Top Real Estate Terms to Master as a Beginner in 2023
Real estate terms are a key part of the real estate business. As a buyer or seller, having an understanding of these terms will help you make better decisions about your home and property.
The escrow is a third-party, neutral party that holds and disburses funds between buyer and seller. The person or company who holds the money is known as the escrow agent.
An escrow account is the account where the funds are held until all conditions are met before closing on your home purchase or sale.
Depreciation refers to the decrease in value of a property. This is due to wear and tear on the property, or the passage of time. Depreciation can also indicate a loss in value caused by physical deterioration or natural disasters, such as floods or earthquakes.
Equity is the difference between the market value of a property and the mortgage amount. The equity in your home represents your investment in it, so it’s important to track this figure over time. If you sell your home, you’ll receive this amount as profit when you subtract all costs associated with selling from its sale price. Therefore, if you have a sufficient amount of equity in your home and want to sell soon, it’s possible that selling will be more lucrative than renting out part or all of it as an investment property.
In order for this process to work smoothly for both buyer and seller, there must be adequate liquidity—that is, enough buyers who are willing to pay what sellers want for their homes (or vice versa).
Possession refers to the time when you legally take possession of a property, whether that be through moving in or moving out. In most cases, it’s important to make sure that you have possession before you move in. If not, your landlord may have the right to evict you from the property and keep your security deposit.
To get possession on a house or apartment lease: Your lease should state how long it will take for you to get possession after signing it (most leases are for 12 months). If it doesn’t say anything about this, then there isn’t any specific rule about what happens if there is an issue with getting into your new place on time. But some landlords will still require tenants who don’t move by the deadline provided in their lease to pay rent until they do move in order for them not forfeit their security deposit—so check with yours before worrying too much!
In general though: It usually takes about two weeks after signing a contract for most landlords/real estate agents/etc., but due diligence will help ensure that everything goes smoothly without any issues along the way – which could cause delays down road later down line…
The appraisal is the process of determining a property’s value. It’s also the amount of money that a lender is willing to loan you based on that property’s value. In other words, if you want to buy a home for $100,000 but your lender has determined that it’s only worth $80,000 (or less), then they won’t give you the full amount of money needed for the purchase. In this case, you might decide to cut your losses and walk away from both the mortgage and the dream of homeownership.
However, if a lender agrees that your home is worth more than what competing lenders have valued it at—and therefore will lend more than another bank would—you can use that extra cash to cover closing costs and pay off any remaining debt on other properties. If all goes well with this scenario and no one else bids against them during an auction sale (a possibility we’ll talk about later), then they might even make some money on top of buying their new house!
The mortgage is a loan secured by real estate. The borrower has the right to use and occupy the mortgaged property as long as they make monthly payments on time.
When you buy a house, you may be required to put 20% down and finance 80%. In this case, your payments will be 20% of (mortgage amount less down payment), or $1,000 per month if your mortgage is $100,000 with a 20% down payment of $20,000.
Mortgages have an interest rate that is usually fixed for the duration of each amortization period (the length of time until all installments are paid). The payments are usually made monthly over several years or even decades—a longer period gives borrowers more flexibility but also means paying higher interest charges over time due to compounding interest rates.
Earnest money deposit
An earnest money deposit is an amount of money paid by a buyer to show their serious interest in purchasing the property. It is usually a percentage of the purchase price.
The amount can range from 3% to 10%, depending on the market, but generally around 5%. The higher the price of property, typically the higher the earnest money deposit will be. For example: if you’re buying a $200,000 home and putting down 5%, this means that your total payment at closing will be $5,000 plus fees associated with closing on your loan (you’ll need an attorney/notary public to notarize all documents).
After your offer is accepted by sellers and you sign all paperwork together—including an Agreement To Sell which outlines specific details about this transaction including how much money each party has given up front (aka “earnest money”)—it’s time for them to hand over keys so that new homeowners can move into their dream home!
A contingency is a condition that is required in order for a contract to be valid.
An example of a contingency would be if you ask an agent to help you find your dream house and they agree, but only if their commission is 15%. This is a contingency because you can’t buy the house unless the agent gets their full commission rate. Contingent offers are offers that are subject to a condition. For example, “I will give you $100 for your car if it passes inspection.”
A clause in some contracts that allows either the buyer or seller to withdraw from the contract if certain conditions are not met
Closing costs are the fees associated with buying or selling a home. These expenses can be broken down into two categories:
- Seller closing costs, which are paid by the seller and include things like recording fees, title insurance premiums and property surveys.
- Buyer closing costs, which are paid by the buyer and typically include points (financing charges), document preparation fees and surveyor’s fees.
