A comprehensive list of commonly used real estate terms that every buyer, seller, and investor should know. Perfect for anyone looking to better understand the language of the real estate market.
Real Estate Terms
| Term | Explanation |
|---|---|
| 1031 Exchange | A tax-deferred strategy under IRS Section 1031 allowing investors to sell a property and reinvest proceeds into a like-kind property, deferring capital gains taxes. Strict rules, including a 45-day identification period and 180-day closing period, must be followed with a qualified intermediary managing the process. |
| Abandonment | The intentional relinquishment of property rights, such as an easement or lease, without transferring ownership. It requires both non-use and clear intent to abandon, potentially affecting legal claims to the property. |
| Abatement | A reduction or elimination of a property tax, assessment, or penalty, often granted due to errors, overvaluation, or compliance with local regulations, such as environmental corrections. |
| Abstract of Judgment | A court-issued summary of a judgment that, when recorded, creates a lien on a debtor’s property, impacting its title until the debt is cleared. |
| Abstract of Title | A chronological summary of all recorded documents affecting a property’s title, including deeds, mortgages, and liens. Prepared by a licensed abstractor, it verifies ownership history and identifies potential title issues. |
| Acceleration Clause | A mortgage provision allowing the lender to demand immediate repayment of the full loan balance if the borrower breaches terms, such as missing payments or selling the property without approval. |
| Accredited Buyer Representative (ABR®) | A designation from the Real Estate Buyer’s Agent Council for agents trained in buyer representation, emphasizing skills in negotiation and advocacy for homebuyers. |
| Acre | A land measurement unit equal to 43,560 square feet, commonly used to describe large parcels like farms or undeveloped lots in real estate transactions. |
| Adjustable-Rate Mortgage (ARM) | A mortgage with an interest rate that adjusts periodically based on a financial index, such as SOFR. ARMs often start with lower rates but may increase, impacting monthly payments. |
| Adverse Possession | A legal process where someone gains ownership of another’s property by openly occupying it for a specified period, typically 7-20 years, depending on state law, without the owner’s permission. |
| Agency | The legal relationship between a real estate agent (or broker) and their client, where the agent acts on the client’s behalf in property transactions, bound by fiduciary duties like loyalty and disclosure. |
| Amortization | The process of gradually paying off a loan through regular payments covering principal and interest. An amortization schedule shows how payments reduce the loan balance over time, building equity. |
| Annual Percentage Rate (APR) | The total annual cost of a loan, including interest and fees like origination costs, expressed as a percentage. It provides a clearer picture of borrowing costs than the interest rate alone. |
| Appraisal | A professional estimate of a property’s market value by a licensed appraiser, based on factors like location, condition, and comparable sales. It’s critical for loan approval and pricing decisions. |
| Appraisal Contingency | A contract clause allowing a buyer to cancel a purchase if the property’s appraised value is below the agreed price, protecting against overpaying. |
| Appurtenance | A right or privilege associated with a property, such as an easement or water rights, that transfers with the property during a sale. |
| As-Is | A property sold in its current condition, with no seller obligation to make repairs. Buyers should conduct thorough inspections, as these properties may have issues but are often priced lower. |
| Assessed Value | The value assigned by a public tax assessor for property tax purposes, based on factors like size, location, and improvements. It may differ from market value. |
| Assignment | The transfer of a contract or property interest, such as a lease or mortgage, to another party, with the original party remaining liable unless released. |
| Assumption | When a buyer takes over the seller’s existing mortgage, assuming its terms and payments, subject to lender approval, often to secure a lower interest rate. |
| Backup Offer | A secondary offer on a property under contract, which may be accepted if the primary offer fails. It requires the same negotiation process as the initial offer. |
| Balloon Mortgage | A loan with low or interest-only payments for a set period, followed by a large final payment (balloon payment) to settle the remaining principal. |
| Biweekly Mortgage | A mortgage where payments are made every two weeks, resulting in 26 half-payments (or 13 full payments) annually, reducing interest costs and loan term. |
| Blanket Mortgage | A single mortgage covering multiple properties, often used by developers or investors to finance several parcels simultaneously. |
