A Glossary of Essential Real Estate Terms
How fluent are you in real estate-speak?
Real estate – at least as a concept – has been around for centuries, so it comes as no surprise that the terminologies and jargon associated with this age-old industry have expanded as it evolved with the times.
Let’s have a quick look at the most common types of real estate:
A Brief History of Real Estate
Historical texts suggest that the natural right of individuals to own properties traces its roots in Roman Law and Greek philosophy, with the first system of rent-taking shape in the hunting-gathering societies. Residents pay homage to the lord or king who claims ownership of the land where they live, in exchange for the security he provides.
With the rise of meritocracy-based politics, vast parcels of land that previously belonged to aristocratic landlords were broken down and sold in the early stages of the real estate free market. The profession of surveying or appraising was first recorded in England in the 1500s.
Several milestones shaped the trajectory of real estate as we know it today. In 1803, one of the biggest early real estate deals took place with what is known as the “Louisiana Purchase” when the United States acquired the state of Louisiana from France for $15 million.
The oldest real estate brokerage firm L. D. Olmsted & Co (now known as Baird & Warner) was established in Chicago in 1855. The Windy City was also the birthplace of the National Association of Realtors in 1908. It was renamed the National Association of Real Estate Boards in 1916.
In 1999, the boom of internet real estate began as access to the world wide web became more widespread. In the United States alone, over one million homes were sold by the homeowners themselves in 2000 via early online real platforms such as Zillow, Realtor.com, and Trulia among others.
Learning the Lingo: What’s in It for You?
Real estate’s rich history and rapidly changing practice make it an industry with a robust glossary. But why should you care?
There are two key scenarios where being well-versed in real estate terminologies will be beneficial:
1. If You’re Considering a Career as a Realtor
Would you trust a realtor who doesn’t understand the technicalities of real property buying, selling, and investing?
A crucial characteristic of a successful real estate agent is excellent communication skills. While this involves being able to explain technical industry jargon in layman’s terms, as a subject matter expert, you need to demonstrate a high level of proficiency, comprehension, and articulateness when using technical concepts.
You are, after all, going to guide your future clients in processing one of the biggest purchases of their lives, so fully understanding the industry – including an updated vocabulary – is important.
Plus, as with the other industries in today’s modern economy, realtors use this specialized technical language to communicate with peers and industry partners that facilitate seamless working conditions.
2. If You’re Planning on Buying or Investing in Real Property
As it turns out, vocabulary is an important part of real estate ownership and investment preparations. Understanding the landscape, including its technicalities, is part of the due diligence to ensure that you maximize every dollar you invest.
Common Real Estate Terms That You Need to Be Familiar With
Whether you’re interested in carving a career as a realtor or becoming a homeowner or a real property investor, you can use the following glossary to jumpstart a better understanding of essential real estate terminologies.
Adjustable-rate Mortgage (ARM)
A loan repayment term wherein the interest rate changes periodically, typically in five, seven, and 10-year intervals. This could be a risky loan in volatile market conditions as interest rates can increase exponentially depending on fluctuating market conditions.
Amortization
A schedule of mortgage payments in equal installments that includes varying percentages of the principal loan and the interest over a period of time, typically paid in 15 or 30 years. Previously, the interest was paid off first, but including both the principal amount and interest simultaneously allows homeowners to build equity faster.
Annual Percentage Rate (APR)
The amount of interest, broker fees, and other charges borrowers are required to pay on their loan every year.
Appraisal
A professional, non-biased assessment to determine the fair market price of a property. When buyers take out a loan, lenders require an appraisal to ensure that the amount requested is commensurate to the value of the property.
Appreciation
The projected increase in value of a property versus its purchase price within a specific timeframe from the point it was acquired.
Assessed Value
This is how much a property is worth based on the evaluation of a public tax assessor with the goal of determining how much city or state taxes the owner owes.
Brokerage Management Software
Brokerage management software is a real estate management solution that enables brokers to work more quickly, efficiently, and productively for the benefit of their clients and an optimized back office operations.
Building Management Systems (BMS)
BMS are control systems installed in buildings to automate the functions of mechanical equipment such as the HVAC, fire alarm, lighting control, security control, and water tanks. These systems allow for early detection and diagnostics of faulty equipment that would otherwise remain undetected.
Buyer’s Agent
The agent or realtor who represents the buyer in a real estate transaction.
Cash Reserves
The remaining money after a buyer pays the downpayment and closing costs on a property.
