If you’ve spent any time on Zillow, looked into how much your house is worth, or toured a potential home, you’ve probably already encountered a number of industry-specific terminology. While you can always ask your real estate agent what certain things mean, it’s a good idea to familiarize yourself with some common terms and acronyms.
Common Real Estate Terms
Appraisal: A professional assessment of a property’s market value, often required by lenders before approving a mortgage.
- If a home appraises for under the offer price, you’ll have to discuss ways to either bridge the appraisal gap or cancel the sale.
Coming Soon: A listing status where a home is visible to potential buyers on the internet but is not yet accepting showings.
Lien: A legal claim to a property, often as a form of collateral if a debt is not paid.
- A mortgage is not considered a lien until payments are missed.
Pending/Under Contract: A listing status that indicates a ratified contract is in place on a property but the property is not yet officially sold.
Agent Insight
While some homes do fall “out of contract”, the majority of homes that are pending will go on to close. If you’re interested in a home that’s pending, it doesn’t hurt to keep an eye on it until it either closes or goes back on the market.
Pre-Approval: A statement from a lender that conditionally offers a mortgage up to a certain purchase price. The amount is determined after looking into the borrower’s creditworthiness and financials.
Pre-Qualification: A rough estimate of how much a lender might offer a borrower based on the borrower’s self-reported information.
- Since a pre-qualification is based on self-reported numbers and a pre-approval is based on documentation, a pre-approval is stronger.
Title/Deed: Legal documents establishing property ownership—and the transfer thereof.
- Title and deed laws vary nationwide.
Underwriting: The process lenders use to evaluate the risk of a borrower defaulting on their loan. This occurs when a property is under contract and includes factors like current credit, income, and value of the property.
Common Real Estate Acronyms
CMA (Comparative Market Analysis): The estimated value of a property, usually prepared by agent to determine what price to list a home for or what amount a buyer should offer on a particular listing.
Agent Insight
A CMA from a licensed broker or agent is the best way to decide what amount to list your home for or what amount to offer on a listing you like. Online value estimators, such as Zillow’s Zestimate, take far fewer factors into account and often give a skewed number.
DOM (Days on Market): The amount of time since a home was listed on the MLS.
- If a home has been listed for a while, potential buyers may start to wonder if something is wrong. This increases the likelihood of below-asking price offers.
- As a buyer, finding a home that has been listed for longer may mean the seller will be more willing to negotiate on list price or other items.
DTI (Debt-to-Income Ratio): The amount of debt a borrower has vs. their income on a monthly basis
- Lenders use this to determine what they feel is a safe amount to offer a borrower. Generally, lenders want a DTI of 36% or less—though they may accept an amount into the low 40s.
EMD (Earnest Money Deposit): An initial deposit a buyer puts on a property to demonstrate intent and good faith.
- Usually held in escrow until closing, this deposit counts toward the final down payment
- This deposit can be forfeited if a buyer backs out in a way that breaches contract. A higher deposit can indicate to a seller that a buyer is more serious since they’re putting more money on the line.
FHA (Federal Housing Administration): A government agency that offers buyers more flexibility with the goal of making homeownership more accessible.
- The minimum down payment for an FHA loan is 3.5% and the minimum credit score required is 580.
FSBO (For Sale By Owner): A property listed by the legal owner without the help of an agent.
Agent Insight
Though the seller is not represented, a buyer is still free to continue working with an agent. It’s always recommended to enlist professional help to make sure nothing is missed, especially in such a crucial transaction.
HOA (Homeowners Association): An organization present in certain communities, such as condo or townhome communities, that maintains common areas and enforces community rules. These associations are funded by mandatory dues (usually monthly) from homeowners in the community.
LTV (Loan-to-Value Ratio): The amount of the a compared to the property’s appraised value.
- Ex: If you take out a $400,000 mortgage on a $500,000 home, your LTV would be 80%.
MLS (Multiple Listing Service): The database that local real estate professionals use to list their properties, search for properties for their clients, and create CMAs.
- MLS listings generally sync out to 3rd party sites (like Zillow and Trulia). Syncing is not immediate, so the MLS has the most up-to-date information on properties.
NAR (National Association of Realtors): The largest professional association for real estate professionals in the country. NAR offers professional development opportunities and aims to enforce standards for its members.
- The term “Realtor®” means an agent is a part of NAR, while “real estate agent” can refer to anyone licensed.
PMI (Private Mortgage Insurance): Insurance that’s required when a buyer’s downpayment is less than 20%. Lenders use this to help protect themselves in the case of default.
- PMI is automatically removed when you hit 22% equity, but you can request removal as soon as you have 20% equity.
REO (Real Estate Owned): A lender-owner property that has been foreclosed upon.
- Working with a real estate agent is always important but especially in situations like REO sales.
SFH (Single-Family Home): A residential home designed for a single occupant or family, as opposed to options like condos.
VA (Veterans Affairs): A government agency that aims to make homeownership more affordable for veterans. VA benefits includes 0% down loans and competitive interest rates.
Becoming familiar with these terms and abbreviations is helpful for anyone planning to buy, sell, or invest. If you’re planning to invest, there are a few other basic terms you may want to be aware of…
Investor Real Estate Terms
Newfound (Trelora’s parent company) has special services to assist investors with their portfolios, no matter the size. Find out more at Newfoundenterprise.com.
1031 Exchange: A way for investors to defer capital gains taxes when they sell a property. In order to do this, they must use the proceeds of that sale toward a similar property within a given time frame.
Agent Insight
To learn all the rules and regulations involved in a 1031 exchange, it’s a good idea to consult with a professional before making any major decisions.
Capital Gains Tax: The amount taxed on the sale of a home, determined by subtracting the initial purchase price from the sale price.
Capitalization (Cap) Rate: A measurement investors use to estimate the potential return on a property. This is calculated by dividing the net operating incoming (see below) by the current market value.
Distressed Property: A property being sold by a lender, or undergoing foreclosure, after the owner fails to honor their financial commitments.
- These properties are generally sold at a discounted price, but come with their own set of challenges. This is another situation where consulting with a professional is an absolute must.
LLC (Limited Liability Company): Often formed by real estate investors, an LLC is a business setup that helps protect it’s owners.
Net Operating Income (NOI): The annual income, less operating expenses, that an investment property generates. Taxes and financing costs are NOT factored into this equation.
