Regardless of whether you are an experienced property owner or real estate investor or a first-time buyer, knowing the basic terminology used in real estate is a must when you begin the process of buying or selling property.
Even a strong grasp of just a few of the most commonly used terms will help you greatly, so here is a glossary of 30 real estate terms you need to know:
Assessed Value: Typically the value placed on property for the purpose of taxation.
Broker: An individual or firm that acts as an agent between providers and users of products or services, such as a mortgage broker or real estate broker.
Chain of Title: The history of all of the documents that have transferred title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Clear Title: Ownership that is free of liens, defects, or other legal encumbranc es.
Closing: The process of completing a financial transaction. For mortgage loans, the process of signing mortgage documents, disbursing funds, and, if applicable, transferring ownership of the property.
Closing Costs: The upfront fees charged in connection with a mortgage loan transaction.
Commission: The fee charged for services performed, usually based on a percentage of the price of the items sold (such as the fee a real estate agent earns on the sale of a house).
Comparables: An abbreviation for “comparable properties,” which are used as a comparison in determining the current value of a property that is being appraised.
Contingency: A condition that must be met before a contract is legally binding.
Deed: The legal document transferring ownership or title to a property.
Deed of Trust: A legal document in which the borrower transfers the title to a third party (trustee) to hold as security for the lender. When the loan is paid in full, the trustee transfers title back to the borrower. If the borrower defaults on the loan the trustee will sell the property and pay the lender the mortgage debt.
Depreciation: A decline in the value of a house due to changing market conditions or lack of upkeep on a home.
Easement: A right to the use of, or access to, land owned by another.
Encumbrance: Any claim on a property, such as a lien, mortgage or easement.
Equity: The value in your home above the total amount of the liens against your home.
Escrow: An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition.
Fair Market Value: The price at which property would be transferred between a willing buyer and willing seller, each of whom has a reasonable knowledge of all pertinent facts and is not under any compulsion to buy or sell.
Foreclosure: A legal action that ends all ownership rights in a home when the homebuyer fails to make the mortgage payments or is otherwise in default under the terms of the mortgage.
Interest: The cost you pay to borrow money. It is the payment you make to a lender for the money it has loaned to you. Interest is usually expressed as a percentage of the amount borrowed.
Judgment Lien: A lien on the property of a debtor resulting from the decree of a court.
Lien: A claim or charge on property for payment of a debt. With a mortgage, the lender has the right to take the title to your property if you don’t make the mortgage payments.
Market Value: The current value of your home based on what a purchaser would pay on the open market.
Mortgage: A loan using a property as collateral. In some states the term is also used to describe the document signed (to grant the lender a lien on your home). It also may be used to indicate the amount of money borrowed, with interest, to purchase the home.
Note: A written promise to pay a specified amount under the agreed upon conditions.
Principal: The amount of money borrowed or the amount of the loan that has not yet been repaid to the lender.
Promissory Note: A written promise to repay a specified amount over a specified period of time.
Real Property: Land and anything permanently affixed thereto — including buildings, fences, trees, and minerals.
Security: The property that will be given or pledged as collateral for a loan.
Title: The right to, and the ownership of, property. A title or deed is sometimes used as proof of ownership of land.
Underwriting: The process used to determine loan approval. It involves evaluating the property and the borrower’s credit and ability to pay the mortgage.