
It’s important to build equity as homeowners can leverage this financial asset to obtain loans to help finance items such as home repairs, or to pay off higher-interest debt.

Probate sale:

A probate sale happens when a homeowner dies without writing a will or leaving a property to someone. In such situations, the probate court would authorize an estate attorney, or another representative, to hire a real estate agent to sell the home.

The total process will usually be a bit more complicated and therefore will take more time than a conventional sale.

Rent-back

Rent-back, or leaseback, refers to an arrangement whereby the buyer, who is now the new homeowner, agrees to allow the seller, the now-tenant, to stay in the house beyond the close of escrow. The terms are negotiated before the situation occurs and will often involve a lease deposit, a daily rental rate, and a length of time allowable.

Seller concession:

Sellers may offer concessions to incentivize buyers to purchase the home or sweeten the deal.
Concessions are most readily seen as a contribution towards the buyer’s closing costs, up to certain limitations and approvals by a buyer’s lender, which ultimately leaves more money in a buyer’s pocket when all is said and done.

Seller disclosure:

A seller’s disclosure is a disclosure by the seller of information about the property, or which could affect a buyer’s decision to purchase the property, all of which to the best of the seller’s knowledge.
A seller must also indicate items that are not specific to the property itself but related to a person’s enjoyment of the property, such as pest problems, property line disputes, knowledge of major construction projects in the area, military base-related noises or activities, association related assessments or legal issues, unusual odors caused by a nearby factory, or even recent deaths on the property as permitted by law.

Short sale

In a short sale, the property is sold for less than the debt secured by the property. Short sales will require the approval of the seller’s lender(s) as the proceeds of the sale will be just “short” of the amount owed; most lenders’ processes of approving short sales are long and drawn out, requiring more time to close than a traditional sale.

Title search:

A title search examines public records for the history of the home, including sales, purchases, and tax and other types of liens.
Generally, a title examiner will conduct a search using title plants, and sometimes the county records, to see who is listed as the record owner of the property. Such information, along with any liens or encumbrances that are recorded against the property, will be listed in the Preliminary Report for the parties to review before the close of escrow.

Trust sale:

A trust sale means that the home is being sold by a trustee of a living trust – and not a private party. More often than not this is because the original homeowner has passed away, or has placed their assets in a living trust.
The trustee may not be as emotionally attached to the property as a traditional owner, which could translate to them accepting a less attractive offer as the trustee may prefer to offload the property.

Conclusion:
If you have made it to this extent I believe you now fully understand the most common and frequently used terms in real estate to help boost your career. If you are new to the real estate business I recommend you go through our first article where we explain real estate here what is real estate complete introduction with guides
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