Glossary of Real Estate Terms
1031 EXCHANGE – Section 1031 of the U.S. Internal Revenue Code allows investors to defer capital gains taxes on the exchange of like-kind properties.
ADDENDUM – An additional form that describes any changes, additions or requests made to the initial purchase and sale agreement. Examples of addendum include change to closing date, inclusion of existing appliances or contingencies based on inspections, appraisals or finances.
AGENCY – A real estate agency consists of a principal and licensees (agents/brokers), whom the principal delegates the right to represent the agency in dealing with third parties. The Law of Real Estate Agency pamphlet describes the law of agency relationships, such as buyer’s agent, listing agent, and dual agent.
AMENITIES – Related to condominiums, these are features provided by a condominium complex and typically covered by homeowner association dues (HOA's).
APPRAISAL – This is an estimation of a property’s market value based on comparable home sales in the area. Generally, an appraisal is ordered by the bank or mortgage company (lender) and is part of the buyer's closing costs. If the home appraises at a price lower than the asking price, further negotiations will likely take place.
APPRAISAL FEE – The fee for the lender ordered appraisal, usually part of the closing costs.
APPRAISER – A trained and licensed professional who conducts home appraisals.
ASSESSED VALUE – A county official (Assessor) will assess the value of a property to determine the annual property taxes. The appraisal value and the assessed value may not be the same.
CASH FLOW – After all expenses and debt have been paid each month, the remaining amount from gross income is considered "cash flow". This term is generally associated with property owned as an investment (a rental property, for example).
CC&R’S – Covenants, conditions, and restrictions. These limits and rules are added to certain groups of housing, largely condominiums, and are handed down by developers, home owner associations, etc.
CLOSING – The last part of the real estate transaction, where the property title is transferred, escrow documents are signed, buyer receives deed and seller receives funds.
CLOSING COSTS – Fees that are incurred at the closing of the sale. These costs cover the fees that are part of the buying process such items as title insurance, lender fees, settlement services and more. These fees typically range from 2% - 5% of the price of the home and are in addition to the purchase price of the home.
CLOSING DATE – A date that is chosen and written into the purchase and sale agreement, that dictates when all terms of the agreement must be met. Failing to complete by the date may possibly result in a cancellation of sale.
COMPARATIVE MARKET ANALYSIS – A real estate broker will conduct a study of recently sold similar homes in the area of property of interest, to determine a fair asking price.
CONTINGENCY – Condition written into the purchase and sale agreement (or an addendum to) that must be satisfied in order for the transaction to close. Common contingencies include:
- Appraisal Contingency - Home must appraise for equal to or higher than the asking price.
- Financial Contingency - Buyer must be approved for a mortgage loan.
- Inspection Contingency - The buyer has the right to have the property inspected and if problems arise, either negotiate further or walk away from deal.
- Title Contingency - Buyer has the right to review title to ensure no liens are present against property.
DEED – A legal document filed with the county that transfers ownership of property from seller to buyer.
DETERMINE YOUR NEEDS – It is important to really think about your needs and wants before buying a home. Be sure to consider current and future needs:
- Lot size / home size
- Number of bedrooms / bathrooms
- Parking / Storage needs
- Rental potential
- Willingness to remodel
- Resale value
- Neighborhood / schools / walkability
DOWN PAYMENT – The amount of money the buyer pays at closing towards the purchase of home. Most mortgage lenders require a minimum of 3% of purchase price down, while FHA loans (Federal Housing Administration) require at least 3.5%. Typically, 20% of sale price has been the minimum for down payments.
EARNEST MONEY – A deposit made by the buyer after mutual acceptance as a show of commitment in completing the purchase. This money is held in an escrow account and returned if the sale does not go forward. The amount of earnest money can be up to 3% of purchase price.
ESCROW – A separate and neutral third party that oversees the handling of money and documents in the buying process.
FIXTURE – An item that has been built into a house, that remains part of the property. Light fixtures, bath tubs, built-in shelving are considered fixtures.
HOMEOWNERS INSURANCE – Insurance protection against damages to property, usually required by mortgage lenders.
HOME INSPECTION – Highly recommended procedure to determine the condition of the property. If inspection contingencies have been included in agreement, buyer may walk away from deal If problems are unearthed during an inspection or may negotiate for compensation to repair issues. Typically costs between $300-$500
INSURANCE BINDER – A document showing insurance company's commitment to coverage until the formal policy is issued.
MARKET VALUE – The value of a property based on current market conditions and properties of similar size, condition, style and location.
MORTGAGE – A loan provided by a bank or mortgage lender to finance the purchase of a house or condo.
MUTUAL ACCEPTANCE – This occurs when buyer and seller agree upon the price and terms of the real estate contract.
NWMLS (NORTHWEST MULTIPLE LISTING SERVICE) – A tool that provides real estate brokers with detailed information of listed properties in the Puget Sound area.
PITI – A mortgage payment is broken down into the following parts: Principle, interest, taxes, and insurance.
POSSESSION – This is the date where the buyer has full access and possession of their new home. This date varies from day of closing to a few days afterwards.
PRELIMINARY TITLE REPORT – A report that is issued prior to the formal title in order to review ownership and any liens or claims against a property.
REAL ESTATE AGENT vs REAL ESTATE BROKER vs REALTOR® - These are essentially interchangeable terms. Anyone with a real estate license is a real estate agent. A real estate broker has taken classes beyond the agent level, as required by state law and a Realtor® is any agent that is a member of the National Association of REALTORS®.
SEWER SCOPE - An inspection of the sewer line from the house to the main sewer line to determine that the system is working properly and in good structural shape. This is particularly important to conduct on older homes.
TITLE REPORT – The title report reveals liens, easements or anything else recorded against a property.
TITLE INSURANCE – This protects the buyer and the buyer's lender from any liens or claims against property.