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A Realtor's Companion: 50 Real Estate Terms You Need to Know

Whether a brand new agent or an industry veteran, there are some words and phrases that frequently pop up. We've chosen 50 terms to create an easy-to-use glossary you'll return to again and again.

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One of the biggest industry changes in the last couple of years has been the influx of new agents entering the ranks of Realtor. Whether you’ve been a real estate agent for three months or 30 years, there are a host of terms that you need to keep track of to do your job.


For agents who need a refresher, Inman has gathered a list of some of the most essential terms to know in the business.


Check them out in alphabetical order below. Or if it’s easier, search the page for a specific term.


A

Accessory dwelling unit (ADU)

Sometimes referred to as a “mother-in-law suite,” an accessory dwelling unit is a second residential area on a homeowner’s property. The accessory unit is typically either detached from the main home as a separate structure or walled off from the home for the privacy of the second residents. These units are often installed on a property to house family members close by, or to rent out to another family altogether. Local laws and zoning ordinances often restrict the size and other features of these structures and sometimes do not allow them at all.


Active Contingent

This means the seller of the home has received an offer from a potential buyer. However, there are certain contingencies that need to be met before the sale can be finalized. A purchase contract may include contingencies — such as a buyer’s contingency for a property inspection and negotiating any necessary repairs with the seller before closing. If any of these contingencies are not met, the contract will be null and void, and there may or may not be penalties assessed. Most of the time, the contingencies within a contract can be worked through without any issues. But there are times when a buyer will back out of a deal because an agreement cannot be reached. Once all of the contingencies have been removed and the active contingent stage is completed, the property will show a “pending” status. If a buyer is interested in an “active contingent” home, continue to check back often to see if the status has changed. If you see that the “active contingent” status falls off and the home is not pending sale, this will open the door for the client to place an offer.



Addendum

An addendum is an additional document that gets added to the purchase and sale agreement. The document will include any additional information or requests that the buyer did not put into the original purchase and sale agreement. The language in the addendum has the ability to override the original terms of the agreement. For this reason, any addendums that are attached can be very powerful. Adding an addendum to a contract is often preferred to other methods, such as striking out clauses within the contract.


Adjustable rate mortgage


An adjustable-rate mortgage is a mortgage that does not have a fixed interest rate. The rate changes throughout the lifetime of a loan based on the movements in an index rate. This type of mortgage usually offers a lower initial interest rate compared to fixed-rate loans.


Amortization


Amortization is the schedule of a homeowner’s monthly mortgage loan payments. An amortization schedule shows you how much of their monthly mortgage payment goes to interest and how much to the principal. Near the beginning of a loan’s term, most of the monthly payment will be applied to the interest and a smaller portion of the principal balance. As the homeowner continues to make payments, the monthly amount going toward interest will decrease and a greater share of the payment will be put toward the mortgage balance.


Appraisal

An appraisal is the estimation of a home’s current market value. A licensed appraiser completes this estimation, which is calculated by comparing the recent sales of homes in the area to the property that is being appraised. This is required by mortgage lenders to be sure that the money they are lending to a new homeowner or a current homeowner is a fair amount for the home. The lenders want to be sure that the buyers are not overpaying for the property. This is to protect the lender. If the borrower stops making payments on the home and the lender needs to sell it, the lender wants to be sure it can recuperate the amount owed on the loan.


‘As is’ or ‘where is’


When a property is sold “as is” or “where is,” it means the sellers don’t want to perform any repairs on the home prior to closing. There’s no guarantee from the seller that everything is in working condition, and thus, a buyer who purchases a home “as is” is responsible for fixing any problems the home may have or any repairs that may be needed.



Back office


Accounting, financial, and legal business operations required brokers to process and distribute commissions, delegate operating funds, and generally keep an office running. Back-office solutions are often a part of transaction management products or sold stand-alone.


Blind offer


Though not typically advisable, some homebuyers will purchase a property sight unseen. Known as a blind offer, these types of deals are more popular amongst buyers seeking to flip homes as a business venture.


