{"id":3067,"date":"2020-01-14T13:47:34","date_gmt":"2020-01-14T18:47:34","guid":{"rendered":"https:\/\/www.paperlesspipeline.com\/blog\/?p=3067"},"modified":"2024-04-01T13:47:09","modified_gmt":"2024-04-01T17:47:09","slug":"real-estate-terms","status":"publish","type":"post","link":"https:\/\/www.paperlesspipeline.com\/blog\/real-estate-terms","title":{"rendered":"Understanding Essential Real Estate Terminology For Ultimate Success"},"content":{"rendered":"\n

The complete guide of real estate terms and definitions for new professionals.<\/p>\n\n\n\n

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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

Not understanding how the world of real estate works and the terminology involved is the quickest way to fail. <\/p>\n\n\n\n

In fact, 75% of realtors<\/a> fail within the first five years of entering the industry, which could be attributed to not starting off with a solid foundation of real estate knowledge.<\/p>\n\n\n\n

Regardless of whether you\u2019re a new broker, agent, or transaction coordinator, you need to know the key terms involved in doing business in real estate to succeed.<\/p>\n\n\n\n

If you\u2019re looking for a resource to understand more about real estate, you\u2019ve come to the right place. In this article, we discuss some of the most vital real estate terminology you need to know to have a successful career.<\/p>\n\n\n\n

 \ud83d\udd11 Functions of Real Estate Professionals<\/h2>\n\n\n\n

Here are the main terms and definitions that relate to what real estate professionals are responsible for.<\/p>\n\n\n\n

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\u27a1\ufe0f Transfer<\/h3>\n\n\n\n

Real estate ownership transfers are based on a purchase, sale, lease, assignment, inheritance, or exchange. These transfers are often managed by a real estate professional.<\/p>\n\n\n\n

\u27a1\ufe0f Real estate property management<\/h3>\n\n\n\n

Property managers and management companies lease, rent, and maintain real estate properties on behalf of the owners.<\/p>\n\n\n\n

\u27a1\ufe0f Real estate investment<\/h3>\n\n\n\n

Individuals and companies invest in real estate properties. They buy, hold, and sell real properties for profit.<\/p>\n\n\n\n

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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

\u27a1\ufe0f Real estate regulation<\/h3>\n\n\n\n

Federal and state governments regulate all real estate activities. Real estate professionals must comply with regulations based on a knowledge of zoning, inspection, assessment, and the Fair Housing Act.<\/p>\n\n\n\n

You can learn more about the Fair Housing Act<\/a> in this guide.<\/p>\n\n\n\n

\ud83d\udd11 Roles of Real Estate Professionals<\/h2>\n\n\n\n

To be an effective real estate professional, you need to understand your roles and responsibilities. You also need to know where you fit into the process. These key terms will help you broaden your understanding:<\/p>\n\n\n\n

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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

\u27a1\ufe0f Buyer\u2019s agent or listing agent<\/h3>\n\n\n\n

Sometimes known as a listing agent or a buyer\u2019s agent, these people are licensed real estate professionals who help buyers find a property. <\/p>\n\n\n\n

They also represent the buyer by negotiating the price and terms on their behalf. They are expected to act in the buyer\u2019s best interests at all times\u2014this is known as a fiduciary duty.<\/p>\n\n\n\n

\u27a1\ufe0f Federal National Mortgage Association<\/h3>\n\n\n\n

The Federal National Mortgage Association (FNMA)<\/a> is a United States government-sponsored enterprise (GSE). <\/p>\n\n\n\n

It helps ensure that the single-family property market remains liquid. It does this by purchasing and guaranteeing mortgage loans made by lenders. <\/p>\n\n\n\n

It then issues debt and mortgage-backed securities that attract investors worldwide. <\/p>\n\n\n\n

The association was founded in 1938 and became a publicly traded company in 1968. It is commonly called Fannie Mae, and it is one of the country\u2019s top Fortune 500 companies. <\/p>\n\n\n\n

\u27a1\ufe0f Real estate brokers<\/h3>\n\n\n\n

Real estate brokers may operate independently or manage real estate brokerages. Real estate agents must work under the direction of a licensed broker when representing buyers and sellers. <\/p>\n\n\n\n

Brokers typically work to attract and build a team of quality agents who can help buyers and sellers succeed. This may involve putting together a substantial offer for a buyer or finding the perfect price point for a seller. <\/p>\n\n\n\n

In many cases, brokers are seasoned professionals who have experienced all types of markets and can guide clients accordingly with buy and sell transactions.<\/p>\n\n\n\n

\u27a1\ufe0f Real estate salespeople<\/h3>\n\n\n\n

Real estate agents are licensed professionals who work under the direction of a licensed broker to represent buyers and sellers in real estate transactions. <\/p>\n\n\n\n

