Real Estate Terms & Definitions
1031 Exchange: A tax-deferred exchange of like-kind properties, allowing real estate investors to defer capital gains taxes when reinvesting proceeds from a property sale into a new property.
1099-S Form: A form used to report the sale or exchange of real estate, providing information on the gross proceeds of the transaction for tax purposes.
2-1 Buydown Mortgage: A mortgage loan with a reduced interest rate during the first two years, gradually increasing to a predetermined rate for the remaining loan term.
Absorption Rate: The rate at which available properties are sold or leased in a specific market over a given period, often expressed in months.
Accrued Interest: The interest that has accumulated on a loan but has not yet been paid.
Adjustable-Rate Mortgage (ARM): A mortgage loan with an interest rate that adjusts periodically based on an index.
Amortization: The gradual repayment of a loan through regular installment payments over a specified period.
Appraisal: An estimate of a property’s value conducted by a licensed appraiser.
Assessed Value: The value of a property as determined by a taxing authority for the purpose of calculating property taxes.
Assumption: The transfer of an existing mortgage from the seller to the buyer, with the buyer assuming responsibility for the mortgage payments.
Balloon Mortgage: A mortgage loan with a large final payment (balloon payment) due at the end of the loan term.
Building Code: Local regulations that set standards for the design, construction, and safety of buildings and structures.
Buyer’s Agent: A real estate agent who represents the interests of the buyer in a real estate transaction.
Capital Gains: The profit earned from the sale of a property or investment, subject to taxation.
Cash Flow: The amount of money remaining after all expenses (mortgage, taxes, insurance, maintenance) have been paid on a property.
Cash-Out Refinance: The process of refinancing a mortgage loan for an amount greater than the current outstanding balance, allowing the borrower to receive the difference in cash.
Certificate of Occupancy (CO): A document issued by a local government authority certifying that a newly constructed or renovated property complies with building codes and is suitable for occupancy.
Closing: The final stage of a real estate transaction where ownership of the property is transferred from the seller to the buyer.
Closing Costs: The fees and expenses associated with the purchase or sale of a property, payable at the closing of the transaction.
Collateral: Property or assets that are pledged as security for a loan.
Comparative Market Analysis (CMA): An analysis prepared by a real estate agent that compares the prices of similar recently sold properties to determine a property’s market value.
Condominium (Condo): A type of housing where individual units are owned while common areas are shared among residents.
Conventional Loan: A mortgage loan that is not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).
Counteroffer: A response to an offer made during a negotiation, which modifies or rejects the original offer.
Depreciation: The decrease in value of a property or asset over time, due to factors such as wear and tear or market conditions.
Dual Agency: A situation where a real estate agent represents both the buyer and the seller in the same transaction, with the consent of both parties.
Earnest Money: A deposit made by the buyer to demonstrate their intention to proceed with the purchase of a property.
Easement: The right to use or access a portion of another person’s property for a specific purpose, such as a shared driveway or utility access.
Equity: The portion of a property’s value that the owner actually owns, calculated by subtracting any outstanding mortgage debt from the property’s market value.
Eviction: The legal process of removing a tenant from a rental property due to non-payment of rent or violation of lease terms.
Fair Market Value: The price that a willing buyer and a willing seller would agree upon for a property, assuming both parties have reasonable knowledge of the relevant facts.
Fixer-Upper: A property in need of significant repairs or renovation.
For Sale By Owner (FSBO): The process of selling a property without the representation of a real estate agent.
Freddie Mac (Federal Home Loan Mortgage Corporation): A government-sponsored enterprise that purchases and guarantees residential mortgages.
FSBO (For Sale By Owner): A property that is being sold directly by the owner without the assistance of a real estate agent.
Good Faith Estimate (GFE): An estimate of the fees, costs, and expenses associated with a mortgage loan, provided by the lender to the borrower.
Gross Rent Multiplier (GRM): A ratio used to estimate the value of an income-producing property, calculated by dividing the purchase price by the gross annual rental income.
Home Equity Line of Credit (HELOC): A line of credit secured by the equity in a property, allowing homeowners to borrow against their home’s value.
Home Inspection: A thorough examination of a property’s condition, typically conducted by a professional inspector, to identify any issues or defects.
Homeowners Insurance: Insurance that provides coverage for damage to a home and its contents, as well as liability protection for the homeowner.
Housing Market: The overall supply and demand dynamics for residential properties in a particular area.
Inflation: The gradual increase in the general price level of goods and services, reducing the purchasing power of currency over time.
Investment Property: A property purchased with the intent of generating income, typically through rental payments or potential appreciation.
Landlord: The owner of a property that is leased or rented to tenants.
Lease: A legally binding agreement between a landlord and a tenant, outlining the terms and conditions of a rental arrangement.
Lease Option: A lease agreement that grants the tenant the option to purchase the property at a specified price within a certain period.
Lien: A legal claim against a property, often used as security for the payment of a debt or obligation.
Listing Agent: A real estate agent who represents the interests of the seller in a real estate transaction.
Loan-to-Value Ratio (LTV): The ratio of the loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Market Value: The estimated price at which a property would sell in the current market, based on comparable sales and prevailing market conditions.
Mortgage Insurance: Insurance that protects the lender in the event of default by the borrower, typically required for loans with a down payment less than 20%.
Multiple Listing Service (MLS): A database used by real estate agents to share and access information about properties for sale or rent.
Net Operating Income (NOI): The income generated by an investment property after deducting operating expenses, but before deducting mortgage payments or taxes.
Open House: A scheduled period of time during which a property is available for potential buyers to view without an appointment.
Points: Prepaid interest charged by the lender at the time of closing, each point being equal to 1% of the loan amount.
Principal: The original amount of money borrowed in a loan, excluding interest.
Property Management: The oversight and administration of a rental property on behalf of the owner, including tenant selection, rent collection, and maintenance.
Real Estate Investment Trust (REIT): A company or trust that owns, operates, or finances income-generating real estate, offering investors the opportunity to invest in real estate without directly owning properties.
Real Estate Owned (REO): Properties that have been acquired by a lender through foreclosure and are now owned by the bank or financial institution.
Realtor®: A real estate agent or broker who is a member of the National Association of Realtors® and adheres to its code of ethics.
Refinancing: The process of obtaining a new mortgage loan to replace an existing loan, often to take advantage of lower interest rates or change the loan terms.
Rental Yield: The return on investment generated by a rental property, expressed as a percentage of the property’s value.
Short Sale: A sale of a property where the proceeds fall short of the balance owed on the mortgage, requiring the lender’s approval to accept less than the full amount owed.
Title Company: A company that verifies the legal ownership of a property and provides title insurance to protect the buyer and lender against any claims or disputes.
Underwriting: The process of evaluating a borrower’s financial information, credit history, and the property itself to determine whether to approve a mortgage loan.
Upfront Mortgage Insurance Premium (UFMIP): An initial premium paid by borrowers for FHA loans, typically financed into the loan amount, providing mortgage insurance coverage.
Vacation Home: A property used for recreational purposes or as a second residence, often located in a desirable vacation destination.
Walkthrough: A final inspection of a property by the buyer before closing to ensure that the property’s condition meets the agreed-upon terms.
Equipping yourself with a comprehensive understanding of real estate terms is very important. It enables you to navigate transactions with confidence, make informed decisions, and maximize opportunities. If you’re ready to delve deeper into the world of real estate, don’t hesitate to reach out to Amanda Evans-Westbrook. As an experienced real estate professional, Amanda can provide guidance, answer your queries, and help you achieve your real estate goals. Take the first step towards real estate success by contacting Amanda Evans-Westbrook today!