The Index for Confusing Real Estate Vocabulary

Real Estate Vocabulary or ‘shoptalk ‘ can be confusing, especially to first-time home buyers or those who haven’t sold or bought a house in years. When working with clients I aim to not only help them buy or sell a home but make sure they understand the process every step of the way. Understanding the options and Real Estate process ensures I empower people to make the best decisions for themselves. I’ve compiled a list of commonly used words in Real Estate. If there are terms I didn’t list feel free to contact me personally. My daughter is a teacher and always jokes my job is half selling houses and a half teaching Real Estate 101!

Adjustable-rate Mortgage

Fixed and adjustable rate are the main two types of mortgages. Fixed means your interest rate will always be the same. In an adjustable-rate mortgage, your interest rate can change at five, seven, or ten-year intervals. This is a bit of a gamble as your rate can increase or decrease.

Amortization

This is a process where you pay off the interest and principle of your mortgage simultaneously. Part of your mortgage payment will go towards the interest and the rest will go towards the principle.

Appraisal

Appraisals are done for the lender or bank that is lending money to the buyer to ensure the home’s value.  Appraisers will inspect the home along with comparing recently sold homes of that style in the neighborhood to get an accurate value of the property.

Assessed Value

This is another property value evaluation. A public tax assessor conducts this value assessment to determine the city and state taxes needed on the home.

Closing

Closing is the final step in the home buying/selling process. Both parties sign the final documents at this meeting. The sellers will hand over the house keys while the buyer makes the down payment and pays their closing costs.

Closing Costs

In addition to the price of the home, there are closing costs. These are typically two to five percent of the purchase price excluding the down payment. Closing costs cover the title insurance, loan processing costs, and other miscellaneous costs. While both sides typically pay their own, in some transactions the seller agrees to pay part or all of the buyer’s costs.

Comparative Market Analysis

This is a well-named term. A Comparative Market Analysis (CMA) estimates your home value based on the sales prices of similar homes in your area. The homes used as comparables will most likely be similar in size and style. Only properties that have been recently sold or currently listed will be used.

Contingencies/Sold Subject to Contingency

Contingency means there are one or more conditions that need to be met. Examples include a loan being approved, the appraisal being close to the sale price, or the successful close of the buyer’s previous home.

Dual Agency

Dual agency is when the same brokerage is representing both the buyer and seller in the same transaction. This is still true when the same or two separate agents are working on this transaction but with the same brokerage.

Earnest Money

Earnest Money is referred to as a “good faith gesture”. This money is usually 1%-5% percent of the sales price and is placed into escrow to show a buyer is serious about purchasing the home. Earnest money can be forfeited to the seller in some scenarios if the buyer does not commit to the transaction. If all goes smoothly, the earnest money is counted toward the buyer’s down payment.

Equity

Equity is how much of your home you actually own. In other words, it is how much of the principal on your home that you have paid off. The more equity you have the more financing options and flexibility you will have. To give a real-world example of equity, let’s say your home costs $200,000 and you’ve paid $50,000. Your equity is whatever you’ve paid off. In this case, it would be $50,000.

Escrow

Escrow is a third-party account that holds money for multiple purposes. Sellers can add money for expected home repairs into this third parties’ hands to be used after closing. Buyers will place their earnest money into an escrow account. Basically, any money exchange done before the final closing of a transaction is placed into escrow and a third party handles the money ensuring its protection during the Real Estate process.

FHA Mortgage

An FHA mortgage is a mortgage insured by the Federal Housing Administration. A benefit includes down payments as low as 3.5% for people with a credit score of 580 or higher. A downside is borrowers must pay mortgage insurance premiums to protect the lending if the borrower defaults on payments.

Fixed-rate Mortgage

This is the opposite of an adjustable-rate mortgage. Fixed-rate mortgages have an interest rate that never fluctuates up or down. This offers security when interest rates rise, but also means falling interest rates won’t benefit people with fixed-rate mortgages.