21 Real Estate Terms You Need To Know

Have you ever felt like people are speaking another language when talking about real estate? Whether you’ve experienced this firsthand, or just while watching HGTV, we want you to know what’s going on. Unfortunately, being caught uninformed during a real estate transaction can lead to people getting burned. We want you to not only understand these terms, but feel empowered and prepared to buy or sell your next property. Here are 21 real estate terms you need to know!

• Amortization
• As-is
• Adjustable Rate Mortgage
• Backup Offer
• Blind Offer
• Capital Gain
• Conventional Sale
• Days On Market
• Depreciation
• Due Diligence
• Earnest Money Deposit
• Fixed Rate Mortgage
• Home Sale Contingency
• Inspection Contingency
• Seller Concession
• Seller Disclosure
• Short Sale
• Pre-Approval
• Principal
• Probate Sale
• Trust Sale

Amortization

This describes the repayment schedule on a mortgage. At the beginning of the loan payment period, the interest payment is high and the principal is low. Toward the end, it switches. The interest is low and the principal payments are high. The method of equalizing the monthly mortgage payment over the life of the loan is referred to as amortization.

As-is

A property is listed as “as-is” when the seller is not willing to make any repairs. The “as-is” condition is noted at the time the offer was made. If something were to happen after the offer was written but before closing, the seller would be responsible to get the property back to its “as-is” condition. Alternatively, the seller could release the buyer from the offer or provide the buyer with earnest money to make necessary repairs. 

Adjustable Rate Mortgage

With adjustable rate mortgage (ARM) loans, the interest rates can change after a certain amount of time based on the interest rate index that the ARM is tied to. For this reason, this loan type is less predictable than a traditional fixed rate mortgage, but it can potentially yield lower interest rates and save you money. 

Backup Offer

When a property is already under contract and another buyer is interested, that buyer has the opportunity to make a backup offer. The backup offer must be negotiated, submitted, and confirmed that it is next in line.

Blind Offer

When a buyer makes an offer on a property that they have not seen in person, that is called a “blind offer.” This is most common in highly competitive markets or with buyers who are moving a great distance.

Capital Gain

If the value of a home is worth more at the time the owner sells it than when they first bought it, that increased value is considered capital gain. Owner-occupants who live in a home for 2+ years don’t need to pay capital gain tax upon selling their property.

Conventional Sale

A conventional sale takes place when the seller owns the property outright and no longer owes on a mortgage loan. It’s also considered a conventional sale when the owner owes less on their mortgage than what the market indicates the owner could sell their property for. These are typically smoother sales compared to non-conventional sales, such as foreclosures, probate related sales and short sales.

Days On Market

Days on market (DOM) refers to how long a home is on the market before selling. The DOM counts the number of days from when the home was originally listed to the day the contract is signed.

Depreciation

Depreciation takes place as the roof, carpet, paint, HVAC, and other components of your home experience aging and decay. As soon as our home is first built, it starts to break down and fall apart, hence the need for repairs. Even if the value of the land increases over time, the actual structure of a home is slowly depreciating.

Due Diligence

Due diligence allows the buyer to fully inspect a property before they decide to buy. This is a window of time allotted for the buyers to hire inspectors to come examine the property and perform any necessary tests before negotiating the terms of a contract. If issues arise after an inspection is performed, repairs can be negotiated between the buyer and seller.

Earnest Money Deposit

Once a seller accepts a buyer’s offer, they might be expected to put some “good faith” money down. This is called earnest money. Earnest money demonstrates how serious a buyer is and ranges anywhere from 1-5% of the sale price.

Fixed Rate Mortgage

This type of loan has a “fixed rate” meaning the interest rate will not change over the course of the loan. This type of loan is available as a 10, 15, 20 or 30-year loan and are, by far, the most common type of home loan.

Home Sale Contingency

A home sale contingency indicates that the buyer’s purchase of a property cannot take place until they sell another property first. Depending on the market, this type of agreement may or may not be appealing to a seller.

Inspection Contingency

This is a clause that can be offered in a purchase agreement that grants buyers a specific window of time during escrow to perform any inspections. An inspection contingency is also known as a “due diligence contingency.”

Seller Concession

When a seller wants to entice a buyer or sweeten the deal, they may offer concessions. A typical example of a seller concession is when the seller makes a contribution toward the buyer’s closing costs.

Seller Disclosure

The seller disclosure contains information about a property that could affect a buyer’s decision. A seller disclosure might contain warnings about pests, property line disputes, future construction in the area, or recent deaths on the property.

Short Sale

Short sales often require more time than a traditional sale because the property is being sold for less than the debt secured by the property. The seller’s lender(s) must approve that the sale will be “short” of the amount owed.

Pre-Approval

After a buyer fills out an application, a lender will evaluate the buyer’s financial situation including their debt-to-income ratio, ability to repay and credit scores. Then, the lender will determine a loan amount that the buyer is pre-approved for. This will allow the buyer to determine their price range before looking at properties. 

Principal

The principal balance of a loan is the amount of money owed to the lender, excluding the interest due. Buyers will pay principal plus interest each month over the lifetime of the loan. In the end, the buyer will pay more money than the principal balance.  

Probate Sale

When a homeowner passes away without having a formal will or leaving their house to someone, a probate sale will take place. The probate court will authorize a representative to hire a real estate agent to sell the home. Because this process is a bit more complicated than a traditional sale, a probate sale can take more time.

Trust Sale

When a home is being sold by a trustee of a living trust, not a private party, it is considered a trust sale. This commonly takes place after a homeowner has passed away or placed their assets in a living trust.

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