Real estate agents who are members of the National Association of REALTORS\u00ae (NAR)<\/a> can use the title REALTOR\u00ae and must abide by a strict code of ethics. <\/p>\n\n\n\n

Not only do agents have a solid grasp of what sells an individual home, but they also possess in-depth knowledge of their market and its neighborhoods. <\/p>\n\n\n\n

They understand the defining characteristics that attract buyers: safety, walkability, high-quality schools, and close proximity to amenities, for example.<\/p>\n\n\n\n

\u27a1\ufe0f Mortgage brokers<\/h3>\n\n\n\n

A mortgage broker helps individuals buying or refinancing real estate find the right mortgage banker based on their individual needs and financial position.<\/p>\n\n\n\n

\u27a1\ufe0f Mortgage bankers<\/h3>\n\n\n\n

Mortgage bankers can be companies, individuals, or institutions that use their funds to finance a mortgage.<\/p>\n\n\n\n

\u27a1\ufe0f Mortgage insurance <\/h3>\n\n\n\n

This is insurance that protects the lender to ensure they don\u2019t lose the mortgage loan amount should the borrower be unable to make mortgage payments or pass away.<\/p>\n\n\n\n

Private mortgage insurance (PMI) is an insurance policy where additional premiums must be paid to protect the lender should the borrower go into default. Default happens when borrowers fail to make the required payments on their debt, including mortgages.<\/p>\n\n\n\n

\u27a1\ufe0f Appraisers<\/h3>\n\n\n\n

Appraisers have the knowledge to estimate the value of real estate. States often require appraisers to be licensed or certified. <\/p>\n\n\n\n

Mortgage bankers typically require an appraisal from a professional to establish the value of real estate before processing a mortgage.<\/p>\n\n\n\n

 \u27a1\ufe0f Insurers<\/h3>\n\n\n\n

If required, insurers provide property and flood insurance to cover potential damage to a property. <\/p>\n\n\n\n

In the case of a home purchase, both lender and buyer would want to protect the asset and prevent financial loss on either side of the mortgage agreement. <\/p>\n\n\n\n

Along with coverage of the dwelling and personal property, insurance carriers also provide liability insurance that protects the homeowner from a slip and fall claim on the premises or medical payments for dog bites off the premises. <\/p>\n\n\n\n

When you enter into a mortgage agreement, the lender will require proof of property insurance before you close.<\/p>\n\n\n\n

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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

\u27a1\ufe0f Title companies<\/h3>\n\n\n\n

Title companies research property records to ensure that the stated owner of a property owns the property free from any outstanding encumbrances that can impact the transferability of the property.<\/p>\n\n\n\n

Claims against a title may include additional mortgages, property liens, or unpaid property taxes. <\/p>\n\n\n\n

Before you close on the property, you\u2019ll want assurance that you\u2019re purchasing the property without any hidden surprises that may affect the deed transfer or cost you additional money. <\/p>\n\n\n\n

\u27a1\ufe0f Escrow holders<\/h3>\n\n\n\n

Escrow holders collect and hold funds until certain events take place. For example, a real estate agent may hold earnest money deposits in an escrow account until a property closes. <\/p>\n\n\n\n

Another example is mortgage bankers, who collect and hold property tax payments until the tax is due.<\/p>\n\n\n\n

\ud83d\udd11 Transaction Management Terms<\/h2>\n\n\n\n

Transaction management can be complex as there are multiple tasks and documents that need to be created and completed within strict time frames. <\/p>\n\n\n\n

Here are some key terms relating to transaction management to help you ensure you stay on track right through to closing.<\/p>\n\n\n\n

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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

\u27a1\ufe0f Closing procedures<\/h3>\n\n\n\n

These are the steps required to finalize a transfer of ownership of a property. This final step may occur anywhere from a week to 90 days after a buyer\u2019s offer is accepted for a personal home purchase. <\/p>\n\n\n\n

The closing marks the day ownership transfers from the seller to the buyer. This also applies to other parties like a mortgage officer, brokers, attorneys, or other advisors. <\/p>\n\n\n\n

However, steps leading up to that day include the mortgage application process, an offer and acceptance, a home inspection, the lender\u2019s appraisal, and a final walk-through of the property.<\/p>\n\n\n\n

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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

\u27a1\ufe0f Conventional mortgage<\/h3>\n\n\n\n

A conventional mortgage is typically funded by a private lender rather than a government-based agency. In this case, borrowers make larger down payments\u2014typically not lower than 20%. They usually don\u2019t require mortgage insurance as there is a lower risk of the borrower not paying their monthly mortgage.<\/p>\n\n\n\n

\u27a1\ufe0f Debt-to-income ratio (DTI)<\/h3>\n\n\n\n

A debt-to-income ratio reflects a borrower\u2019s financial health and the risk of them taking out a mortgage to purchase a property. <\/p>\n\n\n\n

