85 Real Estate Terms You Should Know
Quick Overview: Important Real Estate Terms to Know
- Understanding common real estate terms can make buying, selling, and investing in residential listings, commercial properties, and investment real estate much easier to navigate.
- Buyers should familiarize themselves with financing terms like mortgage, pre-approval, escrow, closing costs, contingencies, PMI, and debt-to-income ratio before purchasing a property.
- Sellers benefit from understanding concepts such as comparative market analysis (CMA), staging, days on market (DOM), multiple offers, seller concessions, and net proceeds.
- Real estate investors often use terms like cash flow, cap rate, ROI, BRRRR strategy, leverage, rental yield, and passive income to evaluate investment opportunities.
- Some of the most commonly confused real estate terms include pending vs. contingent, appraisal vs. assessment, escrow vs. earnest money, and interest rate vs. APR.
Understanding common real estate terms can make buying, selling, and browsing residential listings, commercial listings, and investment properties far less overwhelming, especially if you’re new to the housing market. However, there is quite a long list of industry-specific phrases that can quickly become confusing. To help, we’ve put together 85 important real estate terms to help get you started.
A Glossary of Basic Real Estate Terms Everyone Should Know
There are a few essential terms used to describe real estate that every beginner should know. The following is a good starting point to help you familiarize yourself with some of the most common terms and jargon used when talking about buying or selling property.
- Real estate: Real estate refers to land and any permanent structures attached to it, such as homes, buildings, or commercial properties. The real estate industry includes residential, investment, commercial, and industrial properties.
- Real estate taxes and insurance: Common ongoing homeownership expenses (i.e., principal and interest) that buyers need to budget for in addition to mortgage payments.
- Market conditions: The current state of the housing market, including supply, demand, pricing trends, and interest rates.
- Department of Housing and Urban Development (HUD): A federal government department focused on housing programs, fair housing laws, and community development.
- Residential real estate: Property used for living purposes, including single-family homes, condos, apartments, and townhouses.
- Commercial real estate: Property used for business purposes, such as office buildings, retail stores, hotels, and shopping centers.
- Industrial real estate: Property used for manufacturing, storage, production, or distribution, such as warehouses and factories.
- Land: Undeveloped property without buildings or permanent structures attached to it.
- Realtor vs. real estate agent: A real estate agent is licensed to help buy or sell property, while a Realtor is an agent who is also a member of the National Association of Realtors and follows its professional code of ethics.
- MLS (Multiple Listing Service): A database used by real estate professionals to share property listings and market information.
- Listing price: The asking price a seller sets when putting a property on the market.
- Fair market value: The estimated price a property would likely sell for under normal market conditions.
- Appreciation: An increase in a property’s value over time due to market demand, improvements, or location factors.
- Depreciation: A decrease in a property’s value over time caused by wear, damage, market conditions, or other factors.
- Equity: The portion of a property the owner truly owns, calculated by subtracting the remaining mortgage balance from the property’s current value.
- Property taxes: Taxes paid to local governments based on the assessed value of a property.
- HOA (Homeowners Association): An organization that manages and enforces rules within certain residential communities, often charging homeowners monthly or annual fees.
Home Buying Terms Explained
There are a few specific terms often used when you’re ready to buy a new home or property in the real estate market. If you’re a first-time home buyer, take some time to familiarize yourself with the following vocab:
- New loan: A newly issued mortgage or refinanced loan used to purchase or replace existing financing.
- Mortgage: A loan used to buy a home or property that is repaid over time, usually with interest.
- Loan balance: The amount of money still owed on a mortgage loan at any specified period of time.
- Life of the loan: The full repayment period of a mortgage, such as 15 or 30 years.
- Fixed-rate mortgage: A mortgage with an interest rate that stays the same for the entire loan term, resulting in predictable monthly payments.
- Adjustable-rate mortgage (ARM): A mortgage with an interest rate that can change over time, causing monthly payments to increase or decrease.