| Bona Fide | A term indicating actions taken in good faith without fraud or deceit, such as a genuine offer or transaction in real estate dealings. |
| Breach of Contract | Failure to fulfill a real estate contract’s terms without legal excuse, potentially leading to remedies like damages or contract termination. |
| Break Even Point | The point where a property’s rental income equals its operating expenses, indicating no profit or loss. It’s a key metric for real estate investors. |
| Bridge Loan | A short-term loan to finance a new property purchase before selling an existing one, typically with higher interest rates and a term of 6-12 months. |
| Broker | A licensed real estate professional with advanced training who represents clients or manages agents. Brokers may work independently or through a brokerage. |
| Building Code | Local regulations governing construction, alteration, and maintenance of buildings to ensure safety, accessibility, and compliance with standards. |
| Built-Up Area | The total usable area of a building, including interior spaces, balconies, and utility areas, used to calculate property size in real estate. |
| Buydown | A financing option where a borrower pays an upfront fee to lower the mortgage interest rate, reducing monthly payments, often for the first few years. |
| Buyer’s Agent | A real estate agent representing the buyer, assisting with property searches, negotiations, and transaction processes, typically paid by the seller’s commission. |
| Capital Gain | The profit from selling a property, calculated as the sale price minus the purchase price and improvements, subject to capital gains taxes based on holding period. |
| Capitalization Rate (Cap Rate) | A metric for evaluating investment property returns, calculated by dividing net operating income by the property’s market value. Higher cap rates suggest higher returns but potentially greater risk. |
| Cash Flow | The net income from a rental property after deducting all expenses, including mortgage payments, taxes, and maintenance costs. |
| Certified Practising Valuer (CPV) | A designation from the Australian Property Institute for professionals qualified to conduct detailed property valuations. |
| Chain of Title | A historical record of all owners of a property, ensuring a clear and unbroken ownership chain, critical for title verification. |
| Chattels | Movable personal property, like furniture or appliances, not fixed to the property and not automatically included in a sale unless specified. |
| Clear Title | A property title free of liens, encumbrances, or disputes, ensuring smooth ownership transfer during a sale. |
| Closing | The final step in a real estate transaction where documents are signed, funds are transferred, and ownership is conveyed, typically involving attorneys and title companies. |
| Closing Agent | A neutral professional, often from a title company or an attorney, who oversees the closing process, ensuring proper execution of documents and fund distribution. |
| Closing Costs | Fees paid at closing by buyers and sellers, including loan origination, title insurance, and taxes, typically ranging from 2-5% of the purchase price. |
| Closing Disclosure | A five-page form provided to borrowers three days before closing, detailing final loan terms, payments, and costs, allowing comparison with the loan estimate. |
| Code Compliance Certificate | A document confirming that construction complies with approved plans and local building codes, often required for occupancy. |
| Commercial Lease | A rental agreement for business properties, like offices or retail spaces. Types include gross leases (fixed rent) and net leases (rent plus expenses). |
| Common Area | Shared spaces in a multi-unit property, like hallways or pools, maintained by a homeowners association or landlord, often funded by fees. |
| Comparable (Comp) | A recently sold property similar in size, location, and features to the subject property, used to determine market value for appraisals or pricing. |
| Condominium | A property where owners hold title to individual units and share ownership of common areas, managed by a homeowners association. |
| Contingency | A contract condition that must be met for the transaction to proceed, such as financing or inspection approval, allowing withdrawal if unmet. |
| Contract | A legally binding agreement outlining the terms of a real estate transaction, including price, contingencies, and closing date. |
| Cooperative (Co-op) | A housing arrangement where residents own shares in a corporation that owns the building, granting them the right to occupy a unit. |
| Covenant | A legally binding promise in a property deed or contract, such as restrictions on use or maintenance requirements, enforceable by law. |
| Curb Appeal | The visual attractiveness of a property’s exterior, influencing buyer impressions and potentially affecting marketability and value. |
| Debt-to-Income Ratio (DTI) | A lender’s metric to assess a borrower’s ability to manage debt, calculated by dividing monthly debt payments by gross monthly income. |
