n Real estate involves a lot of jargon that you should be familiar with. Understanding real estate finance terms can make your venture easier.
Every industry usually has its own jargon and acronyms. There are also several real estate investing terms that you will come across in real estate. Because of this, it is easy for those still new to real estate investing to feel intimidated. Real estate jargon can add more confusion, especially for first-time investors.
Table of Contents
- General Real Estate Investing Terms
- Real Estate Finance Terms
- Listing and Property Information Terms
- Mortgage and Payment Terms
- Offers and Contingencies Terms
There are too many existing real estate investing terms; knowing them all will take time. But there are some common terms that you should know as a beginner investor. Knowing these terms will help you understand the jargon real estate professionals use. Plus, being familiar with real estate terms will make investing much easier.
Real estate investing is easier with the knowledge of the standard real estate terms. They will help you to communicate with other real estate professionals more effectively. You will encounter most of these real estate investing terms in your transactions. That’s why it’s crucial to understand them.
Beginner investors should understand these real estate finance terms to avoid confusion. In this article, we will list some of the most common investing terminologies used in real estate transactions.
Related: 38 Most Important Real Estate Abbreviations and Acronyms
General Real Estate Investing Terms
General real estate terms are used for ordinary and day-to-day real estate transactions. We usually encounter these terms for buying, selling, and renting a property. Everyone involved in a real estate transaction should be familiar with these terms. It helps avoid confusion and ensure smooth transactions.
Here are a few of the general real estate terms that you should know:
A person buying a property has the option to pay either in cash or through a loan. If the buyer chooses to acquire the property with financing, the buyer will then be referred to as the borrower by the lender.
In real estate, the buyer is the one who buys or is interested in purchasing a property either for personal use or as an investment.
A buyer’s agent is a real estate agent that represents the buyer. Buyer’s agents help buyers find properties that match their criteria. These criteria include the buyers’ preferred property type, size, location, and budget.
A buyer’s market means that the real estate market is favorable for buyers. It happens when the supply of properties for sale exceeds the demand from buyers. Thus, prices are likely to plunge downward.
A co-borrower is an individual who is equally responsible for paying back the loan. For example, a married couple buys a property through a loan. One of them will be the primary borrower, while the other will be the co-borrower. If the primary borrower cannot pay the loan, the lender can take things up with the co-borrower.
The term house flipping refers to invest in real estate where investors buy and repair a property. The investor then performs home improvements to increase its value, then sells it for a profit. This is typically a short-term real estate strategy allowing investors to earn money quickly.
A listing agent is a real estate agent that represents the seller. Listing agents help sellers list their properties on various listing platforms. They also find the right buyer, get good offers, and negotiate with the buyers to close a deal.
Long Term Rental (Traditional Rental)
A long term rental, also known as a traditional rental, is an investment property bought for the purpose of renting it out to tenants for more extended periods. A typical long term rental contract usually lasts about six months to a year or more. It involves a lease agreement outlining the terms and conditions of the rent. Long term rentals are the most common investment strategy.
A mortgage is a type of loan designed specifically for purchasing or refinancing real estate properties. It involves a legal agreement where the borrower pledges the property as collateral in exchange for receiving funds upfront. A mortgage has to be repaid in regular installments over a predetermined period.
A lender is a financial institution or a bank that finances the purchase of a property and underwrites home loans. Mortgage lenders assess various factors, such as creditworthiness, income, and the property’s value, to determine the loan amount and interest rate offered to borrowers.
An owner-occupied property is a property in which the owner uses the same house as their primary residence and rents out other units, rooms, or spaces to tenants. For example, if you own a 4-unit multifamily home, it is owner-occupied if you live in one of the units and rent out the other three to long term tenants.
Owner-occupied properties are also applicable to short term rentals. In fact, in some cities, it is mandated that a vacation rental property must be owner-occupied to operate legally. In short term rentals, an owner-occupied property means the owners must either live in the property during a guest’s stay or reside there for a minimum number of days a year.