- Pre-approval vs. pre-qualification: Pre-qualification is a basic estimate of how much you may be able to borrow, while pre-approval is a more detailed lender review showing how much financing you’re likely to be approved for.
- Down payment: A down payment is the upfront amount of money paid toward the purchase price of a home, usually expressed as a percentage.
- Earnest money: A deposit made by a buyer to show they are serious about purchasing a property.
- Escrow account: A neutral third-party account that temporarily holds money and documents during a real estate transaction.
- Closing costs: Closing costs are fees and expenses paid at the end of a real estate transaction, including lender fees, taxes, title fees, and insurance costs.
- Home inspection: A professional evaluation of a property’s condition to identify potential issues before purchase.
- Appraisal: An estimate of a home’s market value completed by a licensed appraiser, often required by lenders.
- Contingency: A condition that must be met before a real estate transaction can move forward.
- Financing contingency: A clause allowing buyers to back out of a deal if they cannot secure financing.
- Inspection contingency: A clause allowing buyers to negotiate repairs or cancel the contract if significant problems are found during the inspection.
- Appraisal contingency: A clause allowing buyers to cancel or renegotiate if the property appraises for less than the agreed purchase price.
- Title and title insurance: The title proves legal ownership of a property, while title insurance protects buyers and lenders from ownership disputes or claims.
- Mortgage or deed of trust: Legal documents that secure a home loan by giving the lender certain rights if the borrower fails to repay the loan.
- Real Estate Settlement Procedures Act (RESPA): A federal law designed to protect homebuyers by requiring transparency around closing costs and settlement procedures.
- Fannie Mae and Freddie Mac: Government-sponsored organizations that help support the mortgage market by purchasing home loans from lenders.
- Department of Veterans Affairs (VA loan): A government-backed home loan program available to eligible veterans, active-duty military members, and some surviving spouses.
- PMI (Private Mortgage Insurance): Insurance is often required when a buyer puts down less than 20% on a home loan.
- Debt-to-income ratio (DTI): A calculation comparing monthly debt payments to gross monthly income, used by lenders to evaluate borrowing ability.
- Amortization: The process of gradually paying off a mortgage through scheduled monthly payments over time.
Common Real Estate Contract Terms and Definitions
Understanding the vocabulary used throughout real estate closing and contracting is also important. Some of the most common terms to know include:
- Offer: A formal proposal from a buyer to purchase a property under specific terms and conditions.
- Counteroffer: A response to an offer that changes some of the original terms, such as the price or closing date.
- Under contract: A property status indicating the buyer and seller have agreed to terms, but the sale has not officially closed yet.
- Pending: A property status meaning all major conditions have been met and the transaction is nearing completion.
- Closing: The final step of a real estate transaction where ownership is officially transferred to the buyer.
- Deed: A legal document that transfers ownership of a property from one party to another.
- Lien: A legal claim placed on a property due to unpaid debts or obligations.
- Easement: A legal right allowing someone else limited access to or use of part of a property.
- Disclosure: Information provided by the seller about known issues or defects affecting the property.
- Due diligence period: A set timeframe during which the buyer can inspect the property, review documents, and investigate potential concerns.
- Seller concessions: Costs or fees the seller agrees to pay on behalf of the buyer to help complete the sale.
- Earnest money deposit explained: The earnest money deposit is typically held in escrow and may be applied toward the buyer’s down payment or closing costs if the sale is completed.
- Breach of contract: A failure by one party to meet the terms and obligations outlined in the real estate agreement.
Real Estate Terms Sellers Should Know
Selling your property also comes with some key terms and phrases, some of which include:
- Comparative Market Analysis (CMA): A comparative market analysis is a report created by a real estate agent that compares similar recently sold homes to help estimate a property’s market value.
- Staging: Home staging is the process of preparing and decorating a home to make it more appealing to potential buyers.
- Seller disclosure: A document where the seller shares known issues or defects with the property, such as water damage or structural problems.