| Deed | A legal document transferring property ownership, specifying the grantor, grantee, and property details, recorded with the county. |
| Deed in Lieu of Foreclosure | An agreement where a borrower transfers property ownership to the lender to avoid foreclosure, typically after default. |
| Deed of Trust | A document used in some states instead of a mortgage, where a trustee holds the property title until the loan is repaid. |
| Default | Failure to meet loan obligations, such as missing payments, which may lead to foreclosure or other lender actions. |
| Down Payment | The upfront payment toward a property’s purchase price, typically 3-20%, affecting loan terms and monthly payments. |
| Dual Agency | When one agent or broker represents both buyer and seller in a transaction, requiring full disclosure and consent due to potential conflicts. |
| Dual Occupancy | A zoning designation allowing two residences on one lot, such as a duplex or two standalone homes, increasing development flexibility. |
| Due Diligence | The process of investigating a property’s condition, title, and legal status before purchase to ensure informed decision-making. |
| Duplex | A building with two separate living units sharing a common wall or floor/ceiling, often used for rental income or multi-family living. |
| Earnest Money Deposit (EMD) | A buyer’s deposit showing commitment to a purchase, held in escrow and applied to the down payment or refunded if contingencies fail. |
| Easement | A legal right allowing someone to use part of another’s property for a specific purpose, like utility access, impacting property use and value. |
| Eminent Domain | The government’s right to seize private property for public use, with fair compensation, often for projects like roads or utilities. |
| Encroachment | An unauthorized extension of a structure or improvement onto another’s property or public land, potentially causing legal disputes. |
| Encumbrance | A claim or restriction on a property, like a lien or easement, limiting the owner’s full rights and requiring disclosure to buyers. |
| Encumbrance Certificate | A document verifying a property is free from mortgages, leases, or other restrictions, issued by a registrar after record review. |
| Equity | The difference between a property’s market value and the outstanding mortgage balance, representing the owner’s financial stake. |
| Escrow | A neutral account holding funds or documents, like earnest money, until transaction conditions are met, ensuring security for both parties. |
| Exclusive Agency Listing | A listing where one broker has the right to sell the property, but the seller can still sell independently without paying a commission. |
| Exclusive Right-to-Sell Listing | A listing giving one broker the sole right to sell the property, with a commission owed regardless of who finds the buyer. |
| Fair Market Value | The estimated price a property would sell for under normal market conditions, based on comparable sales and market analysis. |
| Federal Housing Administration (FHA) Loan | A mortgage insured by the FHA, requiring lower down payments (as low as 3.5%) and flexible credit criteria to promote homeownership. |
| Fee Simple | The most complete form of property ownership, granting full rights to use, sell, or transfer, subject only to government regulations. |
| Fiduciary Duty | The legal obligation of a real estate agent to act in their client’s best interests, including loyalty, confidentiality, and full disclosure. |
| Fire Resistance Rating | The time a building component can withstand a standard fire test, ensuring structural safety, as defined by regulatory standards. |
| Fireproofing | The use of non-combustible materials to protect a building’s structure from fire damage, ensuring compliance with safety codes. |
| Fixed-Rate Mortgage | A mortgage with a constant interest rate, offering predictable payments, ideal for long-term homeowners seeking stability. |
| Flood Certification Fee | A fee for determining if a property is in a federally designated flood zone, often included in closing costs. |
| Flood Insurance | Insurance covering flood-related property damage, mandatory for properties in flood zones and separate from standard homeowners insurance. |
| Foreclosure | The legal process where a lender seizes and sells a property after borrower default, typically after 120 days of missed payments. |
| Freehold | Absolute ownership of a property and its land with no time limit, also known as fee simple. |
| Gazumping | When a seller accepts a higher offer after agreeing to a buyer’s offer but before contracts are finalized, common in competitive markets. |
| Gearing (Leverage) | The ratio of borrowed funds to equity in a property. Positive gearing occurs when rental income exceeds costs; negative gearing when costs exceed income. |
| Gross Lease | A lease where the tenant pays fixed rent, and the landlord covers expenses like taxes and maintenance, common in commercial properties. |
