Real Estate Vocabulary and Terms

What is a 1031 Exchange in real estate?

A 1031 exchange allows an investor to sell a property and reinvest the proceeds in new property (or properties) while deferring all capital gain taxes.

What is an Absorption Rate in real estate?

The absorption rate is a measurement of supply and demand in the real estate market.

What is ADA in real estate?

The Americans With Disabilities Act, passed by Congress in 1994, is intended to provide persons with disabilities accommodations and access equal to or similar to the general public.

What is an Addendum in real estate?

An addendum is an additional document that modifies a contract. Addendums can be used for various reasons, such as requesting a home inspection or for an extension of the closing date.

What is an Adjustable-Rate Mortgage?

An adjustable-rate mortgage (ARM) offers variable interest rates. It usually begins with a lower interest rate than a fixed-rate mortgage but changes over time following market rates. Terms and conditions will vary, so read the fine print.

What is Amortization in real estate?

Amortization is when a loan balance is gradually paid off from a mortgage payment that includes both principal and interest. 

What is an Annual Percentage Rate (APR) in real estate? 

An APR is the annual cost of a loan expressed as an interest rate. It often includes loan origination fees, most closing costs, mortgage interest, and discount points.

What is an Appraisal in real estate?

An appraisal is a written assessment of a property's fair market value. A professional appraiser who may work independently or with a lender bases the appraisal primarily on an analysis of comparable sales of similar real estate in the neighborhood.

What is an Appraiser in real estate? 

An Appraiser is a professional who visits a property, analyzes it, and offers an opinion determining its approximate value.

What is an Appurtenance in real estate?

An appurtenance applies to an object attached to a property and stays with it over time, even if the property’s ownership changes. An appurtenance could be things like exterior buildings, fences, cabinets, fixtures, and trees.

What is Appreciation in real estate? 

Appreciation is the annual increase in a property’s market value.

What is an Assessment in real estate?

An assessment is a value assigned to your home by a government tax assessor, which is used to calculate property taxes.

What is an Assignment in real estate?

An assignment is a transfer to another of any property, real or personal, or any rights or estates in said property. Typical assignments are leases, mortgages, and deeds of trust, but the general term encompasses all title transfers.

What is an Automated Valuation Model (AVM) in real estate?

An automated valuation model is an analytical process that produces real estate valuation estimates. An AVM combines sales history, comparable real estate data, proprietary appraisal information, and certain economic factors to determine market conditions and their impact on home values. Appraisers and lending institutions use AVMs to calculate the probable selling value of residential real estate. A valuation estimate produced by an AVM is not the same as an appraisal report prepared by a licensed professional appraiser.

What is an Availability Rate in real estate?

An availability rate is the ratio of available space to total rentable space, calculated by dividing the total available square feet by the total rentable square feet.

What is a Backup Offer in real estate?

A backup offer is simply a contract stating a buyer will purchase a home from a seller already under contract. This offer can become legally binding if the previous sales contract is terminated.

What is considered a Bathroom in real estate?

There are many different types of bathrooms. A full bathroom is a room with a toilet, a sink, and a bathtub. A three-quarter bathroom has a toilet, a sink, and a shower. A half-bathroom, also called a powder room, has a toilet and a sink.

What is considered a Bedroom in real estate?

Generally, a bedroom is a sleeping area with a door, a window, and a closet that is part of the property's main structure. The definition of a bedroom varies by location, and there is no legal definition. Some MLS organizations define the term bedroom for listing purposes.

What is a Blanket Mortgage in real estate?

A blanket mortgage covers more than one plot of land financed by the same borrower. This can help save time and money. For example, a seller ready to buy a second property before their first has sold may use a blanket mortgage to access equity from the first property to put toward the second.

What is a Bridge Loan in real estate?

A bridge loan is a temporary loan used while permanent financing is secured. Bridge loans often have higher interest rates. A bridge loan is typically when a seller needs funds for a new property before selling their home. 

