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The Ultimate Guide: 56 Essential Real Estate Terms

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Martin Boonzaayer

November 26, 2020

This is our Ultimate Guide to essential Real-Estate Terms that range from being slightly obscure to something that you have to know if you are about to sell a home or purchase a home.

Our guide provides definitions and some terms have more in-depth content than just a definition. We hope that you enjoy our "Real-Estate" Dictionary and remember this was made to be educational in nature so please contact a professional if you need a practical solution.

Table of Contents


Typically, a seller will include an addendum with the Contract. The addendum will describe how certain terms in the Contract will be modified.

For example, an addendum may provide that a contingency will be removed. Or, it may provide that the Buyer’s deposit will be applied to a specific cost, such as the price of a home inspection. An addendum may also provide for the Buyer’s financing contingency. This is particularly important where the Contract is “contingent upon financing” and the Buyer will be using a lender’s standard form financing contingency.

When an addendum is included with a contract, the Buyer and the Seller should also sign the addendum and indicate that they agree to the changes described within it.

This is important for two reasons:

First, it will help to ensure that the Seller is aware of the changes and is in agreement with them.

Secondly, and more importantly, the Buyer’s signature on the addendum means that the Buyer has agreed not to dispute the changes in court. This is important because, in addition to the Contract, the addendum will be considered part of the contract between the Buyer and the Seller

Adjustment Date

An Adjustment Date is a date on which a mortgage payment is recalculated or “adjusted” to take into account the most recent interest rate change. Adjustment dates for most mortgages are set to coincide with the first of each month. This applies to an ARM mortgage and there are other meanings for adjustment dates.


An appraisal is the estimated worth of a property, based on an objective analysis of the property's value. Used determining the value of a property, often for tax or financing purposes. An appraisal is a price at which property would change hands between a willing buyer and a willing seller when both of them are fully informed and under no compulsion to act. Basically, it is an estimate of the fair market value of a property.

When a potential buyer applies for a loan, the mortgage company will send out an appraiser to determine if the property is worth issuing a loan for. It acts as a safety precaution for both parties.

Appraisal Contingency

An appraisal contingency is a clause in a real estate contract that allows the buyer to pull out of a deal if the house appraises for a lower value than the agreed upon amount. It is only used in cases where the buyer is buying the house with a loan that requires the house to be appraised before the loan can be approved.

If you want to know more about contingencies, check out this post.

ARM (Adjustable Rate Mortgage)

ARM stands for Adjustable Rate Mortgage. The interest rate on an ARM loan is tied to a financial index or formula that is adjusted periodically. Your interest rate may change monthly, quarterly or annually.

Adjustable Rate Mortgages have some similarities to traditional mortgages: Fixed-rate mortgages Term lengths of 10, 15, 20, 25, or 30 years.

Choice between fixed-rate and adjustable-rate loans ARM loans offer more flexibility than traditional mortgages by allowing you to change interest rates: ARM loans have a preset interest rate for a certain period of time, usually between 1 and 10 years. After that period, the interest rate is adjusted at regular intervals, usually monthy.

The initial interest rate on an ARM loan is called the "index rate or "margin." The payments on an ARM loan do not change when the interest rate changes.

During the fixed-rate period, the interest rate on an ARM loan is fixed. During the adjustable-rate period, the interest rate on an ARM loan is adjusted at regular intervals. After the initial period, the interest rate on an ARM loan can only change if there are changes to the index.

What is the difference between traditional Adjustable Rate Mortgage and Hybrid Adjustable Rate Mortgage?

Traditional ARM: You have a fixed interest rate for a period of time (usually 5 to 7 years) After that period, your interest rate will change every year. ARM loans have a fixed interest rate for the initial period of time. The interest rate can only change if there are changes to the index.

Hybrid ARM: You have a fixed interest rate for a period of time (usually 5 to 7 years) After that period, your interest rate will change every year and the payment amount will change as well. Hybrid Adjustable Rate Mortgages allow you to choose not to have a payment change when the interest rate changes. This option is called a fixed-rate step payment

Annual Percentage Rate (APR)

The interest amount that is charged toward your loan per year.


Appreciation in real estate involves the increase in the value of a property over a period of time. Appreciation is usually measured in terms of price and expressed as a percentage. Appreciation is different from capital gains, which is the increase in a property’s market value less the original purchase price. While capital gains are taxed, appreciation is not (but you are still required to list the property’s value when you make an offer to buy), so it’s important to know what you’re up against.