The total cost of closing depends on whether you’re buying or selling a house; how much your loan amount is; where you live; what kind of mortgage you take out; whether there are any unusual circumstances involved in your transaction (such as an appraisal); how many other people will be involved in the deal (dual agency), etc.. In general however it’s safe to say that they will average around 2% on every $100K worth of purchase price (and this is assuming no additional fees).
When you take out a mortgage, it usually comes with a fixed interest rate, meaning that the amount of money you pay each month will stay the same until the end of your loan. But when all is said and done, how much are you going to end up paying for your mortgage?
This is where amortization comes in. Amortization is simply another word for “paying off a loan over time.” It describes how much money you will be required to spend on a monthly basis throughout the course of your loan so that it can be fully paid off at its conclusion (called “repayment”).
The term “amortization schedule” refers specifically to a chart showing how much money would go towards paying off principal (the original amount borrowed) under various repayment scenarios as well as any other fees associated with getting or maintaining credit.
An appraisal is the value of a property. The price a buyer will pay for a home is usually close to the appraised value. An appraisal can also be an estimate of the value of a property, such as when you want to refinance your mortgage or take out equity on your house.
The appraiser is the professional who gives an opinion on the value of a property, often with an explanation as to why they think it’s worth that amount and not more or less than that amount.
Appreciation is the increase in value of a property over time due to external factors like location, condition, amenities and its desirability. For example, if you buy a house for $1 million and 10 years later it’s worth $2 million then there was an appreciation of $1 million. Depreciation on the other hand is when your home’s value decreases as it ages or because of external factors such as changes in neighborhood demographics or economic conditions. So if you bought that same house for $1 million but now it’s only worth $800k then there was depreciation of $200k ($1M – $0.8M = -$200K).
What do inflation and appreciation have in common? They’re both forms of devaluation which means they both reduce the buying power (or purchasing power) of your money over time. Inflation occurs when prices increase while appreciation happens when something becomes more valuable after being purchased (whether it be real estate or stocks).
ARM (Adjustable Rate Mortgage)
An ARM (adjustable rate mortgage) is a loan that has an interest rate that changes periodically. The change in the interest rate can occur once every month, quarter, or year. These loans are usually variable-rate loans tied to an index such as the prime rate or LIBOR (London interbank offered rate).
Usually with an ARM, there’s some fixed period of time after which your loan will be re-priced (the new interest rate will be set). This period is called the “lock” or “caps.”
A balloon payment is a large final payment on a loan. Balloon payments are often used in mortgages, car loans, and other types of debt. The term “balloon” came into use because the large amount due at the end of the loan term looks like it’s going to “burst” (or explode) at any moment.
Balloon payments are typically due at the end of the loan term. For example, if you take out an $80k mortgage with 20 years left on it, then you’re likely going to be making monthly payments for most or all of those 20 years before your lender gives you back your title deed for free! However, after those 20 years are up and all your regular monthly installments have been paid off—assuming that’s how long it takes—then there will be one last big lump sum payment due from you: It’s called a balloon payment because it looks like this big red ballon that could burst at any moment when compared with all those small green ones that got paid off before it was due
A binder is a written agreement that is used to hold a property for a period of time until the buyer and seller can finalize the sale. A binder is not a commitment to purchase the property.
If you’re buying a home, you’ll probably pay a brokerage fee. This is a cost that’s paid by the buyer and goes to the real estate broker representing them. The amount varies greatly by location, but it typically ranges from 2%–6% of the purchase price of the home.
Brokers are licensed in some states and not in others. In many places, anyone can call themselves a broker without any formal education or licensing requirements; these people are called “realtors.” Realtors who have been properly educated and licensed as brokers may charge more than those who do not carry this designation—but there’s no guarantee that an unlicensed person charging lower fees will necessarily represent your best interests as well as someone with training would when negotiating with potential sellers or lenders on your behalf.
Buyer’s Agent/Seller’s Agent
It’s common for home buyers to use a buyer’s agent, who is paid by the buyer. A seller’s agent, on the other hand, is paid by the seller. In both cases, these agents can negotiate on behalf of their clients and help with financing.
Additionally, in most states it is illegal for an agent to work with both sides at once (but there are some exceptions). If you’re in this situation, you’ll need to choose either a buyer’s or seller’s agent.
Cash flow is the difference between the cash you take in and the cash you spend. It’s important to your business or real estate investment because it tells you how well your business or real estate investment is doing.
Cash flow can be calculated using a simple equation:
Cash Flow = Net Income – Taxes + Depreciation – Capital Expenditures
For example, if you have an annual net income of $100k and pay $40k in taxes, but only spent $20k on capital expenditures (like renovations), then your cash flow would be -$20k for that year.