Closing
The last stage of a real estate transaction. The parties agree on a date when they go on contract on the property. On the agreed closing date, the ownership is legally relinquished from the seller to the buyer.
Closing Costs
These fees are paid by both the buyer and seller on or before the closing date. These include loan processing costs, title insurance, excise tax, local tax, municipal fees, and deed recording fees among others. Approximately 2% to 5% of the purchase price goes to closing costs.
Comparative Market Analysis (CMA)
Also known as “comps”, this is a report of similar properties within the neighborhood or area of a listed home. This includes how much similar properties were sold recently, the listing prices of comparable for-sale homes, and how much inventory is available.
Contingencies
These are the conditions that need to be satisfied in order for the sale of the property to push through. These include passing a home inspection, an appraised value that is reasonably near the asking price, loan approval, and an agreed occupancy date just to name a few. If one or more of these terms are not met, either the seller or the buyer can exit the contract and the deal will fall through.
Digital Transaction Management
A strategy that aims to make the management of real estate paperwork more efficient. This includes using tools and apps that allow for documents and contracts to be reviewed, signed, and shared among brokers and clients.
Dual Agency
A scenario wherein the brokerage or realtor represents both the seller and the buyer.
Equity
Refers to how much of a home the homeowner actually owns. To calculate equity, subtract the outstanding mortgage balance from the current fair market value of the property.
Escrow
An account that the lender sets up to collect monthly mortgage payments from the buyer.
Fair Market Value
The fair market value of a property is its accurate valuation in a free and open market, assuming that both buyers and sellers are knowledgeable about the asset, acting for their mutual benefit, and not under coercion to close the deal.
Fixed Rate Mortgage
A type of mortgage wherein the interest rate on the loan remains the same throughout the repayment period.
Fractional Property Investment
Fractional ownership refers to the percentage ownership of a real estate asset. This allows aspiring property buyers to accumulate a deposit on a future full property ownership. For example, fractional investors can share the income from a rental property that they bought together, creating a new income stream for future homeownership or additional real estate investment.
Home Valuation Software
A tool that helps realtors estimate the value of a property based on specific parameters such as square footage, number of rooms, home condition, neighborhood comparables, and more. Modern valuation software uses advanced technology such as AI and machine learning to generate accurate property value estimates.
Home Warranty
A service contract that provides homeowners discounted repair and replacement of covered items such as HVAC systems, plumbing, electrical, and some major kitchen appliances.
Inspection
A third-party assessment of the condition of a property before a sale is finalized. This reveals the state of important structural elements such as the home’s foundation, electrical, plumbing, roofing, and insulation as well as non-structural elements such as the presence of asbestos or any pest infestation. While there is no law mandating home inspection, many lenders require a home inspection for loan approvals to protect their interest in the property.
Internet Data Exchange
Also known as Information Data Exchange, it’s the agreement between listing agents and buyer’s agents to advertise Multiple Listing Service properties across various websites. In recent years, IDX plugins have been created that mine local MLS and automatically display it on a brokerage’s or agent’s website.
Lead Generation and Nurturing Software
Real estate lead generation and nurturing software allow realtors to capture leads and convert them into clients, both sellers and buyers. There are real estate lead generation and nurturing software that is powerful enough that they can mine Multiple Listing Service (MLS) platforms and trigger automated emails based on what they’re looking to buy or the property they’re selling.
Lien
A property lien is an unpaid debt on real estate. It is a legal notice that denotes legal action taken by a lender to recover a debt. It can result from unpaid taxes, a court judgment, or unpaid bills and, if left unattended, can delay the home buying process.
Listing Agent
The agent or realtor representing the sellers in a real estate transaction.
Market Reports and Property Valuation Software
These web-based tools or apps help real estate agents pull comparables in a specific area or neighborhood quickly and efficiently. These platforms also provide a comprehensive list of pertinent data in real estate buying and selling including school zones, demographics, flood maps, value reports, forecasts, risk evaluations, market insights, and other data.
Meter Reading Software
A program for gathering consumption data from electric, gas, and water metering and submetering devices and sending the information to a central database for analyzing and billing.
MLS Search and Listing Tools
Multiple Listing Service (MLS) platforms connect listing brokers with buyers’ agents or buyers themselves to help facilitate the sale of their client’s properties. MLSs are mostly private databases that realtors need to subscribe to, but some listing information is made accessible to the general public for free.