It's a term that you may not know, but is an integral part of the home-buying process. "As is" is a legal term that means that the seller is not making any warranties or guarantees about the state of the property. As the buyer, you are responsible for determining the condition of the property.


This is simple the seller signing over the obligations/rights to the property before the sale had closed officially

Assumable Mortgage

This is the seller signing over their mortgage over to the the buyer. So instead of the buyer getting a new mortgage the buyer simple takes on the sellers debt and mortgage

Back up Offer

A back-offer is basically an offer made by a buyer to the seller after the property has been accepted or under contracted by another buyer.

It is used in case the first deal falls through. If it does then the back up offer still requires negotiation and earnest money down

Generally, the back-offer has a lower price than the initial offer.

Back-offers can be very useful tools for buyers as they can help them to negotiate a better price on the property. On the other hand, back-offers can be very frustrating for buyers and sellers as they can cause a lot of confusion and a lot of work for everyone involved.

Balloon Mortgage

Unlike a traditional mortgage where the mortgage is paid off over time in monthly installments a balloon mortgage is paid in one lump sum. That is why it is a "balloon mortgage".

These are usually issued for an investment project (construction, remodel, etc) that does not require collateral and it is usually for a short loan period.

Blind Offer

This is a offer made sight unseen, basically the practice of making an offer without looking at the property first. It is risky and usually practiced in high competition markets. However, it is effective at being the first one to offer which will increase your chances if they just want to sell their house as is or sell their house fast.

Buyers Agent

A buyer’s agent is an individual who works with and on behalf of the buyer in the purchase of a property. A buyer’s agent can be a licensed real estate salesperson or a real estate broker. The buyer’s agent is generally compensated by the seller and not the buyer.

Bridge Loan

This is a loan that is taken by a homeowner that uses one property to finance the purchase of another property. It is a short time loan that is usually only for a few months to a few years.


Anyone who has passed the real estate brokers test and has been educated in real estate beyond the requirement of just agents. Brokers have a working knowledge of all things real estate: construction, law, management.

Call option

A contract giving one party the right to buy while giving another party the right to sell a property at a future time and specific price

Covenants, restrictions and conditions

Covenants, conditions and restrictions (CC&Rs) are rules that a homeowner's association, or HOA, puts in place to make sure that property values are kept high and the neighborhood is protected and looks nice. These rules are legally binding on all homeowners in the community, and can be enforced by the HOA, which can impose fines and other penalties for failure to follow the rules.

The CC&Rs are typically put in place by the developer of a new development or by a developer who is planning on selling houses on the property to individual homeowners

Conventional Sale

A conventional sale is one in which a third party (the buyer) purchases the property from the owner (the seller) with no involvement from a bank or other financial intermediary or the seller has already paid on their mortgage and the mortgage remaining is less than fair market value.

These sales are easier to navigate than foreclosures, short-sales, and other similar sales of this kind of nature. If you are looking for an easier process choose a conventional sale


Closing is when the buyer and seller actually exchange the deed. At closing, the buyer and seller will both sign the Deed and the Contract. The buyer will pay the seller the purchase price and the closing costs. The seller will give the buyer a title to the property, and the deed will be recorded in the county records. The seller will also give the buyer the keys to the property.

Closing Costs

Closing costs are the fees that you as the buyer are responsible for after you have made an offer to buy a house and before you close. So even if you get a mortgage, you may still have to pay some closing costs. It is important to understand what they are, how much they are, and how they can affect you as a buyer. Your best source for information is your real estate agent.

The amount of closing costs you may pay can vary from as little as $500 to as much as $7,000 or more. This depends on the purchase price of the home and the type of mortgage you get. A good rule of thumb is to plan on paying about 2% of the purchase price. The cost of your closing costs will probably not exceed 6% of the purchase price.

Days on the Market

In real estate, Days on market (DOM) is commonly used to indicate the number of days a property is listed for sale. In a multiple listing service (MLS) it is the number of days the listing has been active.

Days on market is important because it shows how long it takes for a property to sell. If the number is low, it takes little time for the property to sell, which might indicate that the property is desirable.

DTI or Debt to Income Ratio

Is a ratio used by mortgage providers determine how you can afford their loan programs. It will indicate how much you can pay per month on the mortgage.

For example, someone who has $50,000 in debt, but whose income is $100,000 a year will have a debt-to-income ratio of 50%. If you only had a debt-to-income ratio of 10% or 15%, you would be considered a much more desirable borrower. The lower your debt-to-income ratio, the more the lender is willing to lend you.