Broker price opinion


When preparing a home to list on the market, a real estate professional will often give a broker price opinion on how much the home should sell for. This opinion is usually based on a market analysis of similar homes and can incorporate a more detailed evaluation of the home’s interior condition. A broker price opinion is most frequently used to inform the home’s eventual list price. BPOs are sometimes ordered by banking asset managers when borrowers default on their mortgage payments. BPOs are more affordable than a full appraisal and are commonly used to estimate property value for foreclosures and short sales.


Buyer concessions


Concessions are benefits or discounted offers by the buyer to help sell a home and close a deal. Usually specified during negotiations, concessions can include covering the cost of new appliances in a home, moving expenses, and any repairs needed. Concessions can impact the selling price of a home, so oftentimes, appraisers take concessions into consideration when evaluating the home and comparable properties in the area.


Cancellation of contract


According to the terms of the initial contract, the buyer or seller may have opportunities to cancel it. Cancelation can happen when a buyer fails to secure financing for the purchase, or when an inspection reveals flaws that the seller is unwilling to address. Typically the buyer has more opportunities to back out than the seller but may lose their earnest money or option fee in the process.


Comparative market analysis


A comparative market analysis (CMA) is used by real estate agents to estimate the value of a property by comparing and evaluating the property to similar ones that have recently sold in the same area. CMA is one of the cornerstones of pricing a property well or making a competitive offer. Agents should familiarize themselves with the various search parameters that can help find similar properties, from the number of bedrooms and bathrooms to the home’s square footage, age, and more.


Contingency


A contingency is a clause in a formal real estate contract that states there are certain conditions that must be met, by either the buyer or the seller, in order to continue to the next step in the contract. There are contingencies in almost every real estate contract. They are there to protect the buyer and the seller. If the contingencies are not met, there might be a breach in the contract, and the transaction could fail to close. One of the most important types is a financing contingency. This type of contingency ensures the buyer is able to secure the needed mortgage within a reasonable time period before closing. Contingencies can also be tied to the results of the home inspection, or the timely sale of the buyer’s current home.

Conversion


Conversion is a term for turning a lead into a client. Marketing software products, vendor-provided drip campaigns, CRM funnel structures, and all forms of paid lead generation systems should be measured largely by conversion rates.

BY MARIAN MCPHERSON


Counteroffer


When a buyer’s offer doesn’t live up to a seller’s expectations, the seller can submit a counteroffer. This typically amounts to a rejection of the original offer. Sellers who do this put the original offer at risk, and give the buyer a chance to walk away without going under contract. If the buyer accepts a counteroffer and makes the up-front payments required, both parties are under contract.


Deed


When you are transferring ownership of a home, whether through a home purchase or an inheritance, you will need a deed. This is the legal document that transfers property ownership from one person to another. The deed to a home is also known as a title and is the written proof of who owns the home. The homebuyer signs the document on the day of closing. Once it has been signed and the deal is completed, the new homebuyer will receive a copy, and the original copy will be filed with the appropriate county offices.


Default


A “default” occurs when a borrower does not make his or her mortgage loan payment and falls behind. When this happens, he or she risks the home heading into the foreclosure process. Usually, the foreclosure process is started within thirty days after the due date is not met. When a mortgage loan goes into default, the agency that is the loan holder has the option of taking over the property


Depreciation


Depreciation is defined as a decrease in the value of a property over time. While the main driver of depreciation is usually a sustained downturn in home prices, other factors can also play a role, such as the amount of wear and tear on the home and any changes in the neighborhood. At the end of the day, the home is only as valuable as the price sellers will pay when the homeowner is ready to sell.


Disclosures


Depending on where the home is located, the seller may have to disclose various known issues with the property. These can range from damage or recent repairs to roofing or pipes to known local hazards such as earthquakes or fires.


Down payment


A down payment is the amount of money that a buyer has saved to help fund the purchase of a home. This amount is usually given as a percentage of the total home’s purchase price. For example, a common down payment amount is 20 percent, which means the buyer will be paying 20 percent of the total purchase price upfront. The remainder of the purchase price over and above the down payment is typically covered through a mortgage loan.


