Home buying and selling can be a complex thing. For first timers, it might even feel like conversations about real estate are in a different language altogether. There are a lot of technical terms involved, but no worries; we’ve got your back!
As a wise person once said, “there’s only one way to eat an elephant: one bite at a time.” So let’s break this down in ways anyone can understand. Here are 50 of the most common real estate terms and definitions you should know. Bookmark this list and use it as a handy reference before walking the walk — and talking the talk – while going through the process of buying or selling a home.
General Real Estate Terms
Agency
This is a type of relationship that can exist between a client (buyer or seller) and a real estate licensee (agent or broker). Although the nature of this relationship can vary, agency is generally defined by the requirement of the agent to act in the best interests of their client. This includes duties to the client such as Loyalty, Obedience, Diligence, Disclosure, Confidentiality, Accountability and Reasonable Skill and Care. Offerpad agents are dedicated professionals committed to serving their clients and providing the best possible experience when buying or selling real estate.
“As Is” Sale
This refers to a property that is being sold in its current condition. In most cases, it is an indication that the seller is unwilling or unable to make any repairs. Buyers should factor in potential repairs and renovations when determining an offer price.
Backup Offer
This is an unaccepted, active offer presented to a seller to hold in the event that an existing transaction is terminated. A backup offer expresses a buyer’s desire to have immediate consideration if the property becomes available.
Blind Offer
This is an offer made by a buyer who has not seen or inspected the subject property.
Buyer’s Agent/Broker
A real estate licensee who represents a buyer in the purchase of a property. The duties of a buyer’s agent include searching for a home, negotiating a purchase price that is favorable to the buyer and representing the buyer’s interest throughout the course of the purchase transaction.
Closing
When all parties to a real estate transaction have signed the final documents, and all funds have been delivered to a neutral third party (escrow, title, attorney), the final ownership transfer is recorded with the local county clerk or recorder. Once closing is completed, possession of the property is transferred from the seller to the new owner.
Closing Costs
The fees charged by the service providers in a real estate transaction. These can vary but generally include title and escrow charges, lender fees, attorney costs, local tax items and pro-rations for property taxes and insurance. Offerpad Solutions Experts can provide clients with a detailed breakdown of expected closing costs including options for reducing expenses by bundling services with Offerpad.
Commissions
The fee paid to a real estate broker for performing services. The amount is established by contract and is often dependent on the type of services being provided.
Contingent Sale
A contingent sale refers to any real estate sale that requires an independent event to occur for a sale to go through. The most common example would be a home buyer that needs to sell their home first before purchasing a new property. In this scenario, the home buyer’s offer would be contingent on the sale of their existing home. At Offerpad we have eliminated the stress of trying to time the sale of your home with buying another. We offer many solutions that make selling, buying and moving a breeze.
Counter Offer
This is a response to any offer made that has the effect of declining the initial offer and replacing some or all of the terms with a new offer. For example, a buyer may submit an initial offer to a seller, and the seller can respond with a counteroffer if they don’t agree to the terms. Multiple counteroffers can be delivered back and forth until there is mutual agreement.
Days on the Market (DOM)
The number of days a property has been listed for sale. This is a metric used by real estate professionals to gauge sales demand.
Earnest Money Deposit
Earnest Money Deposits (EMD) are the funds delivered by a buyer in a real estate transaction to demonstrate a good faith interest in completing the purchase. The amount is established by mutual agreement between buyer and seller as indicated in the purchase contract. These funds are held by a neutral third party throughout the course of the transaction and distributed according to the terms of the contract.
Escrow
A neutral third party tasked with holding funds and completing the terms of a purchase and sale agreement. This process can vary from state to state and can be handled by an independent escrow entity, a title company, or a closing attorney.
Equity
The value of real estate that belongs to the homeowner after all claims against the property are resolved. For example, if you owned a property that was valued at $200,000, and you had only one mortgage with a total balance of $100,000, you would have $100,000 in equity.
Homeowners Association (HOA)
An organization that manages and enforces the Covenants, Conditions and Restrictions for a planned community or association. This includes the collection of HOA dues for community facilities and enforcing community standards. HOA’s are generally deeded requirements. Anyone who purchases property in an HOA community will automatically become a member and will assume the responsibilities for payment of dues and property standards.