| Home Equity Line of Credit (HELOC) | A revolving credit line secured by a property’s equity, allowing flexible borrowing at a variable interest rate. |
| Home Inspection | A detailed assessment by a licensed inspector of a property’s condition, covering structural and system integrity to identify potential issues. |
| Homeowners Association (HOA) | An organization managing common areas and enforcing rules in a residential community, funded by owner dues. |
| Independent Contractor | A real estate professional hired for specific tasks without direct control, distinguishing them from employees. |
| Industrial Park | A zoned area for industrial businesses, with shared infrastructure like roads and utilities, designed for operational efficiency. |
| Injunction | A court order preventing specific actions, like property alterations, to protect another party’s rights. |
| Innocent Purchaser for Value | A buyer unaware of title defects or claims, potentially protected from disputes if they purchased in good faith. |
| Interest | The cost of borrowing, expressed as a percentage of the loan, paid monthly with principal in mortgage payments. |
| Latent Defect | A hidden property issue, not detectable by normal inspection but known to the seller, who must disclose it to avoid liability. |
| Lease | A contract granting a tenant property use for a set period in exchange for rent, outlining terms like duration and responsibilities. |
| Lease Termination | Ending a lease before its term, allowed under specific conditions like mutual agreement or legal breaches. |
| Lien | A legal claim against a property to secure a debt, like a mortgage or unpaid taxes, requiring clearance before-sale. |
| Listing | A property advertised for sale, typically on the MLS, with details like price and features to attract buyers. |
| Loan Origination Fee | A lender’s fee for processing a mortgage application, typically 0.5-1% of the loan amount, included in closing costs. |
| Loan-to-Value Ratio (LTV) | The ratio of a mortgage amount to the property’s appraised value, influencing loan terms and risk assessment. |
| Master Plan | A long-term plan guiding an area’s development, including zoning, infrastructure, and land use, approved by local authorities. |
| Mechanic’s Lien | A claim by contractors or suppliers for unpaid work or materials on a property, affecting its title until resolved. |
| Mortgage | A loan secured by a property, with regular payments of principal and interest, using the property as collateral. |
| Multiple Listing Service (MLS) | A database for real estate professionals to share and access property listings, facilitating cooperation and sales. |
| Negative Amortization | When loan payments don’t cover interest, increasing the loan balance, often seen in certain ARMs and risky for borrowers. |
| Net Lease | A lease where the tenant pays rent plus additional expenses like taxes, insurance, or maintenance, common in commercial real estate. |
| Net Operating Income (NOI) | A property’s income after operating expenses but before debt service or taxes, a key investment metric. |
| Nonconforming Use | A property use legal when established but no longer compliant with current zoning due to regulatory changes. |
| Nondisturbance Clause | A mortgage clause ensuring tenants’ leases remain valid during foreclosure, protecting rent-paying tenants. |
| Note | A legal document detailing a loan’s terms, including amount, interest rate, and repayment obligations, often secured by a mortgage. |
| Offer | A formal proposal to buy a property at a specified price and terms, becoming binding upon acceptance. |
| Open House | An event where a property is open for public viewing, allowing potential buyers to tour without appointments. |
| Option | A contract giving a buyer the right, but not obligation, to purchase a property at a set price within a specified period. |
| Owner Financing | When the seller acts as the lender, allowing the buyer to make payments directly to them, often with flexible terms. |
| PITI | An acronym for Principal, Interest, Taxes, and Insurance, representing the components of a typical mortgage payment. |
| Planned Unit Development (PUD) | A community with mixed property types (e.g., homes, condos, commercial) under a unified plan, often with shared amenities. |
| Planning Area | Land designated for future development, like residential or commercial use, requiring approval for projects. |
| Points | Fees paid to a lender to reduce a mortgage’s interest rate, with one point equaling 1% of the loan amount. |
| Pre-Approval | A lender’s conditional commitment to loan a specific amount to a buyer, based on credit and financial review, strengthening offers. |
| Pre-Qualification | A preliminary assessment of a borrower’s ability to secure a mortgage, less formal than pre-approval and based on unverified information. |
| Principal | The original loan amount borrowed, excluding interest, reduced over time through mortgage payments. |
| Private Mortgage Insurance (PMI) | Insurance required for conventional loans with less than 20% down payment, protecting the lender in case of default. |