Real estate refers to a real property consisting of land and any structures or improvements built on it. There are five real estate categories: residential, commercial, industrial, raw land, or special use. Typically, when we speak of real estate, we refer to physical or tangible assets and rights and interests, such as ownership and use.
Real Estate Agent
A real estate agent is a licensed individual who acts on behalf of a buyer or seller in a real estate transaction. This job is usually the starting point for most real estate professionals. Typically, real estate agents operate under a licensed broker, brokerage firm, or a REALTOR®.
Real Estate Broker
A real estate broker is a real estate agent with ongoing education and a broker license. Real estate brokers represent buyers and sellers in a real estate transaction and can work independently. They can also hire other real estate agents to work under their supervision.
A realtor is a real estate agent member of the National Association of REALTORS®. Unlike independent brokers and agents working for other brokers or brokerage firms, a realtor must abide by the association’s standards and code of ethics.
A renovation is the process of improving or fixing damaged, broken, or outdated structures in a property. This process is done to restore the property’s condition to its original state or to improve it to a better shape. Renovations are usually performed after buying a property to increase its value and prepare it for occupancy.
Rental income is the amount periodically paid by a tenant to a property owner to use their property. It is collected for both long term and short term rentals. Rental property income is one of the most common forms of income that investors receive.
A rental property is a type of property that provides owners with a rental income. The occupants of the property, known as tenants, pay rent to the owner to use or occupy a property. Rental properties may be either residential real estate or commercial real estate.
The seller in real estate is any individual or entity that sells a real estate asset. Typically, the seller in real estate is the owner of the property being sold.
A seller’s market means that the current market conditions favor sellers. When the supply is scarce and the demand is high, property prices usually soar. In a seller’s market, even if the prices are high, some buyers will still compete for the best properties for sale and make higher offers.
Short Term Rental (Vacation Rental)
A short term rental, also known as a vacation rental, is a furnished and self-contained home, condominium, or apartment that is rented out for a short period, usually for 30 days or less. Short term rentals are often listed on home-sharing platforms, such as Airbnb or Vrbo, that connect guests to vacation rental hosts.
Real Estate Finance Terms
Real estate finance terms are terminologies related to credit, financials, and documentation. These terms are often encountered by real estate investors who assess the profitability of a property when trying to find the best investment property to buy. If you’re a new investor, being familiar with these terms can help you determine which property can generate the best returns.
Here are some of the essential real estate finance terms that you should understand:
Annual Percentage Rate
The annual percentage rate (APR) is the rate of measure, expressed as a percentage, representing the yearly borrowing cost. APR typically includes the interest rate, fees (like loan origination fees), and additional expenses (such as closing costs) associated with the loan transaction.
The real estate term appreciation refers to a property’s increased value over time. The appreciation rate, expressed as a percentage, is a measure to determine the increase in property value. Appreciation rates vary from one real estate market to another. The higher the appreciation rate, the faster the real estate value increases.
The assessed value is the value given to a property for tax purposes. When finding the assessed value of a real estate property, factors such as comparable home sales, location, condition, and other amenities are taken into consideration.
In real estate, cash flow refers to how much money an investor can pocket at the end of each month after paying all operating expenses, including loan payments. You can have either a positive or negative cash flow. You will have a positive cash flow if you spend less than you earn. However, if the cash outflows exceed the cash inflows, you will have negative cash flow.
The cash flow formula is as simple as follows:
Cash Flow = Cash Inflows – Cash Outflows
Cash on Cash Return
The term cash on cash return refers to the ratio of annual cash flow before tax to the total cash invested, expressed as a percentage. This financial metric allows investors to assess the cash flows from their income-generating assets, taking into account the financing method used.
To calculate the cash on cash return of a property, you can either use a cash on cash return calculator or do it manually with this formula:
Cash on Cash Return = Annual Cash Flow Before Tax / Total Cash Investment
The capitalization rate, or cap rate, is the ratio of the net operating income produced by an investment property to its capital cost or current market value, expressed as a percentage. It is one of a few real estate finance terms that refers to the rate of return expected from an investment property.