Home Warranty
A home warranty is a service contract for a set period of time (usually one year) that covers the cost of repairing a home’s systems and appliances. They provide peace of mind to new homeowners who may be concerned with unexpected expenses related to maintenance.
iBuyer
A company that is able to quickly buy individual houses and save consumers the hassle, stress and uncertainty associated with traditional real estate sales. Offerpad is an iBuyer unlike any other! In addition to providing a fast cash offer, Offerpad offers many services that are tailored specifically to your situation to ensure the best real estate selling or buying experience possible.
Inspection Report
A report prepared by a licensed professional inspector using the latest technology to identify potential repairs recommended in a home. The inspection generally occurs during the due diligence period identified in the contract and is delivered to the buyer for review. Upon review, Buyers can elect to continue with the purchase “as is,” request the seller complete itemized repairs, or ask the seller to offer a monetary credit in lieu of making repairs.
Inspection Period
The period of time a buyer has to complete a property inspection and respond to the seller with any repair request. This time period is established by the purchase and sale agreement with typical inspection periods running between 7 and 10 calendar days.
Lease-Back
A scenario where the seller completes the sale of their property but remains in the home post-closing as a renter under the terms of a lease agreement signed with the buyer.
Listing Agreement
A contract executed between a seller and a listing broker with specified terms for the marketing and sale of the seller’s property. The contract sets out the rights and responsibilities of each party.
Multiple Listing Service (MLS)
A cooperative organization between real estate licensees to share information about real estate being offered for sale. A vital tool used to market and sell homes, the multiple listing service is the first place most real estate professionals turn to to search for properties.
Offer
A written purchase and sale agreement signed by the buyer, with confirmation of earnest funds, and delivered to the seller for review. In most states an offer must be in writing to be considered valid.
Preliminary Title Report
The initial report delivered by a title company giving details related to the ownership history, liens, judgements, easements and potential other issues that may affect the ownership rights of a buyer. This report is the basis on which an offer for title insurance is made by the title company.
Proof of Funds
A bank statement or other financial document evidencing that the buyer has the funds necessary to close the transaction.
Purchase and Sale Agreement (Purchase Contract)
This is the industry term for a purchase contract. This document outlines the terms of sale between a buyer and seller.
Real Estate Owned (REO)
This general term describes property owned by a financial institution after a foreclosure action has occurred. These properties are often marketed for sale in “as is” condition and can be riskier than private party sales since the seller is often unable to make disclosures related to property condition. Foreclosed homes (REOs) can provide excellent opportunities for savvy buyers experienced at evaluating property condition and local market dynamics.
REALTOR®
A real estate licensee who is a member of the National Association of Realtors. Realtors are required to subscribe to a strict code of ethics including a commitment to uphold the highest standards of care when representing clients. Not all real estate licensees are Realtors.
Seller Property Disclosure
Sellers are generally required to disclose all known material adverse facts about their property to prospective buyers. To aid in this disclosure, many state regulators and/or Realtor associations have created this standardized form to assist sellers with this mandatory disclosure. The form covers many of the most common disclosure items like property defects (leaking roof, broken appliances, etc.), special assessments (HOA, tax, community facility district, etc.), legal disputes, easements, pest problems, nuisance related items and many other potential issues that could influence a buyer’s opinion of value or enjoyment of the property.
Short Sale
A short sale is a situation where a property is being sold for less than the outstanding balance owed on all mortgages and liens. To complete a short sale, property owners must seek the approval of the mortgage company or lien holder to accept less than the full amount owed by submitting an application package demonstrating a legitimate hardship necessitating the sale of their home.
Title Insurance
An insurance policy issued by a licensed title company that insures against a defect in title. Buyers using financing to purchase a property will usually be required to obtain 2 separate policies. An “Owner’s Policy” will protect the buyer’s rights to the property while a “Lender’s Policy” will protect the mortgage company’s interest in the home. The good news is that the premium for these policies are paid only once through closing and will last for the entire period you own your home.
General Mortgage Financing Terms
Annual Percentage Rate (APR)
Annual Percentage Rate is a measurement of the annual cost of a loan to a borrower with the fees included. APR is intended to help borrowers compare offers of credit from different lenders.
Application
A document completed by prospective borrowers and submitted to a mortgage company seeking approval for a loan to purchase real estate. The standard mortgage application requires borrowers to provide information related to income, assets and personal credit history.
Adjustable Rate Mortgage (ARM)
A type of mortgage where the interest rate can change at some point in the future. These loans are typically characterized by a very low initial start rate that is subject to change according to periodic adjustments. ARMs are based on an established index (SOFR, COFI, Prime Rate, etc.) and a fixed margin. For example, in a standard 5/1 SOFR ARM with a 3% margin, the initial start rate would remain unchanged for the first 5 years. After 5 years the interest rate would be the SOFR rate + 3% and would change every year going forward according to the SOFR index.