What is a Buyer's Agent in real estate? 

A buyer’s agent is a real estate agent or Realtor® who works specifically for the buyer, representing the buyer in the transaction.

What is a Buydown in real estate?

A buydown occurs when the borrower/seller/lender purchases a lower interest rate by paying a premium called a “point.”

What is a Cash-Out Refinance in real estate?

A cash-out refinance the ability to turn your equity into cash by obtaining a loan for the difference between the balanced owed to the lender and the equity with the property's current value.

What is a Capitalization Rate in real estate?

A capitalization rate (or Cap Rate) determines property value based on net income typically used for apartment buildings. Cap Rate is calculated by dividing net income before debt by the property's current market value.

What is Caveat Emptor in real estate?

Caveat Emptor is the principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made. Known as “Buyer Beware.”

What is a Clear Title in real estate?

A clear title is a title that is free from liens or additional issues that could jeopardize ownership, such as encroachments, easements, levies, or liens.

What is Closing in real estate?

Closing is the final step in the real estate transaction. This is where closing documents are signed, outstanding funds are paid, and the title transfers from the seller to the buyer.

What are Closing Costs in real estate?

Closing costs are the costs associated with completing a real estate transaction, such as commissions, inspection fees, title work fees, taxes, homeowners association fees, and more.

What is Commercial Property in real estate?

Commercial property is a property with the zoning classification for business activities such as retail stores, farms, offices, etc.

What is a Comparable Market Analysis in real estate?

A Comparable Market Analysis (CMA) evaluates similar, recently sold homes near a home intended to be bought or sold. It establishes a price estimate based on current market activity that can be used as a guide for pricing a home. Buyers, sellers, and real estate agents perform a CMA when preparing to buy or sell a home.

What are Comparables in real estate?

Comparables are properties similar to a specific parcel of real estate used to help estimate the value of that real estate, also referred to as “comps.

What are Contingencies in real estate?

Contingencies are clauses in a contract that allow a buyer not to be forced to purchase a property if certain conditions are unsatisfactory or not met.

What is a Co-Op in real estate?

A co-op is a type of multiple ownership in which the residents of a multi-unit housing complex own shares in the corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

What does Contingent mean in real estate?

When a property’s status is contingent, the seller has accepted an offer on the property, but other contingencies must be met before the deal can be finalized.

What is a Contract in real estate?

A contract is a purchase agreement between the buyer and the seller stating the terms and conditions of the home sale. A contract often has the name of the parties involved, the address, sale price, type of financing, inspection period, and closing date.

What is a Conventional Mortgage in real estate?

A Conventional Mortgage is a conforming or non-conforming loan funded by private lenders and not backed or insured by a government entity.

What is a Counter Offer in real estate?

A counter offer is when a seller responds to the buyer’s offer with an alternative proposal from what was initially presented.

What is a Debt-To-Income Ratio in real estate?

A debt-to-income ratio is your monthly debts divided by your monthly gross income. Lenders use this percentage to help determine your ability to repay a potential loan.

What is a Deed in real estate?

A deed is a legal document determining who owns a property. This is the document transferred from seller to buyer at closing.

What are Deed Restrictions in real estate?

Deed Restrictions are provisions placed in deeds to control how future landowners may or may not use the property. It may also be referred to as deed covenants.

What does Default mean in real estate?

A default is when a borrower fails to make a loan payment by the required deadline. Defaulting can lead to foreclosure, where the lender takes back the property since the owner cannot make payments on time.

What is Delinquency in real estate?

Delinquency is a missed mortgage payment. If failed payments continue, the borrower risks entering default status.

What is a Down Payment in real estate?

A down payment is the amount of money paid upfront for the property. Some loans have a down payment requirement that has to be met with varying ranges. A 20% downpayment is not often required, as many borrowers believe.

What is Due Diligence in real estate?