To calculate the cap rate, you can either use a cap rate calculator or do it manually using the following formula:
Cap Rate = Net Operating Income / Property Value
A credit score is a numerical expression that evaluates the creditworthiness of an individual based on an analysis of their credit record. It is usually used by lenders to determine if a borrower qualifies for a loan, how much credit limit the borrower could get, as well as the interest rate.
The term dynamic pricing is typically used for short term rentals. This pricing strategy adjusts the nightly rate of a vacation rental home based on several factors like seasonality, market demand, booking trends, and local events. Since short term rentals are seasonal, its pricing should also be flexible.
Several dynamic pricing tools are available online to help short term rental owners set reasonable yet competitive rental estimates for their vacation homes. One of the best tools available that can help you automate your short term rental rates is Mashvisor’s Dynamic Pricing.
What Is Mashvisor’s Dynamic Pricing and How Does It Work?
Mashvisor’s Dynamic Pricing is a tool that allows you to automate your pricing for your Airbnb rentals. With this tool, you can easily connect all your Airbnb accounts into one platform, minimizing the need to switch from one account to another. This tool is best for property managers who manage several vacation rentals, as well as both new and seasoned Airbnb hosts.
Aside from providing automated pricing for your short term rentals, the Dynamic Pricing tool from Mashvisor also offers you access to Market Insights. It allows you to get a better picture of the market conditions in your area, as well as how your competitors are doing. This can help you strategize how to position your property in the market to stand out.
Mashvisor’s Dynamic Pricing tool takes into account factors including seasonality, historical Airbnb demand, historical booking trends, and local events when setting prices. The website gathers real estate data from reliable sources. Along with its AI-powered pricing solutions, you can trust that the pricing recommendations are accurate and realistic.
With Mashvisor’s Dynamic Pricing, you can rest assured that you’ll maximize your revenues during high-peak seasons and boost occupancy even during low seasons.
If you want to know more about how Mashvisor’s Dynamic Pricing works and how it can help you maximize your returns, start a 7-day free trial with Mashvisor today.
Internal Rate of Return
The internal rate of return (IRR) is the discount rate at which the net present value (NPV) of all cash flows from an investment or project is zero. This metric is used to estimate the profitability of potential investments.
Investment Property Calculator
An investment property calculator, also known as a real estate calculator or rental calculator, is a real estate investment tool that helps investors gauge the profitability potential of a property. Investment property calculators calculate various metrics to determine the income-earning opportunities of a specific investment property.
Typically, an investment property calculator identifies the cap rate, cash on cash return, and cash flow of a particular income property. It allows investors to determine whether the property is a good investment. Investment property calculators are typically accessed online on real estate platforms.
What Is Mashvisor’s Real Estate Calculator and How Does It Work?
One of the most comprehensive investment property calculators available online is Mashvisor’s real estate ROI calculator. This tool—which also works as an Airbnb calculator—is an interactive calculator that lets you customize your computation by allowing you to adjust certain figures, including expenses, nightly rates, and occupancy rates. Plus, you can also include your financing methods in your computation.
The best thing about Mashvisor’s real estate investor calculator is that it provides the property data you need to get the right results. You won’t need to do manual research to know the property’s monthly income, expenses, and occupancy rates. What’s more, it includes all important metrics to help you find the ROI potential of the property.
Homeowners Association (HOA) dues are fees charged to homeowners or unit owners of properties in condominiums, co-ops, villages, and neighborhoods. These fees typically fund the maintenance of common areas, including elevators, hallways, lobbies, swimming pools, lawns, and parking lots.
A lien is a legal property claim allowing the lien holder to access the property. For example, if you apply for a mortgage loan using your property as collateral, the lender will put a lien on the property. If you fail to pay back what you borrowed, the lender has a claim on the asset and can foreclose the property.
Real estate market insights refer to information about a particular real estate market to help you understand its condition, performance, trends, and growth patterns. Access to this information lets you perform a market analysis and determine whether the market is ideal for investing in real estate.