The ratio is a percentage that compares an individual\u2019s total monthly debt payments against their gross monthly income. <\/p>\n\n\n\n

This ratio is used by lenders to assess a borrower\u2019s ability to manage their monthly mortgage payments while repaying debts.<\/p>\n\n\n\n

\u27a1\ufe0f Financial qualification<\/h3>\n\n\n\n

This is a buyer’s ability to purchase or obtain financing to purchase a property. Mortgage applicants will navigate through a detailed analysis of their financial picture and creditworthiness before an application is approved. <\/p>\n\n\n\n

You can expect a lender, typically a financial institution, to look at credit scores, income, the amount of existing debt, and the assets owned by the borrower. <\/p>\n\n\n\n

These assets include deposit accounts, stocks, bonds, and any equity you might own in other homes or investment properties.<\/p>\n\n\n\n

\u27a1\ufe0f Home equity conversion mortgage<\/h3>\n\n\n\n

The home equity conversion mortgage (HECM) is a special program run by the Federal Housing Administration (FHA), which allows older homeowners to withdraw equity. They can do this either through a fixed monthly payment, a line of credit, or both.<\/p>\n\n\n\n

\u27a1\ufe0f Local market conditions<\/h3>\n\n\n\n

These are the conditions that affect the housing market, including supply and demand, mortgage rates, and more. <\/p>\n\n\n\n

To limit the days a home will spend on the market, sellers must understand market dynamics, such as the sales value of comparable properties, the desirability of the location, and the existence of lucrative employment opportunities. <\/p>\n\n\n\n

Another important term related to market conditions is fair market value. This is how much a property would sell for in an open market regardless of current conditions, supply, and demand.<\/p>\n\n\n\n

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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

\u27a1\ufe0f Real estate financing<\/h3>\n\n\n\n

This is when borrowers obtain a mortgage or use another method for funding a real estate purchase. <\/p>\n\n\n\n

Buyers who finance a purchase could choose a fixed-rate option, in which interest rates remain the same over the life of the loan, or a variable-rate option that pegs the rate to an index. <\/p>\n\n\n\n

One of the more commonly used benchmarks is the London Inter-Bank Offered Rate (LIBOR).<\/p>\n\n\n\n

\u27a1\ufe0f Real estate transaction management software<\/h3>\n\n\n\n

This is purpose-built software designed specifically for real estate transaction management<\/a>. It allows brokers, agents, and transaction coordinators to manage their transactions digitally. <\/p>\n\n\n\n

Every step of the transaction process is automated to reduce errors and prevent things from falling through the cracks.<\/p>\n\n\n\n

These systems often provide features like task, document, and compliance management, among other features.<\/p>\n\n\n\n

\ud83d\udca1 Top Tip: Make the Smart Move with Transaction Management Software<\/strong>
Paperless Pipeline<\/a> is transaction management software designed to help brokers, agents, and transaction coordinators ensure every aspect of the transaction process stays on track.

You can create powerful customized checklists to handle each transaction and close more deals.

Additionally, you can use our software to set critical due dates automatically so that deadlines are never missed.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

\u27a1\ufe0f Value estimation<\/h3>\n\n\n\n

This is an estimate of what buyers in the market would be willing to pay for a property based on comparable properties or what has recently sold in the same market. <\/p>\n\n\n\n

Market value differs from loan value in that a lender will only be willing to loan a certain percentage of what that institution feels the property is worth. <\/p>\n\n\n\n

Hot markets where a property\u2019s market value exceeds its loan value would require a buyer to provide a more significant down payment if the offer price exceeds the amount of the lender\u2019s appraisal.<\/p>\n\n\n\n

\ud83d\udd11 Real Estate Listing and Property Terms<\/h2>\n\n\n\n

You need to know how the listing process works and how your agency fits into the bigger picture. <\/p>\n\n\n\n

Additionally, you need to understand how different agencies operate and the various types of properties you may be promoting. <\/p>\n\n\n\n

Here are the top listing and property definitions you need to know:<\/p>\n\n\n\n

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\u27a1\ufe0f Agency law<\/h3>\n\n\n\n

This law defines the legal relationship between the property owner and a real estate agent. <\/p>\n\n\n\n

For example, the agent may represent the property owner exclusively, or the agent may represent buyers and sellers in the same transaction.<\/p>\n\n\n\n

\u27a1\ufe0f Buyer agency agreements<\/h3>\n\n\n\n

This is a contract between a buyer or seller and their real estate agent that defines their legal relationship.<\/p>\n\n\n\n

\u27a1\ufe0f Commercial property<\/h3>\n\n\n\n

These are properties zoned for business activities. Commercial property includes industrial, retail, and office property used for business purposes.<\/p>\n\n\n\n

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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