Closing Disclosure and Settlement Statements
Prior to the conclusion of any real estate transaction, both the buyer and seller will receive a projected settlement statement. For most real estate transactions where the buyer is obtaining a new mortgage, the buyer will receive a Closing Disclosure (CD) at least 3 days prior to closing. This 5-page document provides the buyer with a breakdown of loan terms, closing costs and pro-rations. For cash transactions, or certain unique financing types like a reverse mortgage, the buyer and seller will receive a HUD-1 Settlement Statement. The HUD-1 is less detailed than the CD, but both offer an exact breakdown of all monies received and distributed in a real estate transaction.
Conventional Financing
A conventional mortgage is a type of loan that meets the requirements of the government-sponsored enterprises Fannie Mae (FNMA) or Freddie Mac (FHLMC). Lenders strive to “conform” to the guidelines of these institutions to ensure that the loan will remain saleable in the secondary market.
Credit Reports and Credit Scores
A credit report is a statement that identifies a consumer’s current outstanding credit and payment history. A credit score is a predictive indicator assigned to a consumer that projects the borrower’s likelihood to repay a loan. Credit scores range from 350 to 850 with the higher number indicating a greater degree of creditworthiness. Credit score models factor in a consumer’s payment history, length of credit history, total amount owed, types of credit and recent credit activity. Most mortgage lenders require a minimum credit score of 580 to be eligible for mortgage financing, although in some circumstances lenders may consider a borrower with a lower score.
Debt-to-Income Ratio (DTI)
The debt-to-income ratio is one of the most important qualifications for a mortgage. Simply put, this measures the percentage of a borrower’s income taken up by the mortgage payment and other debts. Lenders generally will allow a consumer’s total mortgage expense (principal, interest, taxes and insurance) to reach a maximum 28% of a consumer’s gross income (before taxes are taken out).
For example, if your gross monthly income is $5,000 per month, you could potentially qualify for a total mortgage payment of up to $1400/month ($5,000 x 28%). In addition, lenders typically do not want borrowers to have total monthly debt service greater than 36% of their gross monthly income. Please keep in mind that there are many exceptions to these general requirements. We recommend you speak with an Offerpad Home Loans Consultant should you have any mortgage-related qualification questions.”
Down Payment
The amount of cash required by a lender from the borrower in a real estate purchase transaction. The amount required is based on the borrower’s loan qualifications and type of loan selected. There are some loan programs that do not require any down payment; however, when a down payment is required, it must come from the buyer’s personal funds and typically cannot be borrowed.
FHA Loans
An FHA Loan is a mortgage insured by the Federal Housing Administration. There are several different types of FHA loans, each designed to increase homeownership throughout the United States. An FHA loan is characterized by lower down payment requirements, lower minimum credit scores and expanded debt to income ratios. One FHA loan product, the 203K loan, allows homeowners to borrow excess money to make improvements to a property post-closing.
Fixed Rate Mortgage
A type of mortgage where the interest rate remains fixed for the entire life cycle of the loan.
Loan Estimate
A Loan Estimate (LE) is a 3-page form delivered to mortgage applicants seeking a loan. The document provides borrowers with important details about expected mortgage terms including interest rate, payment information and closing costs. The terms on the Loan Estimate are valid for a period of 10 days, provided there are no material changes to the borrower’s qualifications. A Loan Estimate is not a loan approval but rather a projected statement based on an initial look at a mortgage application.
Loan to Value Ratio
The loan-to-value ratio, or LTV, is a measurement of equity in a property. It is calculated by taking the total balances on all mortgage and liens and dividing that number by the property’s appraised value. For example, if your mortgage balance is $150,000 and your property is appraised for $200,000, your current LTV would be 75% ($150K / $200K = .75). This is an important measurement for lenders when reviewing loan qualifications and determining whether private mortgage insurance is required.
Non-QM and Hard Money Loans
Non-QM (non-qualified mortgage) and hard money loans are private loan programs that do not conform to federally related agencies like Fannie Mae, Freddie Mac, FHA, or VA. While these loan programs often have reduced loan qualifications, they almost always have much higher interest rates.
Preapproval vs. Prequalification
The primary difference between a prequalification and a preapproval is the documentation provided. A prequalification is obtained when a borrower self-reports income and assets and allows a lender permission to pull credit. Using the borrower-provided data and credit report, the lender issues a prequalification subject to verification of income and assets. Conversely, a preapproval is obtained only after a lender has reviewed income documents (pay stubs, W-2’s, tax returns, etc.) and asset statements. A preapproval is a much stronger indication of a buyer’s ability to qualify for a mortgage loan.
