Glossary of Real Estate Terms

Appraisal An appraisal is required to gather the estimated value of a piece of real estate. During the home sale, the mortgage lender sends out an appraiser to get a professional opinion of the value of the property. This helps the lender decide if the property is worth the amount of the loan the potential buyer is seeking.

Appraisal Contingency An appraisal contingency is a clause that allows a buyer to dissolve a purchase agreement if a home’s appraised value is less than the sale price. An appraiser hired by the Buyer’s lender evaluates the value of the home to ensure that the loan is secured by an appropriate home value.

Covenants, Conditions & Restrictions (CC&Rs) Usually, these are the rules and regulations placed on real property by a homeowner’s association (HOA), a neighborhood association, a developer, or a builder that sets forth any requirements and limitations of what a homeowner is allowed to do with the property. It may also include monthly and/or annual fees or special assessments.

Closing is when the home sale is considered final, which typically includes all parties’ signatures on all required documents, all monies conveyed, and when a lender is involved, with full lender’s approval. For some markets across the nation, recording the deed with the county clerk’s office is the ultimate and final step of closing. Once all these items are completed, then a Buyer’s access to the property is then provided, and the Buyer is considered the new homeowner.

Closing Costs are an assortment of fees, including fees charged by a lender, the title company, attorneys, insurance companies, taxing authorities, homeowner’s associations, real estate agents, and other closing settlement related companies. These closing costs are typically paid at the time of closing a real estate transaction.

Debt-to-Income Ratio Debt-to-income, or DTI, ratio is a number used by mortgage lenders which is determined by the total of your debt expenses, plus your monthly housing payment, divided by your gross monthly income, and multiplied by 100. This helps lenders determine affordability based off their available loan programs and allows them to estimate how much you can afford to pay monthly for a mortgage. Lenders typically look for borrowers who pay 28%, or less, of their total monthly income on housing, and less than 36 percent of their income on debt payments, according to Investopedia. If either percentage is on the higher side, and you want to buy a home, you might need to adjust your budget.

Due Diligence A due diligence period might be available in the purchase agreement, which is a time frame provided to a buyer to fully examine a property, often by hiring experts to inspect the property, perform tests, etc., so that a buyer may decide on how to proceed. A Buyer might also be afforded an opportunity to renegotiate the contract based off their findings or possibly even to terminate within a specified time, to not be considered in default of the contract. Due diligence allows a Buyer to fully understand what they are buying.

Earnest Money Deposit (EMD) An earnest money deposit (EMD), sometimes referred to a “good faith deposit”, is the initial funds that a buyer is asked to put down once a Seller accepts the Buyer’s offer. It shows not only that the Buyer is serious about buying, but that they are also willing to put their money where their mouth is. The amount of the EMD can vary between 1 to 5 percent of the sales price.

Homeowner’s Association (HOA) A homeowner’s association is a private association that manages a planned community or condominium. When you purchase a property that is managed by an HOA, you agree to abide by the HOA’s rules and pay its monthly or annual HOA dues. If you fail to pay and/or comply, they often can file a lien against the property and/or foreclose on the property.

Home Sale Contingency A home sale contingency is for a Buyer to indicate to a Seller that part of their condition to purchase the Seller’s property relies on the Buyer’s ability to finalize a close on their current property. This is often negotiated with a clause in a contract or with an addendum to a contract. An example of how such a contingency can be used would be if a Buyer needs to sell their property to have the down payment required on the purchase of the new property or would rather use their sale proceeds instead of their savings to make the down payment.

Inspection An inspection happens when Buyers pay a licensed professional inspector to visit the home and prepare a report on its condition and any needed repairs. The inspection often happens as part of the due diligence period, so Buyers can fully assess if they want to buy a particular home as is or ask the Seller to either complete or pay for certain repairs.

Inspection Contingency Also known as a “due diligence contingency,” the inspection contingency is a clause sometimes offered in a purchase agreement that grants Buyers a predetermined amount of time during escrow to perform any necessary inspections.

Loan Contingency A loan contingency is a clause or addendum (also known as a mortgage contingency) in an offer contract that allows a Buyer to back out of a deal and keep their deposit if they are unable to secure a mortgage with specified terms during a fixed period.

Pre-approval Getting pre-approved requires home Buyers to fill out an application that allows a lender to determine their financial situation, including their debt-to-income ratio, ability to repay and credit-worthiness. Once this is in hand, the lender can give the Buyer a letter stating the exact loan amount they have been pre-approved for along with the total sales price they are approved for. The letter will usually indicate both the Buyer’s estimated down payment along with the potential interest rate. Because it is much more thorough than a pre- qualification letter, most Sellers prefer to see a pre-approval letter with an offer.

Pre-Qualification A pre-qualification is a lender’ estimate of the amount a home Buyer can expect to be approved for during the loan process. Getting pre-qualified is a quick assessment by a lender of the Buyer’s financial situation based solely off what a Buyer tells a lender, and not based with any proof or verifications.

REALTOR® An actively licensed real estate agent and REALTOR® are often used interchangeably, although not every real estate agent is a REALTOR®. A REALTOR® is a member of the National Association of REALTORS® (NAR). A REALTOR® promises to uphold the Code of Ethics of the association and to hold each other accountable when serving the public, customers, clients and each other, with a high standard of practice and care.

Seller Concession Sellers may offer concessions to incentivize Buyers to purchase the home or sweeten the deal. Concessions are most readily seen as a contribution towards the Buyer’s closing costs, up to certain limitations and approvals by a Buyer’s lender, which ultimately leaves more money in a Buyer’s pocket when all is said and done.

Seller Disclosure A Seller’s disclosure is a disclosure by the Seller of information about the property which could affect a Buyer’s decision to purchase the property, all of which to the best of the Seller’s knowledge. A Seller must also indicate items which are not specific to the property itself but related to a person’s enjoyment of the property, such as pest problems, property line disputes, knowledge of major construction projects in the area, military base related noises or activities, association related assessments or legal issues, unusual odors caused by a nearby factory, or even recent deaths on the property as permitted by law.