\u27a1\ufe0f Commission rate<\/h3>\n\n\n\n

Most real estate agents are paid a commission, a percentage of a property’s sale. Typically, the commission split between the agents representing the buyer and seller is 5 to 6% of the purchase price. <\/p>\n\n\n\n

\u27a1\ufe0f Construction loan<\/h3>\n\n\n\n

This is a loan that buyers or sellers can use to finance construction on a real estate project or home. It is a short-term loan\u2014often referred to as a self-build loan\u2014to cover project costs before long-term funding can be financed.<\/p>\n\n\n\n

\u27a1\ufe0f Designated agency<\/h3>\n\n\n\n

This is when a brokerage provides one agent to work with the seller and one to work with the buyer on the same transaction.<\/p>\n\n\n\n

\u27a1\ufe0f Dual agency<\/h3>\n\n\n\n

A situation where a real estate agent represents both the buyer and seller in a real estate transaction.<\/p>\n\n\n\n

\u27a1\ufe0f Exclusive agency listing<\/h3>\n\n\n\n

A contract between the property owner and real estate agent that gives the agent exclusive authority to act on behalf of the seller. The seller also reserves the right to find a buyer and sell without paying a commission.<\/p>\n\n\n\n

\u27a1\ufe0f Exclusive right to sell listing<\/h3>\n\n\n\n

This is a contract between the property owner and the real estate agent, giving the agent sole authority to act on behalf of the seller.<\/p>\n\n\n\n

\u27a1\ufe0f Industrial property<\/h3>\n\n\n\n

This is a subset of commercial property zoned for manufacturing, processing, or warehousing.<\/p>\n\n\n\n

\u27a1\ufe0f Investment property<\/h3>\n\n\n\n

Any real estate acquired by an investor with the intent to realize revenue from rental income or net profit from selling the property. <\/p>\n\n\n\n

\u27a1\ufe0f Limited service listing agreement<\/h3>\n\n\n\n

A contract between the property owner and real estate agent that defines a limited set of services that the agent will provide to sell the property.<\/p>\n\n\n\n

\u27a1\ufe0f Listing agreement<\/h3>\n\n\n\n

A contract between the property owner and real estate agent that gives the agent authority to act on behalf of the seller.<\/p>\n\n\n\n

\u27a1\ufe0f Listing period<\/h3>\n\n\n\n

This is the amount of time a listing agreement is in effect. Sellers sign contracts that cover a specific time period for the sale of a house. <\/p>\n\n\n\n

For instance, you might list a home with a local real estate agent for three months. If the property remains listed within this contract period, you can renew the existing contract or seek another agent to market the home. <\/p>\n\n\n\n

In general, nothing more than a signature is required to move forward with the agreement.<\/p>\n\n\n\n

\u27a1\ufe0f Listing termination<\/h3>\n\n\n\n

Typically, listing agreements terminate after a stated time frame.<\/p>\n\n\n\n

\u27a1\ufe0f Multiple listing service (MLS)<\/h3>\n\n\n\n

A multiple listing service (MLS) is a local or regional service that publishes listing information of properties provided by its members. Local licensed brokers oversee the MLS.<\/p>\n\n\n\n

\u27a1\ufe0f Open listing<\/h3>\n\n\n\n

A property listing that has multiple nonexclusive listing agreements in place. It is also a property that is for sale by the owner.<\/p>\n\n\n\n

\u27a1\ufe0f Property type<\/h3>\n\n\n\n

Property type generally refers to the unique features and potential buyers that characterize real estate.<\/p>\n\n\n\n

\u27a1\ufe0f Ranch and land<\/h3>\n\n\n\n

The ranch and land property type covers a variety of real estate, which includes ranches, farms, and single lots suitable for building. <\/p>\n\n\n\n

This can also be a large tract of land ideal for a farm, ranch, residential, or commercial real estate development.<\/p>\n\n\n\n

\u27a1\ufe0f Real estate owned (REO)<\/h3>\n\n\n\n

In the event of a foreclosure, the mortgage lender will usually auction the foreclosed property. If this auction is unsuccessful, the lender will take possession of the property and attempt to sell it.<\/p>\n\n\n\n

Properties in this situation are designated real estate-owned (REO). These properties often have inherent problems; for example, they might be extremely dilapidated. <\/p>\n\n\n\n

This presents an opportunity for buyers to acquire the property below market value. However, it also means the buyer will need to spend money on the property, for example, on renovation costs\u2014this can make it difficult to get finance.<\/p>\n\n\n\n

\u27a1\ufe0f Residential property<\/h3>\n\n\n\n

This is property zoned for living. Examples include single-family homes, condominiums, and duplexes.<\/p>\n\n\n\n

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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

\u27a1\ufe0f Revocation<\/h3>\n\n\n\n

This occurs when an offer is withdrawn by a buyer.<\/p>\n\n\n\n

\u27a1\ufe0f Transaction brokerage<\/h3>\n\n\n\n

A brokerage that serves both the buyer and seller in the same transaction.<\/p>\n\n\n\n