As a real estate investor, it’s crucial to have access to market insights when finding the right market for investing. Market insights help you analyze the investment potential and opportunities in a particular market, helping you make an informed investment decision.
Net Operating Income
The net operating income, or NOI, refers to the net income generated annually from all revenues from an investment property after deducting necessary operating expenses. Such expenses exclude payment for mortgage and income taxes. NOI helps you determine the cash flow of an investment property.
You can calculate the net operating income using the following formula:
NOI = (Gross Operating Income + Other Income) – Operating Expenses
Related: What Is NOI in Real Estate?
The occupancy rate usually applies to short term rental properties. It measures the number of days a property is rented versus the days it is listed for rent. In real estate, investors should aim for properties that have a high occupancy rate. Properties with a low occupancy rate may not generate as much income.
The term predictive analytics refers to the analysis of big data using historical data to predict future trends. This process provide real estate investors with reliable forecasts of the return on investment they can expect from a particular investment property.
The price-to-rent ratio is a ratio that compares home prices versus the annual average rent in a particular real estate market. This metric helps determine whether renting a home is more practical than buying one or vice versa.
The higher the price-to-rent ratio, the more practical for residents to rent than buy a house. Real estate markets with low price-to-rent ratios mean that it is more financially sensible for residents to buy their own homes than rent.
Rental comparables, or rental comps, refer to similar rental properties in a specific area. Investors conduct rental comps analysis to compare rental properties in the same area or neighborhood with similar types, sizes, and features as the subject property. It’s important to choose comparable properties that are closely similar to the subject property.
By analyzing rental comps, you’ll know how other properties perform in the same market. You’ll also have an idea of how much rental income the subject property could earn and whether or not it will be a profitable investment.
A rental estimate refers to the estimated value of how much you charge based on several factors, including your property’s value, amenities, rental demand, and market trends. If your investment is a short term rental property, you should also take into account the seasonality trends when determining the right rental estimate for your vacation rental property.
Listing and Property Information Terms
Real estate listing terms are terminologies related to listing properties for rent or sale. Property information terms are those used to describe the property’s condition and any other information buyers should know about the property. Understanding what these terms mean is crucial for those searching for properties to buy.
Here are the most common listing and property information terms every real estate investor should know:
An apartment is a building that contains a number of rooms or dwelling units. The apartment building is usually owned and managed by one owner, and the dwelling units are rented separately to different tenants. Small apartments often have one entrance, while large apartment buildings have two or more entries—all common to all residents.
In real estate, the term as-is refers to a property marketed for sale without any warranties or guarantees from the seller regarding its condition. It means that the seller is not willing to perform any repairs. It also means that the seller is not responsible for any defects or issues that may exist.
Buyers interested in properties marketed as-is should understand that the property may have particular issues to address on their own. They must inspect the property first to identify what these issues are. Interested buyers should willingly purchase the property in its current state, accepting any flaws or problems that may be present.
A condominium is a building that contains several dwelling units. The major difference between a condominium and an apartment is that, with a condominium, each unit is owned separately by different owners. Unit owners can rent out their dwelling units to tenants, either as a long term or short term rental. On the other hand, apartment buildings typically have sole ownership.
A conventional sale is when the property for sale is either owned entirely by the seller, or the owner owes less in mortgage than the property’s market value. Conventional sales are smoother transactions than their non-conventional counterparts, such as foreclosures, short sales, and probate-related sales.
Crime rate is the percentage of crime committed in a specific location during a particular period. You can find the neighborhood’s crime rate at the nearest police station. Investors should check the crime rate to determine whether the community is good (and safe) for investing.
For Sale By Owner (FSBO)
The term for sale by owner (FSBO) means that the property is directly offered for sale by the owner with no real estate agent or broker acting as a go-between. Some homeowners selling their properties choose this option to avoid paying an agent or broker a commission.
With this process, the owner will handle all the transactions related to the sale of the property, which the real estate agent usually does. These include finding the right asking price, staging the property, marketing, listing, negotiating with the buyers, finalizing the legal documents, preparing the deed, and more.