Mortgage Insurance
This type of insurance is generally required whenever the loan-to-value ratio on a loan is greater than 80%. For borrowers who purchase a home with less than a 20% down payment, the lender will almost always require this type of policy to insure the lender against losses should the borrower fail to make payments. For conventional loans, this is referred to as private mortgage insurance (PMI). On FHA loans it is called a mortgage insurance premium (MIP). The premiums for mortgage insurance vary according to the amount of equity, the type of loan and the borrower’s qualifications.
Renovation Loans – FHA 203K and Homestyle Renovation
These programs are specifically designed to allow homeowners to borrow additional funds to purchase a property and make repairs after closing. Renovation loans require buyers to obtain bids from licensed contractors for the work to be performed. An appraisal is completed with a value indicated based upon the repairs to be made. When the transaction is closed, the borrowed funds dedicated for the repair work are deposited into an escrow account and released to the contractors performing the work. These programs work great for buyers interested in a property needing renovation but lack the cash resources for a down payment and repairs.
Termite Report
A Wood-Destroying Insect Report is prepared by a licensed pest control expert and informs the buyer of active termite infestation and termite damage. Some mortgage loan programs require a termite report as part of their lending requirements.
USDA Loans
USDA loans are low interest mortgages with zero down payment requirements and are designed for low-income borrowers in rural and low-density suburban areas.
VA Loans
This loan product is backed by the U.S. Department of Veterans Affairs and is available to active military and veterans. Some family members of service personnel may also qualify. VA loans require zero down payment, have low interest rates and expanded qualification criteria.
Offerpad Terms
Offerpad is a leading technology and real estate solutions provider with a mission to provide you with the best way to buy and sell a home. Period. We’re anything but traditional. With firsthand real estate experience and utilizing powerful proprietary technology, we provide consumer-focused real estate options including instant cash offers and superior home listing services.
When you work with Offerpad, here are a few of our own special terms and names for services and options we offer customers. The following will help you see how buying or selling a home with us can give you more certainty and control, so you enjoy the best real estate experience possible.
Competitive Cash Offer (Offerpad Express)
This is the amount of money Offerpad will pay you when selling your home to us. Our competitive cash offers are made through our Offerpad Express solution. When you request an Express cash offer from Offerpad, the information you provide about your home, in addition to current market data, is carefully evaluated by our local real estate experts in your area to ensure you receive our best, competitive offer in as few as 24 hours after you request it.
Sellers are under no obligation to accept our instant cash offers, which usually expire four days from the date of the offer. In addition to a quick cash sale, selling direct to Offerpad gives you other time and money-saving benefits, including flexible closing dates, no showings, free local moves and an extended stay option so you can remain in your home for up to three days after closing.
Home Listing (Offerpad Flex)
When you partner with Offerpad to list your home through our Offerpad Flex selling solution, we do much more than just that. We help you flex your maximizing muscle to get the most out of your home’s value with options like our Home Improvement Advance program. With it, you can make valuable upgrades to your home before listing it without spending a dime out of your own pocket. Additional perks to listing with us include your own dedicated Offerpad real estate agent, our professional marketing power in more than 830 cities and towns across the country, and a backup cash offer on your home in case you decide to sell direct to Offerpad at any time while it’s listed with us. (You won’t get that with a traditional listing agent!)
Listing with Offerpad Flex also means you get free concierge services to ensure your home is always ‘show ready’ while it’s listed. Services include landscaping maintenance, pool services, home cleaning and staging, even pet care during home showings. Offerpad Concierge Services help you manage everything, including leveraging our expert local renovations team for any needed upgrades, to get your home in perfect condition and reduce the stress of getting your home ready to list.
Custom Selling and Buying Solutions
Customers also have the power to bundle other Offerpad services with the solution they need, such as bundling Offerpad Home Loans for their mortgage with a home purchase; selling direct to Offerpad then buying an Offerpad home, back-to-back; listing with Offerpad and buying an Offerpad-owned or listed home to enjoy even more advantages and cost savings throughout the process.
Offerpad’s goal is to give you more certainty and control with a simple, convenient home buying and selling experience. Let us take on all the heavy lifting for you. Visit offerpad.com to learn more about buying and selling a home with us. Our helpful Solutions Advisors are ready and waiting to walk you through any of the terms listed here and to answer any other questions you may have.