Due diligence is when a buyer examines a property's condition and executes contract terms before becoming legally obligated to purchase. Due diligence is your time to discover and consider any financial risk in buying a home.

What is a Limited Consensual Dual Agency in real estate?

A limited consensual dual agency is when a real estate agent represents the seller and the buyer in the same transaction. In Alabama, this can only be done with the consent of both parties.

What is Earnest Money in real estate?

Earnest money is money that is submitted with the buyer's offer as a gesture of good faith to proceed with the purchase of a home.

What is Encroachment in real estate?

Encroachment is a term that refers to a situation in which the owner of one property builds or extends a structure, and it ends up on another property. This usually occurs in cases where property lines are disputed, or the property owner is unfamiliar with their property’s boundaries.

What is an Encumbrance in real estate?

An encumbrance is any impediment to a clear title. It can be a claim, lien, zoning restriction, or other legal right or interest in land that diminishes its value. The report of the title search usually shows all encumbrances.

What is Equity in real estate?

Equity is the value above what is owed on the property. Equity could increase or decrease over time according to market conditions and the remaining balance of the loan.

What is Escheat in real estate?

Escheat is the government’s right to take ownership of unclaimed property and estate assets. This commonly happens when a property owner passes away without a will and no heirs. When this occurs, escheat means that property ownership will revert to the state.

What is Escrow in real estate?

An escrow is a legal arrangement in which a third party temporarily holds money or property until a particular condition has been met (such as fulfilling a purchase agreement or earnest money).

What is Fair Market Value in real estate?

Fair Market Value is the highest price a willing buyer would pay and the lowest price a willing seller would accept.

What is an FHA Loan?

An FHA loan is a loan that the Federal Housing Administration insures. An FHA loan provides more affordable housing, especially to first-time home buyers. FHA loans often offer lower down payments, closing costs, and lower credit requirements.

What is a First Mortgage in real estate?

A first mortgage is a mortgage on a property that is superior to any other. It is the first to be paid in the event of foreclosure.

What is a First Right Of Redemption in real estate?

The first right of redemption is when the former homeowners are allowed to repurchase their property after a foreclosure sale. To redeem the property, the former owners must pay the Purchaser the purchase price, plus other charges such as Interest. The period for the first right of redemption will vary and usually depends on when the loan was issued.

What is a Fixed Rate Mortgage?

A fixed-rate mortgage is a loan whose interest rate stays constant over the loan's entire life.

What is a Fixture in real estate?

A fixture in real estate is any item attached to the property and can only be removed with the help of tools or professional services.

What is a Foreclosure in real estate?

A foreclosure is when an owner defaults on their loan payments and fails to make them up over the foreclosure process. The lender has the right to repossess and sell the property.

What is a For Sale By Owner (FSBO) in real estate?

A for sale by owner (FSBO) is a property listed for sale by the owner without an agent representation.

What is a Home Equity Line of Credit (HELOC)?

A home equity line of credit is a loan where you can borrow money against your home’s equity, but not as a lump sum.

What is a Homeowner’s Association (HOA) in real estate?

An HOA is a group that manages a shared housing complex such as apartments,  condominiums, or communities. The HOA board enforces community rules for the tenants to follow since they all share the complex. HOA’s typically have fees paid by the residents to cover the shared amenities, improvements, maintenance, and operating expenses.

What is Homeowner’s Insurance in real estate?

Home insurance is protection and coverage from damages to the home and liability protection from accidents at the owner’s property.

What is a Home Warranty in real estate?

A home warranty is a service agreement that protects the buyer/seller from future repairs or defects on the covered property. Each company’s product is different, so research companies to find one that fits your needs.

What is a Home Inspection in real estate?

A licensed home inspector performs a home inspection to discover any issues, repairs, or health and safety issues that may need to be addressed before purchasing the property.

What is an Improvement in real estate?