A multi-family home is a residential building with more than one dwelling unit (usually around two to four units). It is designed to house many different families in separate housing units. Duplexes and townhomes are examples of multi-family homes. Each multifamily unit typically has a separate entrance; in most cases, utilities are not shared.
A neighborhood analysis is a report that can help identify a particular neighborhood’s investment potential, considering the other rental properties in the same area. The neighborhood analysis process also includes the characteristics of the neighborhood of the property’s location, as these can affect the income-earning potential of the investment.
By conducting a neighborhood analysis, investors will know how attractive the neighborhood is for a particular investment strategy. It helps investors determine the average performance of investment properties in a specific location and identify the optimal rental strategy that will likely generate the highest returns.
An off-market property is one that has been sold or is in the process of being sold without any public knowledge or advertisement. Off-market properties are not publicly listed as for sale on the MLS.
A probate sale refers to the process of selling a property that is part of a deceased person’s estate. This usually happens if the property has to be sold to settle the estate’s debts, distribute assets to heirs, or fulfill other legal requirements. The sale may require court approval and involve an estate attorney to hire a real estate agent to handle the transaction.
A property type refers to the characteristics of the property. For example, residential properties can be single-family homes, multi-family homes, apartment units, condo units, coops, and other properties (such as mobile homes).
In real estate, a short sale is when a property sells for less than the outstanding mortgage balance owed by the owner. The owner needs the approval of the mortgage lender to sell the property below the amount owed on the loan.
Short sales can be a way for owners to avoid foreclosure and minimize the negative impact on their credit while allowing the lender to recover a portion of the outstanding debt. However, the approval process for short sales is often complicated and usually takes longer.
A single-family home is a free-standing residential building. It is not attached to any other dwelling or structure. Typically, single-family houses are detached, used as single dwellings, with one owner, and the land where the property stands is not shared among other homeowners. Single-family homes don’t share utility and HVAC systems with other dwelling units.
Mortgage and Payment Terms
In real estate, property buyers who plan to purchase a property using a loan will encounter mortgage and payment terminologies. Learning these terms and what they mean is essential to be familiar with mortgage-related jargon.
Here are a few mortgage and payment terms that you should understand:
With an adjustable-rate mortgage, the interest rate does not change for a specific period; then, it will change periodically based on the current market rates. A mortgage with adjustable rates often comes with below-market rates during the initial period, making it relatively more affordable than a traditional mortgage.
However, there is a risk that the interest rates will increase during the loan term, depending on the market conditions. The good news is that there is often a cap or maximum limit on how much the interest rate can increase every time the rate adjusts.
Related: 5/1 ARM Loan: What Investors Should Know
Cash Out Refinance
A cash-out refinance is a type of loan using your equity in a property. It converts your equity in a property into cash.
For example, you own a property worth $300,000. You still owe $100,000 to the lender and have equity of $200,000. Assuming the property’s value did not drop, you can refinance by applying for a new $200,000 loan with your lender and receive $100,000 cash at closing.
When buying a real estate property, closing costs are the costs on top of the property’s price usually incurred to complete the transaction. These costs typically include loan origination costs, appraisal fees, deed recording fees, discount points, and charges for taxes, surveys, title searches, title insurance, and credit checks. The amount of closing costs varies per lender and transaction.
The debt-to-income ratio is a personal finance measure used to compare the monthly debt payment of an individual to their monthly gross income. Lenders use this metric to measure the ability of an individual to manage monthly debt repayments.
To calculate the debt-to-income ratio, you can use the following formula:
Debt-to-income ratio = Total monthly repayments / Monthly gross income
A default occurs when a borrower fails to make payments on the loan for a certain period. The timeframe of when a loan moves from being delinquent to default status may vary from one lender to another. For example, a lender may decide that the loan will be deemed in default if the borrower fails to make payments for 270 consecutive days.