\u27a1\ufe0f Termination by the parties<\/h3>\n\n\n\n

When parties involved in a sales contract agree to terminate it.<\/p>\n\n\n\n

\u27a1\ufe0f Termination by performance<\/h3>\n\n\n\n

When a contract is terminated due to the nonperformance of the parties\u2019 obligations.<\/p>\n\n\n\n

\u27a1\ufe0f Time expiration<\/h3>\n\n\n\n

When a contract terminates at a stated time.<\/p>\n\n\n\n

\ud83d\udd11 Real Estate Purchase and Offer Terms<\/h2>\n\n\n\n

The offer and purchase phase of the sales process is crucial. You must get these steps right if you want to facilitate and close a sale successfully. <\/p>\n\n\n\n

Understanding the terminology behind each step of the purchase and offer process will help you navigate this period with accuracy and speed.<\/p>\n\n\n\n

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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

\u27a1\ufe0f Acceptance<\/h3>\n\n\n\n

An offer that is approved by both the buyer and seller is called acceptance.<\/p>\n\n\n\n

\u27a1\ufe0f Adjustable-rate mortgage (ARM) mortgage<\/h3>\n\n\n\n

An adjustable-rate mortgage is a form of property financing where the interest rates can change after an initial fixed-rate period. <\/p>\n\n\n\n

These interest rates will be adjusted based on the interest rate index the ARM is tied to\u2014for example, this could be LIBOR or COFI. <\/p>\n\n\n\n

This type of loan is more unpredictable than a fixed-rate monthly mortgage payment but can result in lower interest rates during certain periods.<\/p>\n\n\n\n

\u27a1\ufe0f Approval of title<\/h3>\n\n\n\n

A title search is conducted by a title company to confirm that the property owner named in the transaction holds a clear or approved title.<\/p>\n\n\n\n

\u27a1\ufe0f Assignment<\/h3>\n\n\n\n

This is when a homebuyer assigns their rights in a real estate contract to another buyer.<\/p>\n\n\n\n

\u27a1\ufe0f Bridge loan<\/h3>\n\n\n\n

This temporary loan is used to \u201cbridge the gap\u201d between buying an asset and acquiring permanent financing. <\/p>\n\n\n\n

Bridge loans usually have high interest rates compared to regular mortgages. They are often used by sellers who need to fund a new property before selling their own home. <\/p>\n\n\n\n

\u27a1\ufe0f Buyer or seller credits<\/h3>\n\n\n\n

A purchase contract may contain agreements giving the buyer or seller credits for closing costs.<\/p>\n\n\n\n

\u27a1\ufe0f Cash-out refinance<\/h3>\n\n\n\n

Cash-out refinancing allows homeowners to turn their equity into cash. <\/p>\n\n\n\n

For example, if someone owns $100,000 in equity on a property worth $250,000, they owe $150,000. They could refinance by setting up a new $200,000 loan with their lender. This would \u2018unlock\u2019 $50,000 cash.<\/p>\n\n\n\n

\u27a1\ufe0f Closing costs<\/h3>\n\n\n\n

These are the fees associated with transferring a property. These costs vary but most often include fees charged by the lender, title company, insurers, notaries, and other closing-related companies.<\/p>\n\n\n\n

\u27a1\ufe0f Closing date<\/h3>\n\n\n\n

A purchase contract will identify the date on which the final paperwork to transfer ownership of the property to the buyer will be processed. <\/p>\n\n\n\n

The closing date is when the transfer is considered final. Typically, this date is when all required signatures from each party are executed, and all money has been disbursed. <\/p>\n\n\n\n

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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

\u27a1\ufe0f Contingencies<\/h3>\n\n\n\n

A purchase contract may contain an identification of action required by the buyer or seller before the contract is binding. Contingencies are negotiated and added to the contract with an addendum specifying what must occur. <\/p>\n\n\n\n

\u27a1\ufe0f Contract validity<\/h3>\n\n\n\n

A real estate contract must follow the requirements of a legally valid contract.<\/p>\n\n\n\n

\u27a1\ufe0f Counteroffer<\/h3>\n\n\n\n

A homeowner\u2019s response to a buyer\u2019s offer proposing changes in the terms.<\/p>\n\n\n\n

\u27a1\ufe0f Deed type<\/h3>\n\n\n\n

A deed is a written document that transfers ownership of a property to another. Deed types include general warranty, limited warranty, and quitclaim.<\/p>\n\n\n\n

\u27a1\ufe0f Earnest money<\/h3>\n\n\n\n

When a buyer signs an offer to purchase a home, they provide a deposit called earnest money that reinforces their intention to purchase. This sum will be applied to the down payment or closing costs.<\/p>\n\n\n\n