Mortgage
When a borrower and a lender enter into a mortgage, the lender grants the borrower the right to take possession of the property in the event that the borrower is unable to make loan payments (plus interest) on the predetermined schedule.
Mortgage Insurance
Mortgage insurance is typically a requirement for homebuyers who put down less than 20% of the home’s purchase price or who receive an FHA or USDA loan. It decreases the risk on the lender’s end, but it also raises the cost of the loan.
Negative Amortization
Negative amortization occurs when you don’t pay enough to cover the interest, causing your outstanding balance to grow despite your monthly payments.
Offer
The initial price that is submitted to a seller by a prospective buyer. This may be below the asking price, full asking price, or above the asking price. Listing agents are required to present all offers to their clients. The seller may accept the offer, reject the offer, or make a counter-offer.
Open House and Showing Management Software
An internet-based platform or app allows realtors to schedule, announce, and manage their open house events. Visually rich, it gives real estate agents a virtual platform to showcase their listings as well as manage logistical requirements such as generating paperless log sheets, organizing contacts/lockbox codes/notes, collating feedback from buyers and their feedback, and allowing interested leads to book viewings.
Pre-approval
The process wherein buyers are pre-approved for a certain loan amount even before they begin their house hunting journey. The pre-approved loan amount is based on several financial factors such as income and credit score and is typically valid for up to 90 days.
Private Mortgage Insurance (PMI)
An insurance coverage that protects lenders when homeowners default on their mortgage. Payments for PMI usually stop once homeowners have accumulated at least 20% equity.
Real Estate Blockchain Technology
Blockchain solutions are used specifically in the practice of real estate to prevent tampering of financial records and verifying encrypted transactions. It also stores digital copies of important documents such as titles on secure servers.
Real Estate CRM
A CRM or Customer Relationship Management is a software that helps real estate agents and brokers manage, facilitate, and automate communications among themselves, their leads, and their clients. It allows realtors to take appropriate action depending on where buyers or sellers are on their real estate buying/selling journey.
Real Estate Prospecting Software
A lead generation technology that empowers realtors to mine cold leads with a high level of efficiency. Ideal to use among agents who use cold calling as a sales and marketing strategy.
Real Estate Social Media Marketing Tools
Agents and brokers who are not on social media are practically invisible. Social media marketing is crucial in the real estate profession and there are a plethora of tools available – from AI-powered social media writing software, photo editing apps, and social scheduling platforms – for realtors to maximize.
Real Estate Technology
PropTech, or real estate technology, is a new category of software and information technology designed specifically to meet the changing needs of real estate owners, operators, agents, investors, renters, and builders.
Real Estate Website Builders
Drag-and-drop website builders that expand the reach of real estate agents and brokerage firms to showcase their listings as well as highlight their specializations and core competencies. This also includes plugins such as IDX integration tools.
Refinancing
The act of restructuring an old loan and replacing it with a new one with terms. The most common refinancing goals include getting a lower interest rate, decreasing the monthly mortgage amount, and shortening the repayment duration.
Second Mortgage
When a homeowner borrows money against the value of their house, this is known as a second mortgage. They are also known as HELOCs and leverage the home’s market value to grant the borrower cash that can be used any way they see fit. They can be obtained as a single sum or as a line of credit, with the option of repayment at a rate that aids budget payments.
Short Sale
This occurs when a homeowner sells a home for less than the outstanding balance on the mortgage. This allows lenders to recover a percentage of the amount that is owed to them.
Title Insurance
Commonly part of the closing costs, this includes research into public records to make sure that the title is clear and lien-free.
Virtual Tour Software
Ideally, realtors would want to show off a property to potential buyers in person, but there are circumstances that this is not possible. Virtual tour software creates a digital rendering of a home or property to give buyers a virtual walkthrough. It could also serve as the first step before prospective buyers decide whether a home is worth a physical visit or not.
Start Building the Foundation of Your Real Estate Fluency
If you plan to make a real estate transaction, whether buying or selling, you will come across real estate terminology and definitions that you are unfamiliar with.
These are some of the most important real estate terms that buyers and sellers should be aware of. Not knowing some of this real estate jargon can land you in a lot of trouble. It is critical to be well educated when buying or selling a home.
Do take note that real estate is a continuously evolving industry and many of the terms you see above – Real Estate CRM, Brokerage Management Software, Virtual Tour Apps – were unheard of five or so years ago. For sure, the real estate landscape that you know today won’t be the same a few years down the road, and the technical terms will expand with it.