In a mortgage, delinquency happens when a borrower misses a single payment for the loan. For example, if you forget to pay the monthly amortization promptly this month, your loan will automatically be tagged as delinquent. Continuous missed payments will put your account at risk of entering default status.
A down payment refers to the initial upfront cash payment made by the buyer or borrower when purchasing a property. It is typically a certain percentage of the total purchase price not financed with a mortgage. The down payment represents the buyer’s equity in the property, serving as a financial commitment to the purchase.
Lenders require borrowers to make a down payment to mitigate risks. The amount of the down payment varies depending on the type of loan and the borrower’s credit score. Usually, the lowest down payment most lenders require is 20% of the purchase price. Borrowers who can pay a higher down payment typically get more favorable loan terms.
The term equity refers to the difference between the present market value of a property and the amount the owner owes on the property’s mortgage. The equity value builds up gradually over time as the mortgage balance reduces and the property’s market value appreciates.
An FHA loan is a mortgage insured by the Federal Housing Association. A bank or any approved lender is the only one who can issue FHA loans. Because the government insures it, FHA loans usually require lower down payments and more lenient qualification requirements. An FHA loan is designed to help families with low to moderate income buy a house.
A fixed-rate mortgage, also known as a traditional mortgage, is the most common type of mortgage available to most borrowers. As the name implies, a fixed-rate mortgage has the same interest rate throughout the life of the loan. It requires the same monthly payments from the borrowers throughout the loan term until fully paid.
Related: How to Get the Best Mortgage Rate for Investment Property in 2023
A foreclosure is a legal process that happens when a borrower fails to pay the loan or defaults on the agreed-upon mortgage payments a specific number of times. When this happens, the lender can take possession of the property. Then the lender usually sells the property on the market and will use the proceeds to cover the defaulted loan.
Foreclosures happen because the property is used as collateral to secure the mortgage.
Hard Money Loan
A hard money loan is an asset-based loan issued by private investors or organizations. They are typically quick to fund but have higher interest rates than conventional loans. Usually, hard money loans are sought by investors who engage in fix-and-flip transactions.
Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) is a line of credit secured by your property. This type of financing uses your home as collateral in exchange for a revolving credit line that you can use for expenses, consolidate high-interest loans, or help with your cash flow gaps.
A loan amortization is a payment schedule for a loan. If you purchase a property through a mortgage, the lender will typically provide an amortization schedule to show you how much the loan will cost. You will see the percentage of each payment going to the interest and the percentage applied toward the principal balance.
The loan amount is the amount of money the lender provides to help finance the purchase of the property. For example, if the property sells for $200,000, and you are required to put a down payment of 20%, the loan amount will be 80% of the property’s price, which is $160,000. Only the loan amount will be charged interest and paid back through monthly amortization.
In a mortgage, the loan term refers to the length of the loan or the period it takes for a loan to be fully paid off by the borrower considering the scheduled amortization payments. The loan term can either be short or long. The usual loan terms are 15 or 30 years, while some offer 5-year and 10-year payment periods.
Loan to Value (LTV) Ratio
The loan to value ratio LTV is the ratio of the amount borrowed to the property’s appraised value. LTV ratio is one of the measures lenders use to calculate the risk of a mortgage transaction. If the LTV is higher, the amount borrowed is higher than the property’s value, which implies that the loan is high-risk.
A mortgage type refers to the type of mortgage a borrower uses to finance a property purchase. The type of mortgage dictates the loan’s term and how it is to be repaid. Typically, four mortgage types are available to buyers: fixed-rate mortgages, adjustable-rate mortgages (ARM), interest-only loans, and reverse mortgages.
A pre-approval letter is offered by a bank before you start looking for a home or applying for a mortgage. It tells you how much loan you can get, which helps you find a property that fits the loan budget. It assures home sellers that you can get a loan for that particular pre-approved amount when you find a suitable property.
The principal balance refers to the remaining loan amount you borrowed from the lender, and it does not include the interest. It is the amount that you owe to the lender outside of interest.
During the initial life of a loan, your monthly payment will mostly go to the interest, and only a tiny portion goes to the principal. This will reverse towards the mid to end of the loan term.