Earnest money deposit (EMD)


The earnest money deposit is a portion of the sales price that is typically held in escrow until buyers complete a purchase transaction or cancel a contract. Depending on the reason and timing for backing out of a contract, the buyer may lose this earnest money amount, and could also be the target of a legal dispute. Buyers write contingencies into their offers to maintain their right to back out of the deal while protecting their earnest money.


Easement


An easement is defined as someone’s right to use a piece of land — someone who is not the owner of the land. There are many easements that can affect the value of land, but oftentimes there is nothing a homeowner can do about them. An easement is usually put into place to serve a purpose and is limited to this particular type of use only — such as for utility companies to access underground infrastructure. Easements are why it is important for homebuyers to order a land survey. This survey will let them know if there are any easements that are associated with the property they are purchasing.


Encroachment


When you own a home or are preparing to purchase it, you do not want anyone to have their personal property on what is supposed to be your property. But boundary issues happen, and they can be ugly. There is a term for this battle of land: “encroachment.” An encroachment happens when a fence or another piece of your neighbor’s property crosses the property lines. Other examples of encroachments could involve trees, parts of a building, fencing, or any other fixtures located on both pieces of property.


Equity


Equity is the market value of the real property, minus the amount of any liens — including mortgages — that may exist against the property. For a client who has $280,000 in mortgage debt against a home that could sell for $400,000 on the market, their equity in the home is generally the difference between the two amounts, or $120,000.


Escalation clause


An escalation clause oftentimes referred to as an escalator, is a clause in a real estate contract that lets homebuyers increase their offer by a pre-determined amount over other offers in case the seller receives another offer at a higher price point. Escalation clauses are typically reserved for when a buyer is confident there will be multiple offers or if the buyer expects to pay an increased price for the property.


Escrow


Escrow is a term that homebuyers, sellers, and real estate agents should be very familiar with and have a complete understanding of before buying or selling a home. Escrow is a term that refers to a third party hired to handle the property transaction, the exchange of money, and any related documents. Escrow comes into play once both parties have reached a mutual agreement or offer. The escrow officer handles the transfer of the buyer’s loan documents and property taxes, as well as work with the lender for the buyer to be sure that the title does not have any liens on it before the transfer of ownership is completed. “Being in escrow” is a legal procedure that is used when a real property requires a transfer of title. An escrow account is opened by the listing agent when the seller of the property and the buyers of the property have come to an agreement on the selling price, the terms, and any other contingencies that they may have and are ready to close the deal. The parties on both sides will sign all appropriate documents, and then escrow is ready to be opened. The escrow officer will order a title report from a title company. This step ensures that there are no outstanding liens against the property. Outstanding liens could hold up the closing procedures.


Fiduciary


“Fiduciary” is a term that refers to a legal relationship that is confidential between two parties. This relationship gives one party the right to act and make important decisions for the other party. In the world of real estate, the real estate agent and his or her clients (buyers or sellers) participate in a fiduciary relationship. The two parties enter into a signed agreement in which the client puts trust in the real estate agent to work with their best interests in mind. The duties that are required in a fiduciary relationship will vary from state to state, but all require confidentiality. The real estate agent’s responsibility is to protect the privacy of the client and to keep all of the client’s information confidential. Throughout the entire process, including negotiations and closing, the real estate agent should keep all of a client’s information (personal and financial) private.


Fixed-rate mortgage


The vast majority of mortgages in recent years come with a fixed interest rate. This means the rate is locked in for the full duration of the loan — usually a 15-year or 30-year period. Because the rate cannot change, the portion of the mortgage payment that goes toward principal and interest is also fixed. Making this fixed monthly payment in full over the lifetime of the loan results in a complete repayment of the loan balance, and no further money is owed.


For Sale By Owner (FSBO)


One way to sell a home is “For Sale By Owner” (FSBO). This means that a real estate agent will not be involved in the sales process. The home seller has decided not to involve a real estate agent and will handle the transaction completely by himself or herself. The owner of the home will be involved in every part of the process, from showing the house to handling the negotiations. Usually, sellers decide to do this because of the potential to save money. But many who try to list a FSBO home end up hiring an agent to complete the transaction.


Foreclosure


Foreclosure is the legal process by which the right of homeownership is transferred from the person or persons who occupy the home to the bank or lender that holds the mortgage loan. The foreclosure process