Due Diligence

In real estate, due diligence means to carefully research a property and the surrounding area before signing a contract. Usually, the buyer is give a period of time that they can check what they are buying before they buy the property.

Why is Due Diligence Important? Due diligence can save you time, money, and heartache. When you conduct due diligence, you are more likely to be aware of any major issues that could be a problem down the road. This can make it easier to negotiate the purchase price, and to make a more informed decision on whether or not you want to buy the property.

EMD or Earnest Money Deposit

Earnest money deposit (EMD) is a sum of money given to the seller as a commitment to sign a contract and is forfeited if the deal falls through. It’s a form of good faith deposit.

Usually tends to be 1-5% of the asking price and generally is held by the escrow company.

Escrow holder

An escrow holder is a third party that holds a buyer's money until the buyer has taken possession of the property.

Are there different types of escrow accounts?

Yes. An escrow account can be a trust account, an IOLTA account or a special purpose escrow account like a real estate escrow account.

FHA Loan

FHA loans are a popular mortgage loan program that is backed by the Federal Housing Administration. The FHA guarantees lenders against losses on loans that do not meet the strict guidelines for conventional loans.

What are the benefits of FHA loans in real estate? FHA loans have a much lower down payment required than conventional loans. The down payment for an FHA loan is only 3.5% of the purchase price of the home, and, the borrower is required to pay an up front mortgage insurance premium. The FHA loan program also requires much lower credit scores than conventional loans.

Conventional loans have a minimum credit score requirement of 620. In contrast, FHA loans have a minimum credit score requirement of 500. What is the down payment for an FHA loan? The Federal Housing Administration requires a minimum down payment of 3.5% of the purchase price of the home.

FHA 203k Loan

FHA 203k rehab loan is a loan that will enable you to do a major renovation on your home. Many people who decide that they want to buy a house will need to do some repairs before they can move into it. The FHA 203k rehab loan is used to fix p the house but not add luxury elements

Fixed Rate Mortgage

Fixed rate mortgage is a type of mortgage where the interest rate and repayment is fixed for the whole term of the loan. In a fixed rate mortgage, the borrower is protected from rate rises and may not have to pay any more interest when the loan to repay. This is different from a variable rate mortgage where the interest rate and monthly payments change over the term of the loan. We will discuss this later in this article.


Foreclosure is when a creditor takes possession of a property that is mortgaged for the purpose of selling it to pay off the debt of the debtor as a result of the debtor being unable to pay off the debt. It can also be referred to as "power of sale" in some states.

During the foreclosure process, the homeowner stops making payments on the mortgage and the mortgage lender files a lawsuit to take possession of the property.

What are the different types of foreclosure? There are two types of foreclosure, judicial and non-judicial.

Judicial foreclosure is when the mortgage lender has to go to court to get a final judgment to sell the property to pay off the debt. The homeowner and the lender are both notified of the foreclosure filing. The foreclosure process takes a long time and is very expensive. It is therefore very uncommon for a lender to use a judicial foreclosure in the foreclosure process.

The second type of foreclosure is called a non-judicial foreclosure. A non-judicial foreclosure is when the mortgage lender can foreclose without going to court. It is cheaper and faster than a judicial foreclosure. The lender is not required to send the homeowner any notice of the foreclosure proceedings or tell them about the sale. In a non-judicial foreclosure, the lender can sell the property quickly and without a lot of expense. The lender usually sells the property to a third party, either at a foreclosure auction or through a real estate agent

Hard Money Loan

A hard money loan is a short term loan that is typically collateralized by an asset such as real estate. The real estate is then used as collateral for the loan, and the borrower must use the property as the means to repay the loan. The interest rate is usually higher than a conventional loan.

Hard money lenders have higher interest rates to offset the risk they take by lending to borrowers with poor credit ratings or even no credit ratings. They lend to borrowers that have limited financial resources and that have a low credit rating. Hard money loans are very common in the real estate market.

The hard money lenders are often real estate brokers, private investors or banks. They lend money at a higher interest rate for a shorter term of loan, typically 12 months or less.

If the borrower is unable to repay the loan, the lender will take the property. This is why hard money lenders are also known as “Foreclose lenders”. Hard money lenders are also known as “Loan Shark”. This is because they are willing to lend money at a high-interest rate to borrowers with poor credit.

HOA or Home Owners Association

As part of the home purchase contract, the buyer agrees to certain rules and regulations. What is the HOA? It is a group of people (elected by the owners of properties) who are responsible for the management of a particular development. They are responsible for the maintenance of the common areas and facilities and sometimes the internal areas of the properties. The costs of these services are charged to the owners of properties. The HOA is also responsible for the administration of the rules and regulations.

