When it comes to the world of real estate, there are endless possibilities and routes you can take when buying, renting or selling a property. That means technical real estate jargon – and lots of it! While this may seem daunting to newb buyers, sellers and investors fear not, because this guide will help you understand some of the more complex real estate jargon you may come across in the world of investment property.
Appraisal
A property’s appraisal is a written explanation of a property’s fair market value. This is often based on comparisons of similar home sales in your area. Real estate often requires appraisals because every property is unique and therefore, has a different level of value.
Asking Price
A property’s asking price is the price that the property is being sold for. It’s important to note that a property’s asking price is not the same as it’s selling price. It’s important that your asking price isn’t unrealistically high or too low. Your appraisal should inform the asking price.
Buyer’s Market
A buyer’s market occurs when there are more sellers than there are buyers. When this happens, house prices fall as homes become harder to sell. Naturally, this type of market favors those who are looking and willing to buy an investment property as the seller is unlikely to be receiving extensive bids on their property and, therefore, this allows the buyer to leverage a better price, often a reasonable amount below the seller’s advertised asking price.
Commission
The next on our list of real estate jargon is for those of you who plan on working with a real estate agent. The commission is a proportion (usually a set %) of the property’s selling price that is paid to a real estate agent who has negotiated and secured the sale of the property. The commission varies depending on a few factors, such as location and timing. On average, around 5-6% is common.
If you are a property buyer, you do not need to pay the real estate agent commission, the seller does. However, as the buyer, you will have to cover the closing costs. If you are the seller of the property, you will have to pay both the real estate agent and the buyer’s agent commission when your house closes.
Escrow
Escrow refers to money that is held by a 3rd party on behalf of the transacting parties. It is used mostly in the United States where an escrow account is set up for you by a lender in order to pay for your insurance and property taxes over the course of a given year.
Equity
Your equity refers to the difference between the present market value of your investment property and the amount that you owe on the property’s mortgage. Equity builds up gradually over time as your mortgage amount decreases with payments and your market value grows.
Equity can also be increased if you make improvements to your home that increases its market value, or if the homes for sale in your area begin to sell for more.
Foreclosure
A foreclosure is a home that once belonged to a homeowner but now belongs to the bank. This happens when the homeowner can no longer make the payments necessary for the house’s upkeep and can happen for several reasons.
Owners who fall on hard financial times have two options: abandon the home or voluntarily deed the home to the bank.
Foreclosure is often known as the ‘bank taking the property back’; however, this is not true. The bank never owned the property so they cannot ‘take it back’. The bank simply foreclosed on the owner’s mortgage or trust deed and was able to seize the property.
Landlord
You’ve probably come across this real estate jargon before, but it’s important to fully understand the meaning of “landlord”. The primary role of the landlord is to provide accommodation that is ‘fit for purpose’ for tenants. It is also the responsibility of the landlord to ensure the safety of their rental property both before and during the tenant’s stay in their property.
This includes responsibilities such as: maintaining the interior and the appliances, handling any repairs or emergencies that come up, handling rent and evictions.
Reverse Mortgage
A reverse mortgage is a type of loan where the homeowner can borrow a set amount against the value of their home and receive a lump sum, a line of credit or a fixed monthly payment.
Where this differs from a regular mortgage or a regular loan is that the borrower doesn’t need to make monthly loan or mortgage repayments. Instead, the entire balance becomes payable upon the borrower’s death, or when they sell the home.
Related: 6 Types of Loans for Investment Properties in Real Estate
Seller’s Market
A seller’s market is the opposite of a buyer’s market, i.e. when here there are more buyers than there are sellers. This means that the power falls with the property sellers and therefore allows them to raise the asking price on their property.
In cases of a seller’s market, it is not uncommon for one seller to have multiple offers on his/her property and often, as the bids from buyers increase, the property’s selling price will surpass its asking price.
Selling Price
The property’s selling price is different from the asking price, as the selling price is the final price that the owner is willing to sell the property for, which is why it may be lower than the asking price.
For example, if a property is listed at $350,000, depending on certain factors like the market in the area, comparative features and how long the property has been on the market, the seller may be willing to negotiate and lower the price by several thousand. This will then be the selling price.
Tenancy Agreement
Also known as a rental contract or a lease and is a written or verbal contract between a landlord and their tenant that sets out the terms and conditions of that person’s tenancy. This legal agreement allows certain rights to both the landlord and the tenants.
There are several types of tenancy agreements that you can offer your tenants, so be sure to do your research on what a landlord’s rights will be before making any concrete decisions.
Voluntary Foreclosure
A regular foreclosure is where the bank takes control and seizes the owner’s property. However, a voluntary foreclosure is initiated by the homeowner once they realize that they cannot continue to meet the necessary loan repayments on the property.
The reason for homeowners making this decision is an attempt to avoid having to make further payments and prevent the standard involuntary foreclosure and then eviction.
This is just the start of a long list of real estate jargon you need to know! Keep learning: 25 Real Estate Investing Terms Every Beginner Should Know.
This article has been contributed by Chris Smith.
