Top 10 Real Estate Terms to Become Aware Of

The real estate world is filled with an abundance of terminologies and other jargon that can easily complicate the already convoluted process of buying and selling property. Regardless if you live in the United States, Canada, or Singapore, you need to brush up on your real estate vocabulary and become familiarized with some of the most common terms in the industry. We’ve compiled a list to create a resource you can use to become more aware of some real estate terms.

1) Warranty Deed

When it comes to answering the question, “What is a warranty deed,” warranty deeds are documents that are signed between the seller and buyer. The deed helps to protect the buyer as it pledges that the seller has a clear title for the property and that there aren’t any liens or mortgages against said property.

2) Closing Costs

Closing costs can be best described as being an assortment of various fees from parties such as insurance companies, homeowners associations, the title company, attorneys and lenders. Closing costs are paid during the closing phase of a transaction.

3) Due Diligence

In some cases you may notice that there’s a due diligence time period on the purchase agreement. This is essentially the time frame the buyer has to fully evaluate the property such as to hire home inspectors or to conduct tests. In some cases, the buyer will be given the opportunity to renegotiate if they were able to find an issue during the due diligence period of time. Due diligence essentially gives the buyer the opportunity to fully understand what it is that they’re actually purchasing.

4) Adjustable-Rate Mortgage

Adjustable-rate mortgages (ARM) are mortgages that come with interest rates which fluctuate throughout the entirety of the loan. Although the interest rate is fixed initially, for a certain amount of time, once this time expires, the interest rate resets on a yearly or monthly basis.

5) Debt-To-Income Ratio

The debt-to-income ratio (DTI) is the figure mortgage lenders use to determine interest rates and eligibility of a loan. They come up with this number by adding your monthly housing payment and your debt expenses as to which they divide it by your monthly income and then multiply that number by 100. DTI helps lenders to determine how much a borrower may be able to pay on a monthly basis. Typically, lenders strive to work with borrowers who pay less than 28% of their income on housing expenses.

6) Purchase and Sale Agreement

A purchase and sale agreement is typically regarded as being a written contract between the seller and buyer which lists the terms of each party in regards to the selling and purchasing of the property. For instance, if a home is ‘under a purchase and sale agreement’, it means that the seller and buyer have legitimized their intent to purchase and sell the property.

7) Real-Estate Owned

Real-estate owned is a classification that’s given to properties which a lender took over as a result of an unsuccessful auction which occurred as a result of foreclosure. REO properties can prove to be lucrative because they can usually be purchased for less than their actual market value, because banks would rather reinvest that spend additional funds on marketing and leaving the property on the market for an extended period of time.

8) Rent-Back

Rent-back, commonly referred to as leaseback, is an arrangement where the new homeowners agree to let the seller (now-tenant) to remain on the property after the close of escrow.

9) Seller Disclosure

A seller’s disclosure consists of information on the property which could have an impact on the buyer’s decision to acquire the property. In this disclosure, sellers have to also list items which can affect the buyers ability to enjoy the property such as:

  • Property line disputes
  • Pest problems
  • Projects in area
  • Military base related activities and noises
  • Legal issues
  • Recent on-property deaths
  • The odor from a nearby facility

10) Subject to Inspection

Subject to inspection entails that the seller will not allow the property to be toured unless there is an accepted offer. Some of the most common reasons why sellers do this is because current occupants may have privacy concerns, or it could host uncooperative tenants. The concept of purchasing property without viewing the interior portions of it may seem like a no-brainer for the traditional property buyer, but this can be used as leverage to drive the price down and it will drive interest down as well.