An improvement is any form of land development or man-made addition, such as the erection of a building or fence to enhance the value of private property; it could be an improvement to publicly owned structures, such as a sewer system or road.

What is Interest in a home loan?

Interest is the cost of borrowing money. It is the money owed from the amount loaned paid back over time.

What is a Jumbo Loan in real estate?

A jumbo loan is a home loan for an amount that exceeds the "conforming loan limit" set on mortgages eligible for purchase by Fannie Mae and Freddie Mac.

What is a Lease Term in real estate?

A leasing term is an agreed-upon period in which the Landlord grants the Tenant the right to possession of the property.

What is a Loan in real estate?

A loan is borrowing money from another person or institution to pay for a property.

What is a Lein in real estate?

A lien is a debt on a property that encumbers it until the obligation is paid, such as a mortgage, back taxes, or a former claim.

What is a Listing in real estate?

A listing is a term for property to be advertised for sale by a real estate agent.

What is Living Area in real estate?

The Living Area is a measurement of the interior space of a home in square feet. The total excludes the garage and other non-living spaces. Finished basement space is factored into a property's square footage only when that information is known in the property's public record.

What is Loan To Value Ratio in real estate?

A Loan-To-Value Ratio (LTV) is the ratio between the amount of a mortgage and the appraised value of a property is the loan-to-value ratio. The higher the percentage, the riskier the loan; the lower the percentage, the more equity a homeowner has in the property. Lenders examine this ratio before approving a loan and may require a borrower to purchase mortgage insurance or charge more for the loan.

What is Market Price in real estate?

The market price is the actual selling price of a property.

What is a Mortgage in real estate?

A mortgage is a loan used to purchase a Home or land. The property serves as collateral until the debt is paid off over time.

What is a Mortgage Broker in real estate?

A mortgage broker is a company or person who helps a home buyer qualify for a loan and handles all aspects of obtaining a loan in place for the borrower.

What is a Multi-Family Home in real estate?

A Multi-Family home is a building with multiple units (usually five or more), such as an apartment or condominium complex.

What is the Multiple Listing Service (MLS) in real estate?

The multiple listing service is a local or regional service that compiles available real estate for sale by member brokers. Detailed information about properties is provided to brokers, agents, and the public, generally online. Local MLS organizations have their own rules and systems for delivering listing information.

What is Net Income in real estate?

Net income is the amount of income left over after operating expenses have been subtracted from revenues. Some people use net income as income before the debt is subtracted, while others subtract debt as an expense and then come up with the final net income.

What is an Offer in real estate?

An offer is a price that a buyer submits to the seller to purchase their property and any special terms the buyer requires as part of their offer to the seller.

What is an Option in real estate?

An option is a legally binding contract that an interested buyer signs with the seller of a property. The buyer is allowed to purchase that property for a certain period.

What does Pending mean in real estate?

When a seller accepts a buyer’s offer and all contingencies are met, the sale of the home becomes pending. Sellers usually cannot consider new offers once the sale is pending, as they may face legal consequences.

What is a Pre-Approval Letter in real estate?

A pre-approval letter is a document that buyers obtain from a lender that provides proof they can afford to buy a home up to a certain amount.

What are Prepaids in real estate?

Prepaids are fees related to purchasing a home during a real estate transaction. These can include property taxes, homeowner’s insurance, and mortgage interest. Prepaids are paid at the time of closing, which is before they’re officially due.

What is a Principal in real estate?

A principal is an amount borrowed for a mortgage loan. Monthly mortgage payments include both the repayment of the principal and interest owed.

What is Private Mortgage Insurance in real estate?

Private mortgage insurance (PMI) is a monthly payment added to the mortgage payment when a buyer has less than 20% as a down payment on the property. It is insurance for the lender if the buyer defaults on the loan.

What is Probate in real estate?