Home Sale Contingency

Home Sale Contingency in Real Estate A home sale contingency does not mean that the buyer will not buy the home. It simply means that they are not obligated to buy the home. The buyer can simply back out of the deal without any negative consequences.

The contingency is if the buyer is able to sell their current home before closing on the current property they are trying to buy.


This is conducted by a licensed home inspector and usually, the inspection is conducted in the due diligence period of buying the house. An inspection report will be made and the buyer can as the seller to fix the issues of the house or they can ask for a price reduction.

Inspection contingency

An inspection contingency is an agreement between a buyer and seller to have an inspection made on the property to be purchased, and to allow the buyer to back out of the deal if the inspection doesn't show the property to be satisfactory.

The cost of a home inspection typically ranges from $300 to $500, depending upon the size of the home and the scope of the inspection.

Land Lease

Typically, homeowners own the property surrounding the house but in the case of a land lease the owner is renting the land. A good tip is never buy a mobile home if it is on a land lease.

Loan Contingency

A loan contingency is a clause in a real estate contract that allows the buyer to withdraw from the purchase if the loan is not approved. In the event the loan is not approved, the loan contingency provides the buyer with a way out of the deal.

Loan contingencies are a necessary element to prevent the seller from giving the buyer the property and then evicting the buyer at a later date if the loan is not approved. The buyer can withdraw from the purchase without any liability to the seller.

This clause protects the seller from an otherwise fraudulent buyer trying to buy the property without having a source of funds to pay for it.

Mortgage pre-approval letter

A mortgage pre-approval letter is a written document issued by a mortgage lender/bank or credit union stating that a potential borrower has been pre-approved to borrow a certain amount of money to purchase a specific property.

Generally the seller and their agent will require this before moving on with the deal if the buyer is not paying all cash.


An MLS is a computerized database of real estate listings maintained by local boards. The MLS is used by real estate brokers to list properties and search for properties to find a buyer or tenant.

NHD (Natural Hazard Disclosure

An NHD report is a state or federally-mandated disclosure report by the seller of a property. This report is a detailed report of any known or suspected activity that could impact the structural integrity of the property or the health and safety of occupants and potential occupants.

The NHD report includes information about the property's energy consumption and water usage, and a summary of the property's environmental history. The NHD report is a valuable resource for buyers in determining the state or federally-mandated disclosures for a property.

Examples : if the area is on a flood plane, earthquake zone, etc.

Offer or Counter Offer

An offer is a proposal to purchase a property. A counter offer is a written response to an offer to purchase which includes additional terms and conditions. These written proposals are usually given to a seller’s agent or direct to the seller.

Property Lien

A property lien is a claim against your property for payment of a debt. A mortgage lien is the most common type of property lien. A property lien gives your lender the right to take and sell your property in order to satisfy a debt.

Typically, a lender files a property lien against you when you fail to make payments on a mortgage. The lender files a notice of the property lien with the county recorder's office to protect its interest in the property. The notice gives you (the debtor) 90 days to contest the filing of the property lien

Preliminary Report

A preliminary report is a common report that is created by an appraiser and provided to a lender or lending institution for the purpose of determining whether a property is worth the amount of a mortgage.

The lender or lending institution will then typically take this preliminary report and use it as a starting point to determine whether they will lend the borrower the money to purchase the property.

It’s a very important report for the borrower, since it will determine whether or not they can purchase the property, and if they can’t, they may have to pursue other options for buying a home.

What does an appraiser do in order to create a preliminary report?

An appraiser will have to do an on-site inspection of the property. They will also have to look at the value of the lot that the property is on. They will also have to look at the comparables in the area and how they relate to the value of the property.


The principle is the actual amount that was borrowed for a mortgage. Usually, when you make monthly payments the payment pays the interest first then goes towards the principle.

Probate Sale

A probate sale is a sale of property, usually a house, whose ownership had been in the name of a deceased person. Probate is a legal process whereby the assets of the deceased person are transferred to family members, friends or charities.

The probate process involves the appointment of an executor or administrator to administer the estate, collection of the assets, and distribution to the beneficiaries. Probate can take many months or even years. The executor or administrator may be required to post a bond to insure the proceeds of the sale of real estate are distributed according to the will. Probate sales can occur for several reasons.

The executor or administrator may want to sell the property to raise cash to pay bills of the estate, pay the debts of the estate, or distribute assets to beneficiaries.