\u27a1\ufe0f Executed contract <\/h3>\n\n\n\n

A complete real estate arrangement after both parties have fulfilled their obligations and signed the contract.<\/p>\n\n\n\n

\u27a1\ufe0f Evidence of title<\/h3>\n\n\n\n

A legal document that establishes the title or ownership of a property.<\/p>\n\n\n\n

\u27a1\ufe0f Executory contract<\/h3>\n\n\n\n

An ongoing agreement made between a buyer and seller that contains obligations that haven\u2019t yet been fulfilled, such as obtaining a mortgage.<\/p>\n\n\n\n

\u27a1\ufe0f Federal Housing Administration (FHA) loans<\/h3>\n\n\n\n

Federal Housing Administration (FHA) loans are among several types of housing loans that are insured by the U.S. federal government. <\/p>\n\n\n\n

Instead of lending money to individuals, the FHA guarantees banks and private lenders that it will cover losses that may incur if the borrower fails to repay the loan in full or on time. <\/p>\n\n\n\n

\u27a1\ufe0f FHA 203k rehab loan<\/h3>\n\n\n\n

This is a loan used to renovate dilapidated properties. It combines a mortgage loan with a loan to cover the cost of repairs or updates. <\/p>\n\n\n\n

Rehab loans can be used for improvements like structural repairs or energy-related updates. These loans cannot be used for luxuries, like installing a swimming pool or tennis court.<\/p>\n\n\n\n

\u27a1\ufe0f Financing<\/h3>\n\n\n\n

Obtaining a mortgage or another form of funding to purchase a property.<\/p>\n\n\n\n

\u27a1\ufe0f Fixed-rate mortgage<\/h3>\n\n\n\n

A fixed-rate mortgage is when the lender agrees to charge the same interest rate for the duration of the loan. Fixed-rate mortgages are usually available as 10, 15, 20 and 30-year loans. <\/p>\n\n\n\n

\u27a1\ufe0f Home equity line of credit (HELOC)<\/h3>\n\n\n\n

A home equity line of credit is a loan that enables homeowners to borrow money against their home\u2019s equity. <\/p>\n\n\n\n

Lenders will expect you to agree to a maximum borrowing amount in a certain time period. <\/p>\n\n\n\n

There is usually a minimum amount that you can borrow\u2014this is often around $35,000. <\/p>\n\n\n\n

The two most common uses of HELOC loans are paying for home renovations and upgrades, or consolidating other debts. <\/p>\n\n\n\n

\u27a1\ufe0f Inspection<\/h3>\n\n\n\n

After an offer has been accepted, there is typically an inspection period or a time in which the buyer can fully assess the property. <\/p>\n\n\n\n

During this time, the buyer may ask the seller to complete repairs or negotiate concessions for repairs or improvements to be completed after closing.<\/p>\n\n\n\n

\u27a1\ufe0f Jumbo loan<\/h3>\n\n\n\n

Each year in January, the Federal National Mortgage Association (Fannie Mae) and The Federal <\/a>Home Loan Mortgage Corporation (Freddie Mac) set conventional loan limits. The limit for 2024<\/a> is $766,550. Any loan that exceeds these limits is known as a nonconforming jumbo loan.<\/p>\n\n\n\n

\u27a1\ufe0f Negotiation<\/h3>\n\n\n\n

When a buyer, seller, and their representatives reach an agreement on the terms of the sales contract.<\/p>\n\n\n\n

\u27a1\ufe0f Offer<\/h3>\n\n\n\n

A proposal by a buyer to a homeowner describing the terms for purchasing a home. Offers may be for fair market value or full asking price. In the event that a seller offers a counteroffer, the buyer may accept or reject the proposed terms. <\/p>\n\n\n\n

\u27a1\ufe0f Possession date<\/h3>\n\n\n\n

A purchase contract will identify the date the seller will give the buyer the right to start occupying the property.<\/p>\n\n\n\n

\u27a1\ufe0f Pre-approval<\/h3>\n\n\n\n

Pre-approval is when a lender confirms a buyer\u2019s creditworthiness before signing a purchase contract. <\/p>\n\n\n\n

When a buyer applies for pre-approval, the lender will assess their creditworthiness and provide a letter stating how much they are willing to lend them and the total sales price they are approved for.<\/p>\n\n\n\n

The lender will also tell the buyer what down payment they need to make and what interest rate they need to pay on the loan. <\/p>\n\n\n\n

Most sellers expect to see the buyer\u2019s pre-approval letter when they make an offer.<\/p>\n\n\n\n

\u27a1\ufe0f Principal<\/h3>\n\n\n\n

The principal balance is the amount of money a homeowner owes to their lender, not including interest. <\/p>\n\n\n\n

Buyers usually pay off part of the principal plus interest each month. Payments usually go toward paying off interest first; the remaining money then pays the principal balance. <\/p>\n\n\n\n