Probate is a legal process that ensures a deceased person's will is followed accurately. Any real estate that the person owned is included as part of this process, as long as they were the only owners. The courts handle probate in real estate, which is responsible for approving any property sale and may have a longer process to close on the property.

What is Proof of Funds in real estate?

Proof of funds is a document the buyer shows acquires from their bank to present to the seller when purchasing a home. It proves that the buyer can successfully cover all home purchasing costs, including the down payment, escrow, and closing costs.

What are Property Taxes in real estate?

In Alabama, property taxes are paid annually in arrears based on the property value by the tax assessor.

What is a Real Estate Broker in real estate?

A real estate broker is a real estate agent who meets the state's requirements and applies for a real estate broker's license. Unlike real estate agents, brokers can work independently, start their brokerage, and hire other real estate agents.

What are Real Estate Owned (REO) Properties in real estate?

Real estate owned properties are foreclosed property that is not sold off during the foreclosure auction; the bank will take ownership of the real estate. 

What is a Real Estate Purchase/Sale Agreement?

A real estate purchase agreement is a legal document that obligates a buyer to buy and a seller to sell. This contract between the buyer and seller details the property for sale, contract contingencies, purchase price, and more.

What is Refinancing in real estate?

Refinancing is a new loan from a lender, typically for better terms such as a lower interest rate or monthly payment. 

What is a Second Mortgage in real estate?

A second mortgage is a lien on the property subordinate to a first mortgage. In the event of default, the second mortgage is repaid after the first.

What is a Seller’s Agent in real estate?

A seller's agent is also known as a listing agent. The seller’s agent works for and represents the seller in a real estate transaction.

What is a Short Sale in real estate?

A short sale occurs when a financially distressed home is sold for less than what is still owed on the mortgage. In this scenario, all the money from the sale goes to the mortgage lender, who is also responsible for approving the deal.

What is a Single Family Home in real estate?

A single-family home is a home with no shared property built on its parcel of land.

What is a Sublease in real estate?

A sublease is a lease under which the lessor is the lessee of a prior lease of the same property. The sublease may differ from the original lease but cannot contain a greater property Interest.

What is a Survey in real estate?

A survey is the exact measurement of the size and boundaries of a piece of land by civil engineers or surveyors.

What is a Tax Sale in real estate?

A tax sale is a court-ordered sale of real property to raise money to cover delinquent taxes.

What does Title mean in real estate?

The title is a legal document listing the history of ownership of the home. 

What is Title Insurance in real estate? 

Title insurance protects the buyer against losses resulting from problems with the title.

What is a Title Search mean in real estate?

A title search is a professional examination of public records to determine the chain of ownership of a particular piece of property and to note any liens, encumbrances, easements, restrictions, or other factors that might affect the title.

What does Under Contract mean in real estate?

A home is under contract when a buyer and seller agree on a purchase agreement. This means both parties are legally obligated to proceed with the sale so long as conditions are met.

What is Underwriting in real estate?

Underwriting is used to determine loan conditions and protect lenders from financial risk. Underwriters may look at a borrower’s credit, employment history, debt, and the property’s situation to determine loan eligibility.

What is a VA Loan?

The U.S. Department of Veterans Affairs guarantees a VA loan. It is a top benefit of military service for veterans, active-duty military, reservists, and qualified surviving spouses. Under a VA loan, you usually don’t need a down payment and will avoid paying PMI.

What is a Variance in real estate?

A variance is when a property does not meet the zoning law requirements in the area. You’ll need to obtain a variance from your local government if you want to make any changes to your property that go against the zoning laws, whether it’s related to the lot or topography of the area, or the structure itself.

What is a Warranty Deed in real estate?

A warranty deed is a deed in which the grantor guarantees that they give the grantee good title free of encumbrances. A warranty deed is considered the best deed a grantee can receive.

What is Zoning in real estate?

Zoning is the government's right to determine how real estate can be used. Properties can be zoned for residential, commercial, or industrial usage or a combination of two or more uses.