It’s important to learn real estate terminology because it will help you to understand the language of the industry and communicate more effectively with your broker and other professionals.
As a potential real estate investor or home buyer, you will be dealing with contracts, negotiations, and other legal documents. You will also need to be able to understand the financial concepts that are related to real estate investing.
Knowing the terms used in real estate transactions can also help you to negotiate better deals and avoid costly mistakes. In addition, a basic understanding of real estate terms can help you comprehend how the complicated housing and real estate market works and what factors influence property values.
What Are Some Important Real Estate Terminology Categories?
A lot of terms are thrown around in the world of real estate, but knowing how they work can mean the difference between having the perfect transaction or possibly paying too much.
Get up to speed on basic terminology with this quick guide of terms:
Real Estate Agents, Brokers, and Listings
A Real Estate Agent is a professional who helps people buy, sell, or rent properties. They work with clients to identify their needs and wants, and then help them find the best property within their budget. They also help negotiate contracts and guide clients through the buying or selling process.
A Real Estate Broker A real estate broker is a type of real estate agent, but not all real estate agents are brokers. A broker is a licensed professional who is authorized to own and operate a real estate business. All brokers must be members of the National Association of Realtors.
A Listing in the real estate industry refers to a house or land that has been listed with an agent for potential buyers to purchase. The listing agent is the individual who represents the seller in negotiations and shows their property to future homebuyers.
A listing agent is given authority by their client (the seller) to complete any necessary transactions, such as putting up signs or signing papers. The listing agent must report back with any possible offers so that they can be presented to their client for consideration.
The Multi-Listing Service (MLS) is a computerized system that allows real estate brokers to share information about properties for sale and to list properties for sale. It typically includes the names of licensed real estate brokers who are members of the MLS, the addresses of properties, asking prices, and contact information for the sellers or their agents.
A Commission refers to money paid to an agent for selling someone’s property. Real estate professionals (agents) typically earn around 6% of the final sale price; however, they can sometimes earn more or less than this amount depending on local laws and other circumstances.
Additionally, some real estate professionals work on a flat-fee basis rather than commissions: instead of earning money based on how much their client sells something for, they only ask to be paid a certain price for their services or for a specific project.
Mortgages and Home Loans
Pre-qualification refers to when lenders perform basic credit checks and take a look at your debt-to-income ratios without actually going through the application process.
Your credit scores may or may not be checked as part of this early pre-approval, but you’ll usually receive an estimate of how much income is needed for various loan programs, an idea of your interest rate, and a rough idea of how much you might be able to borrow from those sources.
Origination Fee refers to the loan origination fee required by lenders for processing your mortgage application. Origination fees vary tremendously by lender and type of loan but are often between one and two percent of the total amount borrowed. This is often categorized as an “origination” fee since it originates (is created) during loan application processing.
A Construction Loan refers to a type of loan used by builders or people who are constructing their own house to get financing before the house is built. Once construction is complete, you’ll be expected to pay back the amount originally borrowed plus interest on the loan within an agreed-upon period of time—usually five or ten years.
Grace Period refers to the amount of time your mortgage payments are waived after they become due, which is usually between fifteen and thirty days. If you default on your payment during this grace period, however, expect the lender to charge you additional fees.
A Second Mortgage is a loan taken out against a home or land that has an existing mortgage. If the first mortgage gets paid off before the second mortgage, then the second mortgage moves into first place. Second mortgages are often used for home improvements, to pay off debts, or for major purchases since the interest rate on a second mortgage is typically lower than personal loans or automobile loans.
A Lien refers to a legal claim against a property that is used as security for repayment of a debt or performance of some obligation.
A lien must be “satisfied” before the property is considered to have a clear title. Mortgages and home equity loans are two examples of loans that attach liens to your house as collateral for the loan.
The Real Estate Buying Process
Comparable sales refers to recent sales of nearby properties that are used by real estate agents to estimate what a particular house is worth.
An Offer refers to an agreement between a buyer and a seller stating that the buyer will purchase the house at a specific price within a certain period of time. The offer usually comes with contingencies, which are conditions that must be met before the agreement is made final.
For instance, a buyer might make an offer with the contingency that they will only purchase the house if it turns out that the home passes an inspection.
Subject To means that the seller will sell the property with an existing mortgage or another financial obligation still in place. The buyer will then take on responsibility for that debt after purchasing the house.
As-is means just what it sounds like: you are purchasing the home in precisely its present condition, no matter whether flaws may be hidden away inside walls, under carpeting, or underneath linoleum tiles.
Since “as-is” homes typically attract buyers who don’t expect perfection (or who aren’t afraid to do some remodeling), they usually go at very low prices.
Closing refers to the process of transferring interest in title, deed, or property from one party to another. The closing attorney will handle settlement at the appropriate time, which may occur on different dates for different parties (for example, the seller closes first and the buyer closes later).
Closing Costs refer to the miscellaneous fees associated with buying a home, including everything from title insurance to attorney’s fees.
Typically, these costs are not paid for by the seller; instead, the buyer usually pays them at closing out of their own pocket or through financing if the mortgage company allows the closing costs to be added to the loan.
Do I Need A Real Estate Attorney?
A property attorney acts as an advocate for you during the real estate buying or selling process. A lawyer familiar with real estate transactions can help protect your interests during the negotiation process, and can explain in detail any terms and conditions in a real estate contract.