PSA or Purchase Sale Agreement

The purchase and sale agreement is a legally binding contract between the buyer and seller. The PSA sets out the terms of the sale. It includes the sale price, payment terms, a list of any property included in the sale, any deposit, conditions, and other miscellaneous conditions.

The purchase and sale agreement should be signed by both the buyer and seller and a copy is given to both the seller and the buyer. The PSA should also be attached to any offer to purchase.

REO (Real-Estate Owned

Real-estate owned (REO) is property that the lending institution has taken possession of as a result of foreclosure. Other types of REO property are multi-family buildings, single family homes, and vacant land. Reo property is a great opportunity for investors.


A Realtor® is a professional member of the National Association of REALTORS® who is committed to increased professionalism in the field of real estate and to the highest ethical standards.

Realtors and Real Estate Agents are also classified as licensed salespersons.They help clients buy or sell real estate in a way that is most advantageous to their client

Rent/lease Back

Rent-back is a situation in which the seller of a property agrees to rent it back from the buyer for a specified period of time. Usually, this is done when the seller wants to stay in the house past the escrow date.

The rent-back agreement can be negotiated between the buyer and seller in the purchase contract, or it can be part of the purchase agreement that is negotiated between the buyer and seller's real estate agent.

Seller Concession

An additional amount of money added to the purchase price of a home when a buyer is obtaining a loan through a lender. To make the deal more attractive the seller will agree to pay these extra lender fees

Seller Disclosure

A seller disclosure is an itemized list of existing physical defects in a home, including any structural problems. The list is usually prepared by the seller and signed by the seller and the buyer, and is used as part of the purchase contract. If the buyer fails to inspect the property, the seller may be liable for any damages if the buyer later discovers problems that were not disclosed.

Short Sale

A short sale is a transaction where the lender agrees to accept less than the full balance of the mortgage in order to allow the homeowner to sell the home. The lender agrees to accept the lesser amount because they will still be paid back in full, but the homeowner benefits from avoiding foreclosure.

How does the lender benefit from this? The lender benefits because they are still able to recover most of their investment. In a traditional foreclosure, the lender may only recover 25% of their investment. In a short sale, the lender will recover a higher percentage of their investment.

What are the costs to the lender? The lender will lose the entire investment in the mortgage and other costs associated with the sale. What are the costs to the homeowner? The homeowner will pay closing costs in the short sale. These costs are typically paid by the lender, but the homeowner will need to pay the costs associated with the sale of the home. How long does it take to complete a short sale? The short sale process can take as little as six months, but typically takes closer to 12 months.

Tenacy in Common (TIC)

It is joint ownership amongst Tenants of property in varying percentages. They have equal rights to use and enjoy the property. In the event of the death of one owner, his/her interest passes to the other owners. Each owner pays their pro-rata share of the mortgage, taxes, insurance, utilities, and other expenses of the property.

What are the advantages of TIC? Tenants have less liability than if they owned the property themselves. If a tenant dies, the other tenant(s) will not be responsible for any debt. If property is sold, each tenant will receive their share of the proceeds. If property is repossessed by lender, tenants will still have their share of the proceeds.

What are the disadvantages of TIC? Tenants are responsible for any damage that they may cause to the property. If a tenant wants to sell his/her interest, it may be difficult to find a buyer.

A title search is a search of the title report of a property where you are considering buying. It will gives you information about the property such as: any liens against the property, easements, zoning, environmental issues, and taxes that are due on the property. The title search will tell you if the property has any restrictions on the property for example, the number of cars that can be parked on the property. The title search will give you information about any cases that have been brought against the property.

Trust Sale

Is made by a trustee of a property. A trustee generally gains a property from a trust and this is typically because the owner has passed on which is why it would have been placed in a trust.

Many times the trustee has no ties emotionally with the property and wishes to sell it. This results in a trust sale.

Veterans Affair Loan

A VA loan is a government-backed loan that allows military members, veterans, and eligible surviving spouses to purchase a home with little or no money down. Veterans can also use their VA loan benefits to refinance an existing mortgage and get a better interest rate.

The VA loan program is designed to help veterans and military personnel purchase a home quickly without having to save a large down payment. There are two types of VA loans: purchase loans and refinance loans. The VA loan has a lower interest rate than conventional loans.

The VA does not charge a funding fee, but lenders do charge a 1.25% upfront fee to help cover their costs. A VA loan is a good choice for military members and veterans who are looking for a home loan with favorable terms and repayment options.

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