\u27a1\ufe0f Property condition<\/h3>\n\n\n\n

Home inspectors evaluate the structure and systems in a property to verify its status or condition.<\/p>\n\n\n\n

\u27a1\ufe0f Prorations<\/h3>\n\n\n\n

This is the allocation of monetary items at the closing of a real estate transaction. For example, the buyer must pay the seller for any property taxes the seller has already paid for the months the seller will no longer own the home.<\/p>\n\n\n\n

\u27a1\ufe0f Purchase and sale agreement (PSA)<\/h3>\n\n\n\n

The purchase and sale agreement is the written contract between a buyer and seller outlining the terms of each party when selling and purchasing a property. <\/p>\n\n\n\n

If the buyer and seller have made a formal commitment to sell or purchase a property, it is said to be \u201cunder contract.\u201d<\/p>\n\n\n\n

A purchase agreement is typically the last document signed by buyers and sellers, as this is the contract that documents the transfer of the property from one party to another.<\/p>\n\n\n\n

Additionally, a purchase agreement may state terms like sale price, appliances that will stay in the property, and when the buyer will take possession of the home.<\/p>\n\n\n\n

\u27a1\ufe0f Trust sale<\/h3>\n\n\n\n

A trust sale is when a property is sold by a member of a living trust and not a private seller. The most common reason for this situation is that the original homeowner passed away after having placed assets in a living trust.<\/p>\n\n\n\n

Trustees are often not as emotionally attached to a property as a private owner would be. This can sometimes lead to them accepting a lower offer in a bid to offload the property.<\/p>\n\n\n\n

\u27a1\ufe0f Veteran Affairs (VA) loan<\/h3>\n\n\n\n

The government\u2019s Department of Veteran Affairs guarantees low or no-down-payment loans for active and retired military personnel and eligible spouses. The veteran applying for the loan can also get competitive rates and fees.<\/p>\n\n\n\n

\ud83d\udd11 Real Estate Commission Terms<\/h2>\n\n\n\n

If you\u2019re a real estate agent, you must understand how commission works to know how you\u2019ll be paid. <\/p>\n\n\n\n

Brokerages also need to grasp key commission terminology to ensure they manage the different types of commission splits correctly. After all, paying your agents late or incorrectly could result in them leaving your brokerage.<\/p>\n\n\n\n

Here are some key definitions that both brokers and agents need to know regarding commission.<\/p>\n\n\n\n

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\u27a1\ufe0f Cap<\/h3>\n\n\n\n

Also known as the capitalization rate, cap is used to help evaluate a real estate investment.<\/p>\n\n\n\n

\u27a1\ufe0f Client rebate<\/h3>\n\n\n\n

This is a portion of the commission that is paid to a buyer after closing. Not legal in all states, this offer by an agency may require more effort on the part of the buyer. <\/p>\n\n\n\n

To help increase business volume, these cut-rate agencies may skip showings, inspections, and even closings.<\/p>\n\n\n\n

\u27a1\ufe0f Commission advance<\/h3>\n\n\n\n

Based on pending real estate transactions, a real estate agent may receive a portion of the commission they are owed from a broker as an advance.<\/p>\n\n\n\n

\u27a1\ufe0f Commission disbursement authorization (CDA)<\/h3>\n\n\n\n

A Commission Disbursement Authorization<\/a> (CDA) is a form executed at closing that authorizes payment of commissions.<\/p>\n\n\n\n

\u27a1\ufe0f Commission instructions<\/h3>\n\n\n\n

These are the terms of the commission agreed to by everyone involved in a real estate transaction, including brokers and agents.<\/p>\n\n\n\n

\u27a1\ufe0f Concessions<\/h3>\n\n\n\n

This is a benefit or discount offered by the real estate agent to help sell a property. <\/p>\n\n\n\n

An agent may agree to provide a commission discount from two percent to three percent, for example, the proceeds of which go toward closing costs.<\/p>\n\n\n\n

\u27a1\ufe0f Coop brokerage<\/h3>\n\n\n\n

A brokerage where real estate agents pool their funds to pay for the running of the office.<\/p>\n\n\n\n

\u27a1\ufe0f Deduction<\/h3>\n\n\n\n

Any fee subtracted from a commission amount.<\/p>\n\n\n\n

\u27a1\ufe0f Earnest money deposit<\/h3>\n\n\n\n

When a buyer signs an offer to purchase a home, they provide a deposit called earnest money that reinforces their intention to purchase.<\/p>\n\n\n\n

\u27a1\ufe0f Escrow<\/h3>\n\n\n\n

Money held by a third party for a specific purpose. For example, a mortgage lender could hold advance property tax payments until taxes are due.<\/p>\n\n\n\n

\u27a1\ufe0f Fee<\/h3>\n\n\n\n

Any monies paid to the parties involved in a real estate transaction.<\/p>\n\n\n\n

