Real Estate Terminology for Home Sellers
Learn key real estate terms involved in selling a house.
Here are some common real estate terms to know when getting ready to sell your home. For more unusual real estate terminology, try searching Nolo's Legal Dictionary.
Acceptance: Agreeing to the terms of an offer, thereby creating a contract. As soon as you sign your name to the buyer's purchase offer, you're in contract to sell your house and can't back out without facing consequences in the buyer's case, forfeiting their earnest money deposit, and, in your case, a potential lawsuit.
Appraisal: A determination of the value of something, such as jewelry, stock, or, in this case, your house. A professional appraiser who should be a qualified, disinterested specialist in real estate appraisals, with expertise in your local geographic area makes an estimate by examining the property, looking at the initial purchase price, and comparing it with recent sales of similar property. The buyer's bank or other lender will require the appraisal in order to ascertain the worth of your house for lending purposes. And, unfortunately, it may refuse to fund the buyer's loan if the appraisal comes in lower than the loan amount. In such situations, deals have been known to fall through.
Appreciation: An increase in the value or worth of an asset or piece of property that's caused by external economic factors occurring over time, rather than by the owner having made improvements or additions. For example, increased market demand or inflation can cause property to appreciate. The term is commonly used in the context of real estate. If you're lucky, your home has appreciated in value since you bought it but the opposite (depreciation, defined below) is also possible.
Assumable mortgage: A home mortgage that allows the buyer to take over the seller's mortgage; that is, to step into the seller's shoes, make mortgage payments, and comply with other terms of the existing loan. Most lenders require the borrower to qualify for the mortgage in order to assume the mortgage.
Closing costs: All settlement or transaction charges (above and beyond the actual cost of the property) that home buyers or sellers need to pay at the close of escrow when the property is transferred. Exactly who pays depends on tradition in your area and what you negotiate with the buyer. In cold markets, sellers often agree to pay a chunk of the closing costs in order to provide incentives to buyers to complete the sale. The costs typically include lender's fees and points or prepaid interest, a prorated share of the property taxes, transfer taxes, credit check fees, homeowners' and title insurance premiums, deed filing fees, real estate agent commissions, inspection and appraisal fees, and attorneys' fees. Some closing costs are tax-deductible.
Common area: Facilities and space such as recreation facilities, parking, laundry rooms, or a courtyard in condominiums, apartment buildings, and some cooperative housing projects. Common areas in condominiums are not individually owned by the residents, but shared by percentage interest or owned by the management organization.
Common interest development: A type of housing composed of individually owned units such as condominiums, townhouses, or single-family homes that share ownership of common areas like swimming pools, landscaping, and parking. Common interest developments (also known as community interest developments or CIDs) are managed by homeowners' associations. Members typically pay monthly association dues.
Condominium: A type of real property ownership in which each owner holds title to his or her individual unit and shares ownership jointly of common areas such as driveways, parking, elevators, outside hallways, and recreation and landscaped areas. A homeowners' association typically manages the common areas and oversees the covenants, conditions, and restrictions (CC&Rs) that apply to the property. Condominiums are often referred to as a common interest development.
Counteroffer: The rejection of an offer to enter into a contract that simultaneously makes a different offer, changing the terms of the original offer in some way. For example, if the buyer offers you $350,000 for your house, and you reply that you want $375,000, you have rejected the offer and have made a counteroffer. The legal significance of a counteroffer is that it completely voids the original offer.
Depreciation: The gradual loss of value of property through external economic conditions, increasing age of the property, natural wear and tear, or deterioration.
Disclosure: The making known of a fact that had previously been hidden; a revelation. Many states require sellers to disclose major physical defects in the house within their knowledge, such as a leaky roof or potential flooding problem; and, in all states, sellers must disclose the presence of lead-based paint hazards in buildings constructed before 1978.
Earnest money deposit (EMD): A partial payment (deposit) demonstrating commitment in a contractual relationship, and commonly made in real estate transactions at the time of making the purchase offer. The remainder of the payment is due on the closing date. The seller keeps the earnest money if the buyer fails to make timely payment in full (or if there is a similar breach of the agreement).
Escrow: The holding of funds or documents by a neutral third party prior to closing your home sale.
Escrow agent: A person (often an attorney) or a company that handles escrow arrangements for a fee usually paid as part of the closing costs. Also sometimes called a title agent.
Escrow instructions: Written instructions, signed by a buyer and seller, telling an escrow agent what needs to happen before the deal closes.
Fixture: Anything attached to real estate in such a way as to become part of the premises. Unless the owner of the fixture and the owner of the real estate agree otherwise, the fixture becomes the property of the landowner. Typical home fixtures include built-in appliances, wall-to-wall carpeting, light fixtures, curtain rods (and sometimes the curtains), and in-ground exterior landscaping.
House closing: The final transfer of the ownership of a house from the seller to the buyer, which occurs after both have met all the terms of their contract and the deed has been recorded.
Multiple listing service: A computer-based service, commonly referred to as MLS, that provides real estate professionals with detailed listings of most homes currently on the market. The public can now access much of this kind of information through websites like www.realtor.com.
Nonrecurring closing costs: Those costs of closing a home purchase that need to be paid only once such as the appraisal fee, title insurance, and transfer taxes. (Compare with recurring closing costs.)
Real estate: Land and things permanently attached to it, such as buildings, houses, stationary mobile homes, fences, and trees. Real estate is also called real property. Anything that isn't real estate is personal property.
Real estate agent: A foot soldier of the real estate business who shows houses and does most of the other nitty-gritty tasks associated with selling real estate. An agent must have a state license and be supervised, in most U.S. states, by someone called a real estate "broker" (or, if the agent is already referred to as a broker in his or her state, by a "managing broker"). Most agents are completely dependent upon commissions from sellers for their income.
Real estate broker: A real estate professional licensed to negotiate the purchase and sale of real estate for a commission or fee. In most states, a broker is one step up from a real estate agent, having more training and the power to supervise agents. However, in some states, the term "broker" is used for all agents. In Washington State, for example, regular real estate agents are referred to as "designated brokers," and those who can supervise others are called "managing brokers."
Realtor®: A real estate agent who is a member of the National Association of Realtors (www.realtor.com) is allowed to call him or herself a Realtor®.
Recurring closing costs: Those costs of closing a home purchase that represent the first of a series of payments that will recur over time such as homeowners' insurance and property taxes.
Title: Ownership of real estate or personal property. With real estate, title is evidenced by a deed (or other document) recorded in the county land records office.
Title report: The written analysis of a real estate title search, including a property description, names of titleholders and how title is held (joint tenancy, for example), tax rate, encumbrances (mortgages, liens, deeds of trust, recorded judgments), and real estate taxes due. A title report is needed before a lender will agree to finance purchase of the property. A title report is prepared by a title company, an abstracter, an attorney, or an escrow company, depending on local practice.
Zoning: The local laws dividing cities or counties into different zones according to allowed uses, from single-family residential to commercial to industrial. Mixed-use zones are also used. Zoning ordinances control the size, location, and use of buildings within these different areas and have a profound effect on traffic, health, and livability.