Closing costs are the one-time fees you must pay at the closing of your home purchase. These are usually paid by the buyer, but can be split between both parties in some circumstances. Closing costs include things like:
- Appraisal fee
- Title search and title insurance
- Recording fees (to record your new deed and mortgage)
- Transfer taxes for property transfers, which may include a tax on your purchase as well as any capital gains taxes if you’ve owned your property for less than two years (this is usually only applicable when buying from an individual seller)
Closing Table / Signing Table
The Closing Table / Signing Table
Simply put, the closing table is where all the paperwork is signed. The signing table is usually located in the same room as the closing table, but it functions more like a holding pen for documents than anything else.
The conditions that must be met before a buyer can close on a property are called contingencies. The term “contingency” comes from the Latin word “contingen,” which means “to come together.”
Contingencies can be used to protect either the buyer or seller in real estate transactions. For example, if you’re selling your home, you may ask for a contingency that allows you to keep living there until another property is ready for you to move into. On the other hand, if you’re buying a new home with an accepted offer on it, but don’t have enough money saved up yet for closing costs and other expenses related to purchasing the property (such as paying off your old mortgage), then asking for some type of contingency will help ensure your interests are protected throughout this process.;
Credit Card Debt Ratio
If you’re wondering what a good credit card debt ratio is, the answer is 0.5 (or 50%). This means that your total credit card balance should not exceed 50% of your gross monthly income. A higher ratio can indicate a higher risk for defaulting on your mortgage.
For example, if your gross monthly income is $5,000 and you have $10,000 in credit card debt then that’s a ratio of 200%. That’s not good! On the other hand, if you have $5,000 in credit card debt with a gross monthly income of $5,000 then that’s only 100%, which is much better!
Debt Service Coverage Ratio (DSCR)
A debt service coverage ratio (DSCR) is the ratio of income to debt payments. It’s used to determine if a borrower has enough income to make mortgage payments.
A low DSCR could indicate that your monthly mortgage payment is too high for you, and this could lead to foreclosure or defaulting on your loan. A lender may also consider other factors when deciding whether or not to grant you a home loan, including your credit score and down payment amount.
The higher your DSCR, the better off you’re likely to be financially—so keep in mind that any lenders looking at applying for a home loan should aim for a minimum coverage rate of 1:1.
A default clause is a provision in a contract that allows the other party to terminate the agreement if one party fails to comply with its terms. It’s usually used when the seller is late in delivering information or documents necessary for closing on time, which can cause delays and additional costs for buyers.
When used correctly, default clauses help protect buyers from this type of situation by giving them recourse when sellers don’t deliver their items according to schedule.
Default Risk Premium (DRP)
A default risk premium (DRP) is an extra return investors demand to compensate them for taking on the risk of default. In real estate, it’s the difference between what you pay and what your investment will be worth if you can’t afford your mortgage payments anymore.
For example, let’s say that you need to buy a house for $100,000 but instead of paying cash or putting down 20%, which is standard practice in most cases, you decide to take out a mortgage loan instead because interest rates are low at 3%. The bank agrees and gives you a 30-year fixed-rate mortgage at 3% over 25 years with monthly installments of $500 and total interest payments of $68,787 over those two decades. If nothing else affects this figure—in other words: no defaults—then your net profit from this deal would be $32,103 after subtracting costs such as taxes and maintenance fees (but not including inflation). However if there were ever any defaults during those 25 years then things could get complicated quickly; even though most people don’t think about such things now when buying their first home they should know what might happen if they ever get into trouble with their payments so it’s important that we cover this topic briefly here before moving on.”
Amortization is the process of paying off a loan over time. You can think of it as a sort of payment plan for your house, or any other large purchase you make using borrowed money.
The amount that you pay each month on your mortgage is determined by taking the total value of the loan and dividing it by the number of years you have left until it’s paid off. For example, if you bought a $200,000 house and took out an 80/20 loan with 20% down ($40k), then you would divide $180k by 240 months (20 years) to see how much your monthly mortgage payment would be: $858 per month! Amortization can also be used in real estate investing when talking about things like depreciation or cash flows because they all involve some type of repayment schedule over time
Annual Percentage Rate (APR)
APR stands for annual percentage rate. It’s the total of all interest charges and fees, expressed as a yearly rate. The APR is used to compare loans with different terms and features.
For example, if you have two loans that both charge 6% interest (but one has no closing costs and one has $500 in closing costs), then the loan with no closing costs will offer you lower payments each month than the one with closing costs—but it could also cost you more over time because of those extra dollars coming out of your pocket every year for many years.
Annual Property Tax
Annual property taxes are your local government’s way of keeping track of how much money you owe them. They’re typically paid annually, but sometimes more frequently depending on the area you live in.
Annual property tax is often based on the assessed value of your home, which is determined by an appraisal or assessment process that considers factors like its condition and age, as well as other relevant details about the property itself. The amount of annual tax due varies from year to year because it’s affected by changes in market prices (what similar homes nearby have sold for) and inflation rates (which affect how much money governments need to raise each year). The final amount also depends on whether or not you own one or more properties—some jurisdictions charge a flat rate per household rather than charging individuals separately for each residence they own!