- Days on market (DOM): The number of days a property has been listed for sale before going under contract or being sold.
- Price reduction: A decrease in the listing price of a property, usually intended to attract more buyer interest.
- Multiple offers: A situation where more than one buyer submits an offer on the same property at the same time.
- Contingent offer: An offer that depends on certain conditions being met, such as the buyer securing financing or selling their current home first.
- Closing timeline: The expected timeframe between accepting an offer and officially completing the sale of the property.
- Net proceeds: The amount of money a seller receives after paying off the mortgage balance, agent commissions, taxes, and closing costs.
- FSBO (For Sale by Owner): A property being sold directly by the owner without hiring a real estate agent.
Real Estate Investing Terms Explained
If you’re interested in purchasing an investment property for Airbnb or long-term leasing, or making any type of real estate investment, additional vocabulary can help ensure you better understand the current state of your assets.
- Cash flow: The amount of money left over after collecting rental income and paying all property expenses, including the mortgage, taxes, insurance, and maintenance.
- ROI (Return on Investment): A measurement used to evaluate how profitable an investment is compared to the amount of money invested.
- Income taxes: Taxes investors may owe on rental income, capital gains, or profits earned from investment properties.
- Cap rate: Short for capitalization rate, this is a formula investors use to estimate a property’s potential return based on its income and value.
- Appreciation vs. cash flow: Appreciation refers to a property increasing in value over time, while cash flow refers to the ongoing income a property generates after expenses.
- Turnkey property: A fully renovated or move-in-ready investment property that can usually be rented out immediately.
- House hacking: A strategy where someone lives in part of a property while renting out other portions to help cover housing costs.
- BRRRR strategy: A real estate investing method that stands for Buy, Rehab, Rent, Refinance, Repeat. Investors improve properties, rent them out, refinance, and use the funds to buy additional properties.
- Passive income: Income earned from investments or rental properties with limited day-to-day involvement.
- Rental yield: A calculation showing how much rental income a property generates compared to its purchase price or market value.
- Equity growth: The increase in ownership value a person builds in a property as the mortgage balance decreases and the property value rises.
- Leverage: Using borrowed money, such as a mortgage, to purchase an investment property with less upfront cash.
- 1031 exchange: A tax strategy that allows investors to defer certain capital gains taxes by reinvesting proceeds into another qualifying investment property.
Real Estate Terminology That Confuses Almost Everyone
There are also a few terms that can be confusing at first, but are important to understand. These include things such as:
- Under contract: “Under contract” means the buyer and seller have agreed on terms, but the sale hasn’t officially closed yet because certain steps still need to be completed.
- Pending vs. contingent: A contingent property still has conditions that must be met before the sale can move forward, while a pending property is much closer to closing, with most conditions already satisfied.
- Escrow vs. earnest money: Earnest money is the buyer’s good-faith deposit, while escrow is the neutral account or process that temporarily holds money and documents during the transaction.
- Appraisal vs. assessment: An appraisal estimates a property’s market value for lending purposes, while an assessment is used by local governments to calculate property taxes.
- Pre-qualified vs. pre-approved: Pre-qualification is a basic estimate based on self-reported finances, while pre-approval involves a lender reviewing financial documents and credit history more thoroughly.
- Equity vs. down payment: A down payment is the upfront cash paid when buying a home, while equity is the ownership value built over time as the mortgage balance decreases or property value increases.
- Interest rate vs. APR: The interest rate is the cost of borrowing money on the loan itself, while APR (Annual Percentage Rate) includes the interest rate plus additional lender fees and borrowing costs.
Understanding Real Estate Terms Makes Buying and Selling Easier
Understanding real estate terminology can help simplify the entire buying, selling, and investing process. However, it can still be an intimidating process with several unknowns. If you’re looking for guidance, partner with First Star Realty today. Our team of real estate professionals can help you navigate the market and find the right property for your goals. Contact us today to learn more.