| Property Manager | A professional managing rental property operations, including tenant relations, maintenance, and rent collection. |
| Quitclaim Deed | A deed transferring any interest the grantor may have in a property without guaranteeing a clear title, often used in family transfers. |
| Real Estate Agent | A licensed professional assisting in property transactions, working under a broker and earning commissions. |
| Real Estate Owned (REO) | A property owned by a lender after foreclosure, typically sold at a discount to recover losses. |
| Realtor® | A real estate agent who is a member of the National Association of Realtors, adhering to a strict code of ethics. |
| Refinancing | Replacing an existing mortgage with a new one to secure better terms, like a lower rate, often incurring new closing costs. |
| Reverse Mortgage | A loan for homeowners 62 or older, allowing them to convert home equity into cash without monthly payments, repaid when the home is sold or the owner passes. |
| Sale Deed | A legal document transferring property ownership from seller to buyer, executed and recorded during a sale. |
| Settlement Statement | A document detailing transaction terms and costs, often used interchangeably with the closing disclosure in mortgage transactions. |
| Site Plan | A detailed drawing of a property’s layout, including buildings and utilities, required for zoning and construction approvals. |
| Stamp Duty | A tax on legal documents during property transfers, varying by state and based on the property’s value. |
| Stilt Parking | A design where a building’s ground floor is used for parking, with residential units elevated above. |
| Strata Title | Ownership of individual units in a multi-unit property, with shared ownership of common areas, common in condos or townhouses. |
| Subdivision | Dividing a large parcel of land into smaller lots for development, subject to local zoning and approval. |
| Tax Base | The total assessed value of properties in a jurisdiction, used to calculate property tax revenue. |
| Tenancy in Common (TIC) | Co-ownership where multiple parties hold undivided interests in a property, with each able to sell or transfer their share. |
| Time Sharing | Shared property ownership where multiple buyers purchase rights to use a property, typically a vacation home, for specific periods. |
| Title | The legal right to own, use, or sell a property, evidenced by a deed and verified through a title search. |
| Title Insurance | A policy protecting buyers and lenders from financial loss due to title defects, like liens or disputes, typically required at closing. |
| Title Search | An examination of public records to verify a property’s ownership history and identify any liens or encumbrances. |
| Townhouse | A multi-level home sharing walls with adjacent units, typically with living spaces downstairs and bedrooms upstairs. |
| Trade Equity | Real estate or assets provided by a buyer as part of the down payment, reducing cash needed for the purchase. |
| Transfer Tax | A tax imposed during property ownership transfer, based on the sale price or assessed value, varying by jurisdiction. |
| Truth in Lending Act (TILA) | A federal law requiring lenders to disclose loan costs, including APR and terms, to ensure transparency for borrowers. |
| Two to Four Family Property | A residential building with 2-4 separate units, treated as a single-family mortgage for financing purposes. |
| Underwriting | The lender’s process of evaluating a borrower’s credit, income, and property value to determine loan eligibility and terms. |
| Usury | Charging an illegally high interest rate on a loan, prohibited by state laws to protect borrowers. |
| VA Loan | A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans and active-duty military, offering no down payment and competitive rates. |
| Variance | A zoning exception allowing a property owner to deviate from regulations due to hardship, granted by a zoning board. |
| Walk-Through | A final inspection by the buyer before closing to verify the property’s condition and ensure agreed repairs were made. |
| Wear and Tear | Normal property deterioration from use, time, or weather, depreciable for tax purposes but not considered damage. |
| Wrap-Around Mortgage | A secondary loan encompassing an existing mortgage, where the borrower pays the new lender, who pays the original lender. |
| Yield | The percentage return on an investment property, calculated by dividing net income by the property’s market value. |
| Zero Lot Line | A property built on or near the property line, maximizing usable space but often leaving minimal yard area. |
| Zoning | Local regulations controlling land use, such as residential or commercial, to ensure orderly development and public safety. |
| Zoning Ordinance | Specific laws within a zoning code, detailing permitted uses, building heights, and setbacks for a designated area. |
| Zoning Variance | A waiver from zoning regulations granted due to undue hardship, allowing deviations like building height or setback changes. |