An appraisal is an estimate of the value of a property. It’s conducted by a licensed appraiser, who will inspect the property to determine its worth. Appraisals are often conducted on the closing date for a transaction, as this is when both parties have access to the necessary information and documents needed to perform an accurate appraisal. An appraisal can also be used as proof of why you need a certain amount in order to secure financing or other financing options that require proof that you have enough financial resources available (such as down payment requirements).
Appreciation is the increase in the value of a property over time. The word can be used to describe increases in the value of assets, investments and currencies.
Appreciation is when the net asset value of something increases over time. This could be due to inflation, an increase in demand for that thing or other factors like supply changing (like more people buying apples).
When you get a raise at work, it’s appreciation! You’re getting more money than before.
If you buy a stock today and sell it tomorrow at a higher price than what you paid for it originally, then that’s appreciation! It’s also called capital gain because you’ve made money by investing with stocks.
The assessed value is the value of a property as determined by your local government. It’s used to determine property taxes, and it’s supposed to be lower than the market value of a home.
The assessed value is calculated based on similar properties in your area, so if you’re looking at homes that have been recently sold or are currently on the market, it may not accurately reflect what you’d pay for them.
If a balloon mortgage is what you’re looking for, it’s an excellent tool to buy a home that will be sold in a few years. These loans have low interest rates for the first few years of their life, then they switch over to higher payments. This is great because borrowers can afford to pay less for the house initially and get into it without having savings set aside for big monthly payments later on.
It’s also useful because if borrowers want to sell with less than five years left on their loan, there’s no penalty—the lender doesn’t make you pay off any part of the remaining balance before selling (as long as you don’t default on your payments). In this case it means that homeowners can sell at any time without worrying about how much money they owe on their house.
- Basis point is a unit of measure used to describe the change in interest rates.
- In real estate, basis points are used to describe the change in value of an asset or portfolio of assets. They’re also used to determine how much an investor will pay for a property based on its original price and current market value.
Bi-Weekly Mortgage Plan
A bi-weekly mortgage plan is one that requires payments every two weeks instead of every month. Payments are still calculated based on the same principal and interest amounts as monthly payments, but they’re higher due to the fact that you’re paying twice as often. The period for a bi-weekly payment plan is 26 weeks (52 weeks total), which means each payment covers 13 weeks instead of 12.
A bridge loan is a short-term loan that is used to cover the gap between the sale of one property and the purchase of another. Bridge loans are typically for a term of 12 months or less, and typically secured by the property being sold.
Bridge loans can be used in any situation where there is a large gap in time between when you sell your current home and when you buy your next one. This can include:
- Selling your present home before buying another
- Buying an investment property before selling your own house
- Having to move temporarily while waiting for repairs on new construction
Broker Price Opinion (BPO)
A Broker Price Opinion is a written report that provides an opinion of the fair market value of a property. It’s usually ordered by the seller, and in some cases, buyers may also order their own BPO.
A licensed appraiser will conduct a physical inspection of the property and compile data about similar properties in the area to determine its value. They’ll then write up their findings into a short report (typically no more than five pages) that includes any necessary photos or charts to help them explain their conclusions.
The cost of getting one varies based on where you live and who your appraiser is; however, they typically range from $150-600 per hour depending on experience level as well as other factors like whether they’re providing any additional services like preparing all necessary paperwork or attending settlement meetings with you after closing day happens so they can answer any questions related to their assessment while still keeping everything legal since they won’t know exactly why someone wants this particular piece of information unless told ahead time what type
A buyer’s agent is a real estate professional who represents the interests of a homebuyer. They can be helpful in several ways, from identifying ideal properties to closing the deal once you’ve found your dream home. The most important function of a buyer’s agent is to negotiate on your behalf: they will work with sellers’ agents to secure the best price and terms possible for your purchase.If you’re already familiar with agents and know that you want one to help guide you through home buying, consider hiring both an agent (or “broker”) and a buyer’s agent together. In most cases, though, it makes sense not only because it saves money—it also ensures that all players have aligned incentives when negotiating on your behalf so everyone gets what they want out of the deal in question.”
A buyer’s market is a situation in which the demand for properties exceeds the supply of properties. A seller’s market, on the other hand, is when demand for properties is less than the supply of properties. Buyer’s markets usually occur when interest rates are low and there are more people looking to buy property than there are houses available on the market. The opposite is true during seller’s markets: interest rates are high and there aren’t enough potential buyers to meet all of your demands as a seller.
Cloud on Title
A cloud on title is a claim against the property that is not a lien. A cloud can be a judgment, bankruptcy, or tax lien and can make it harder to sell the property.
With these real estate terms, you’ll be able to have a better understanding of the process and what goes into it.