I remember getting into the real estate business and wondering how long it would take to learn, memorize and properly apply all of the terms that go along with standard purchases and financing agreements. Luckily, real estate is not medicine and we don’t have our own language! I thought it might be helpful to others to provide a quick reference of the 20 most commonly used (and commonly misunderstood) real estate terms. You may have heard some of these before or may hear them for the first time when you are buying or selling a house.
Rent Roll: A legend of renters (lease holders) with a brief description of start/end dates, type of lease, rent amount, and leaseholder renewal options if they exist.
Mortgage: A loan secured by real property. Unlike an unsecured loan, a mortgage is a loan where an interest in real property is registered on the title.
Fixed Mortgage: A fixed term mortgage is a loan secured by real estate which has a set (fixed) term and interest rate.
Open Mortgage: An open mortgage offers the borrower the ability to repay or even fix the loan at any time without repayment penalty.
Amortization: The amount of years it will take to retire the entire loan amount.
Loan Term: The period of time that the agreement will last. Generally a term is for 1,2 or 5 years – this is not your amortization.
Chattels: The items not attached to but will be included with the sale. Items like appliances, and window coverings are examples of normal chattels.
Appraisal/Evaluation/Assessment: An appraisal is an opinion provided by an appraiser which mostly relies on recent sales, resulting in a conservative estimate. An evaluation is provided by a Realtor and should consider the recently sold, active for sale, and expired homes in your area which should normally provide the best and most reliable understanding of true market value. The assessment is the city’s determined value for the purpose of transaction – generally this amount is significantly less than actual market value.
Condominium: Refers to the structure of ownership and not the structure of the property. Any group of properties within a given community or structure which share the cost of maintenance (such as exteriors, roof(s), windows and doors, etc) can and often do form a form of condominium.
Commission: The fee charged by a Realtors Brokerage in exchange for a service provided to help a member of the public buy or sell a property. Commission is FULLY negotiable and not set by any association or government body.
Conditions vs Terms: Conditions are set out to act as an exit clause to the deal such that a buyer (or seller) is given an opportunity to achieve a level of comfort with some aspect(s) before a committing fully to a purchase or sale – like a condition for satisfactory home inspection or satisfactory financing arrangement. Terms are items agreed to by the buyer and seller that require one of the parties to perform – like ‘seller will replace broken window before closing date’.
Deposit: A sum of money held in a trust account to ensure that the buyer acts as agreed. The deposit is just a gesture of good faith and there’s no standard. It can be as much or as little as agreed by both parties.
Real Property Report: The land survey that illustrates the lot and the improvements (fences, buildings) on the lot.
Easement vs Encroachment: An easement is a legal right given to an adjoining property for the purpose to cross the property of another. An encroachment is an intrusion onto a neighboring property.
First Mortgage: The loan registered on title in first position. This is the most secure place for a bank.
Vendor Financing: A loan granted to the buyer from the seller. Generally at a higher than market interest rate for a short term.
I hope that helps to clear up some common real estate terms for you. Are there any that I didn't list that you wonder about? Let me know in the comments and I'll explain them for you.