Usually, lenders will give you a schedule of the month principal and interest payment so you’ll know how much of it went to the principal balance and how much went to the interest.
A VA loan is a mortgage established by the US Department of Veterans Affairs. This type of loan is available to veterans, service members, and their surviving spouses and requires little to no down payment and no private mortgage insurance. VA loans are issued by private lenders, and applicants must present a certificate of eligibility from the VA to qualify for the loan.
Offers and Contingencies Terms
The terminologies under offers and contingencies are those you will likely encounter when making an offer for the property. You will also come across most of these terms when you need to check the property’s status and condition before deciding to purchase it. Being familiar with such terminologies is essential so you’ll know what to do before buying a property.
Here are the most commonly used terms related to offers and contingencies:
An appraisal is performed by a professional to estimate the home’s market value. The professionals, known as appraisers, assess a property’s condition and repair issues to determine its value. They also take into account the location and comparable properties recently sold in the area.
By law, appraisals should be done by third-party providers with no vested interest in the transaction. This prevents biased opinions from favoring the buyer, seller, or lender.
A backup offer refers to an offer made by another interested buyer for a property already under contract with a different buyer. The backup offer is next in line if the first offer does not push through. Negotiations take place for a backup offer to be considered, and fees, such as earnest money, must be paid. Legally, there can only be one backup offer per property.
A blind offer is made by an interested buyer for a property that they have yet to see. In a highly competitive market, blind offers are relatively common among buyers, especially in high-supply and low-demand areas. Blind offers ensure the buyer will be the first to make an offer and win the deal quickly.
A counteroffer is a seller’s response to the offer made by a buyer. The counteroffer typically agrees to the offer made by the buyer, with a couple of changes in the terms requested. The buyer and the seller may exchange counteroffers until an agreement is reached.
Due diligence is when the buyer inspects the property’s condition, reviews the contract terms, checks the title and other legal documents, and verifies other potential risks. It is a crucial task that buyers should do before purchasing any property. Due diligence is essential so buyers know the disadvantages of buying the property before committing to it.
In real estate, inspection is when a buyer, or the buyer’s hired contractor, checks the property’s condition to determine issues the buyer should know. Buyers should inspect the property for significant safety or structural problems and look at the plumbing and electrical systems, exterior, roof, HVAC systems, and potential water damage or mold growth.
The result of the inspection will be taken into consideration when making an offer. It also helps the buyer make an informed decision about whether or not the property is worth investing in.
An offer is made by a buyer and given to the seller. It is a form of a proposal to purchase the property with a particular set of terms and conditions. The seller may either accept the offer from the buyer right away or provide a counteroffer.
A “Pending” status on a property means it is currently under contract but has yet to sell. When a seller accepts an offer from the buyer, the property’s status will automatically become pending. Another buyer may still make a backup offer and wait in case the pending sales transaction will not push through for some reason.
In a real estate transaction, seller concession refers to the seller’s contribution towards the buyer’s closing costs. Most sellers offer it as an incentive for the buyer to buy the property. In some cases, buyers may ask the seller to pay a specific fee, while at other times, sellers cover a certain percentage of the total closing costs.
A title search is a process that examines public records related to the property. It provides the buyer with specific information about the property’s history. It includes a sales history, purchases, taxes, and other liens. The title search is conducted by a title examiner using title plants and county records to see who owns the listed property for sale.
The Bottom Line
The above are some used real estate investing terms you will come across as a property investor. Knowing the meaning of this basic real estate jargon is vital to your success. Whether you’re a beginner or a seasoned investor, you need to be familiar with these terms.
There are several real estate-related terminologies that you will encounter. Often, you will come across these terms when you buy properties and apply for loans. You will also encounter real estate finance terms when doing real estate analysis.
Of course, you will come across more jargon as you continue learning about real estate investing. But it’s always good to start somewhere.
Ready to start investing in real estate? Work with a reliable real estate analytics platform. Schedule a demo with Mashvisor today to find out how we can help you!