11 Important Real Estate Terms You Should Know
07 10 2017
Real estate can be tricky if you don’t know the lingo. The terms “closing cost,” “appraisal,” and “listing” may all sound foreign to you, but if you’re looking to invest in commercial real estate, these are just a few terms that you should be aware of. The first step to successful real estate investing strategies is to build a wide set of knowledge, and a lack of clarity on the terms you’ll hear and use frequently can make your work that much more difficult.
11 Important Real Estate Terms
This may feel like a vocabulary lesson – because it kind of is one. Whether you’re new to the commercial real estate market, need a refresher, or would simply like a resource to pass along to someone learning the ropes, you shouldn’t have to go it alone.
Below is a helpful guide to real estate terminology that can help anyone getting involved in a property look and sound like a pro.
Real estate agents frequently refer to homes for sale as a listing. A listing is usually displayed on a website (such as Zillow and others you’re probably familiar with) where it shows information about the home, like the price, location and number of bedrooms. You can browse listings in major metropolitan areas across the U.S.
2. Assessed Value
Assessed value is a dollar amount assigned to your home by a public tax assessor for the purpose of city/state taxes. This number is typically different from the value assigned by a private home appraiser and sometimes different from what a home will sell for on the market.
An appraisal is an unbiased written estimate of a property’s market value that is completed by an appraiser, an objective third party. The value is based upon a market analysis of recent sale prices for similar properties in the area, and the property’s physician condition. There are other similar processes for finding a property’s value, but the appraisals are widely the most popular and well-known.
4. Pre-approval Letter
A pre-approval letter provides documentation of exactly how much money you have been approved to borrow from the bank. This document helps you determine what you can afford, and serves as evidence to the Realtor and seller that you are serious about buying a home.
A contingency is a clause in an agreement that keeps things from being legally binding unless a condition is met, which can serve to protect either party. The most common contingencies on a purchase contract are the right to have a home inspection before buying a home or obtain acceptable financing from a lender, either of which could prevent the agreement from being legally binding.
6. Private Mortgage Insurance (PMI)
Private Mortgage Insurance is an insurance premium paid by the buyer to the lender to protect the lender if you are unable to pay your mortgage. Once you have 20% equity in the home, this additional insurance is discontinued. PMI allows people to have access to homes that they don’t have a 20% down payment for.
Escrow is a financial arrangement where an impartial third party holds on to something of value during the transaction. This helps make the transaction more secure by keeping the payment in a secure escrow account, only to be released when all the terms of the agreement are met.
An inspection is an examination of the condition of a home. The inspector will likely look at the condition of the electrical system, foundation, walls, plumbing, heating and appliances. Inspections take place after you make an offer on a home and typically cost between $500 - $800.
The principal is the amount of money you borrowed to buy your home that you must pay back. If you purchased a $300,000 home with 20% down payment, your principal is $240,000.
Closing is a meeting that happens when the sale of the property is completed and both the buyer and seller meet to sign documents and exchange funds. This can also be called a settlement.
11. Closing Costs
Closing costs are fees associated with your home purchase that are paid at the closing of the real estate transaction. Typically, home buyers will pay between 2-5% of the purchase price of their home in closing fees.
Building a Foundation of Knowledge
If you’re looking to invest in real estate, brushing up on the key terms is helpful, especially before you go out into the market. Now that you’re an expert on real estate terminology, you can feel more comfortable – whether you’re hunting for a home or discussing your financial plans with your financial advisor – putting your knowledge to the test.
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