\u27a1\ufe0f Flat fee<\/h3>\n\n\n\n

A method for paying real estate agents that involves a specified fee being paid to them by the brokerage rather than a percentage of the sales price.<\/p>\n\n\n\n

\u27a1\ufe0f Franchise fee<\/h3>\n\n\n\n

This is a fee that a broker pays to own and operate a franchised real estate office.<\/p>\n\n\n\n

\u27a1\ufe0f Gross commission<\/h3>\n\n\n\n

This is the total amount of commission paid to brokers involved in a real estate transaction. The amount is often split between the listing agency and the buyer\u2019s agency. <\/p>\n\n\n\n

For example, if the purchase price were $200,000, a 6% gross commission would yield $12,000, divided equally (or at another agreed-upon percentage) between the real estate professionals representing the buyer and seller. <\/p>\n\n\n\n

Commission percentages are negotiable and may depend on the number of days a property has spent on the market. <\/p>\n\n\n\n

An agency might accept a lower commission percentage if a home is sold within 30 days, for example, since listing expenses will be lower under those circumstances.<\/p>\n\n\n\n

\u27a1\ufe0f Home warranty<\/h3>\n\n\n\n

A service contract that pays for repairs to home systems and appliances.<\/p>\n\n\n\n

\u27a1\ufe0f Net commission<\/h3>\n\n\n\n

The total amount of commission paid to a real estate agent. This is after the split of the gross commission between the brokerages involved and the split between the agent and their broker.<\/p>\n\n\n\n

\u27a1\ufe0f Pay at closing<\/h3>\n\n\n\n

Various fees are paid by buyers and sellers at closing. There can be title search fees, transfer taxes, points, or a fixed percentage of the purchase price paid up front to lower an interest rate.<\/p>\n\n\n\n

\u27a1\ufe0f Referral<\/h3>\n\n\n\n

When an individual recommends a real estate agent to another home buyer or seller.<\/p>\n\n\n\n

\u27a1\ufe0f Royalty fee<\/h3>\n\n\n\n

Ongoing fees paid by a franchisee to a franchisor.<\/p>\n\n\n\n

\u27a1\ufe0f Split<\/h3>\n\n\n\n

This describes the terms of the distribution of commissions between brokers and their agents. This could be a fifty-fifty arrangement or another percentage agreed upon between both parties.<\/p>\n\n\n\n

\u27a1\ufe0f Table funding<\/h3>\n\n\n\n

A type of loan funding where a loan originator processes the loan and then transfers it to a lender at the closing table.<\/p>\n\n\n\n

\ud83d\udd11 Real Estate Compliance and Regulation Terms<\/h2>\n\n\n\n

Real estate professionals carry the responsibility of remaining compliant at all times. There are also many industry regulations that firms must comply with. <\/p>\n\n\n\n

Here are some key terms associated with remaining compliant and abiding by regulations to protect your real estate business.<\/p>\n\n\n\n

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\u27a1\ufe0f Audit<\/h3>\n\n\n\n

This is when a professional conducts a review of an individual\u2019s or business\u2019s financial statements. An auditor will consider all your finances and ensure your real estate firm is compliant.<\/p>\n\n\n\n

\ud83d\udca1 Top Tip: Stay Audit-Ready with Paperless Pipeline<\/strong>
Paperless Pipeline ensures that your real estate company is always audit-ready and compliant.

You get free monthly backups that are prepared for you automatically, so you\u2019ll never have to worry about not having the data you need for an audit.

Additionally, you\u2019ll always have an audit trail with our software, and you have the control to ensure only the right people are able to access certain private information.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
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Source: Freepik<\/a><\/figcaption><\/figure>\n\n\n\n

\u27a1\ufe0f Broker’s compliance procedures<\/h3>\n\n\n\n

Real estate compliance<\/a> is a critical part of managing a real estate company. A broker is mandated by law to oversee their real estate agents\u2019 actions to ensure they comply with local, state, and federal rules and regulations.<\/p>\n\n\n\n

\u27a1\ufe0f Data management<\/h3>\n\n\n\n

This involves organizing, protecting, and processing data related to a real estate transaction.<\/p>\n\n\n\n

\u27a1\ufe0f Due diligence<\/h3>\n\n\n\n

In real estate, this is typically the action taken by the buyer of a property to confirm the condition of the property. <\/p>\n\n\n\n

It\u2019s a period of about 10 to 30 days where the buyer has the opportunity to inspect a property and ensure they\u2019re ready to commit to the transaction. Due diligence usually occurs once a property has gone under contract and before closing.<\/p>\n\n\n\n

\u27a1\ufe0f Equal Credit Opportunity Act (ECOA)<\/h3>\n\n\n\n

This is a federal act that prevents lenders from discriminating against applicants because of their:<\/p>\n\n\n\n