Whether you’re new to real estate or a seasoned vet, there are certain terms every agent needs to know to help their clients buy and sell property. From adjustable-rate mortgages to title searches, here’s an A to Z of key jargon you should brush up on to ensure you’re speaking like a property pro.
Adjustable-rate mortgage (ARM): With this type of mortgage, the interest rate can fluctuate after an initial fixed-rate period depending on changing interest rate indexes. Although riskier, this type of mortgage can yield lower interest rates than fixed-rate mortgages.
Appraisal: An estimate of the value of a property. Before a lender awards a mortgage, they order an appraisal of a property to make ensure it’s worth the amount of the loan the buyer would like to secure.
Appraisal contingency: Written into a purchase agreement, this clause lets the buyer legally back out of the sale if the appraisal value comes in lower than the sale price.
As-is: This means that the seller is unwilling to make repairs or the property is priced lower than typical market pricing due to issues the seller will not address.
Backup offer: An additional offer on a property. Real estate agents try to secure multiple offers to provide other options if the first offer falls through.
Blind offer: When a buyer makes an offer on a property without seeing it in person. These types of offers are becoming more common, with virtual showings increasingly popular.
Closing costs: Fees from taxing authorities, attorneys, real estate agents, lenders, title companies, insurance companies, and homeowner’s associations that are paid out at closings.
Comparative market analysis (comp): To price properties for sale, real estate agents summarize and analyze what similar properties have sold for.
Conventional sale: With this type of sale, the seller owns their property outright or owes less on their mortgage than the property is currently worth. It’s the opposite of a non-conventional sale, such as a foreclosure, probate-related sale, or short sale.
Contingencies: Scenarios that let buyers out of contracts without penalties. Examples include mortgage contingencies (when they can’t secure a mortgage) or inspection contingencies (if a building inspection uncovers significant problems).
Days on market (DOM): How long properties have been for sale. Generally, the longer the DOM, the more leverage buyers have when negotiating what they’ll pay for a property.
Debt-to-income ratio (DTI): Mortgage lenders come up with this number to determine whether a buyer qualifies for a mortgage. They reach it by comparing a buyer’s gross monthly income (before taxes and deductions) to their total monthly payments.
Due diligence: Written into the purchase contract, this is the amount of time a buyer has to research a property, usually by conducting a building inspection.
Escrow: A bank account set up by a neutral third party to hold payments from the buyer. The money isn’t released to the seller until the closing.
Fixed-rate mortgage: The opposite of an ARM, this means a mortgage stays at the same interest rate for the duration of the loan.
Home warranty: This clause protects a buyer from having to pay for issues that might arise, like plumbing or heating problems.
Inspection: Before a buyer makes an offer on a property, they typically pay for a building inspection. An inspector will appraise a property for issues like mold, termites, and structural flaws.
Inspection contingency: An offer on a property often includes this type of clause that allows a buyer to back out should the inspection uncover serious issues.
Loan contingency: A clause that lets a buyer back out of their offer if they are unable to secure a loan.
Mortgage pre-approval letter (pre-approval letter): Created by a lender, this letter verifies that a buyer is approved for a mortgage of a certain amount. By taking this step before making an offer, buyers show that they’re qualified.
Multiple listing service (MLS): This collection of several hundred regional databases, accessible to real estate agents and brokers, lists properties for sale.
Natural hazards disclosure (NHD) report: Most states require sellers to disclose if their property is at a higher risk of natural hazards, such as flooding, earthquakes, or fires.
Pre-qualification: When a buyer obtains a lender’s estimate of the amount of mortgage they’ll be approved for, based on information they provide.
Preliminary report: A title company produces this document, which reveals any issues with a title, involving ownership history, liens, and easements. This report is typically required by title insurance companies before they issue title insurance policies, which are required by most mortgage lenders.
Principal: The amount of money a buyer is borrowing to purchase a property, not including mortgage interest. When calculating what a property will cost a buyer in total, they need to combine the principal with the interest on the principal.
Proof of funds: When submitting an offer, buyers provide this data (such as bank statements on bank letterhead or certified financial statements) to sellers to prove how much cash they have.
Purchase and sale agreement (PSA): This refers to the written contract on a property between a seller and buyer.
Seller concession: Written into a sales contract, this means a seller awards an incentive to a buyer, usually a contribution toward closing costs.
Seller disclosure: Sellers are required by law to reveal information that could affect a buyer’s decision to purchase a property. Examples include pest issues, property line disputes, and more.
Short sale: When a homeowner sells their property for less than what’s owed on the mortgage, letting the lender recoup some of the money they’re owed. This type of sale helps homeowners and lenders avoid foreclosures.
Subject to inspection: When a seller has entered into a contract with a but the closing is contingent on a home inspection. Should issues arise during the inspection, the inspection contingency allows the buyer to back out of the deal if they’re not satisfied with the results of the inspection.
Title search (or property title search): Research into the history of a piece of property to confirm the seller’s legal ownership of a property, and if there are any claims or liens on the property. Lenders require clear titles before awarding mortgages.