In every industry, there are always technical terminologies and special words or expressions that are used which are difficult for others to understand. In a real estate industry, talking money and investment with property owners, agents, or even other real estate investors need a minimum understanding of the most important terms in this business.
Though there are several hundreds and dozens of real estate jargons, we compiled here a list of the most popular terms related to real estate industry. This aims to provide new investors and agents with the needed kit they’ll have to use while searching for properties and closing deals,
Private mortgage insurance (PMI) – is an insurance premium that the buyer pays to the lender in order to protect the lender from default on a mortgage. These insurance payments typically end once the buyer builds up 20% equity in a home.
Possessory Lien – it is an agreement where it allows the creditor to continue his or her possession to the property until the debt is satisfied. It may or may not be combined with the power of sale.
Absorption rate – is the rate at which homes sell in a specific market over a given period of time, usually a month.
Option Money – it is the consideration paid by the buyer in case of an option contract. It does not form part of the purchase price thus, if the buyer did not continue with the sale it cannot be recovered.
Credit Report – A report issued by a specialized agency that displays the credit history of any individual. Credit reports are used by creditors to find out the credit-worthiness of applicants.
Loan to value ratio – The proportion between the amount of borrowed money and the real value of a property. In some situations when the loan to value ratio is high, the lender charges high insurance rate plus mortgage insurance.
Alienation Clause – A provision that requires the borrower to pay the balance of the loan amount in a single large installment after the property is sold or transferred.
Dejure Possession – Also known as Juridical Possession, it means possession in the eyes of the law.
Greased Lease Back – The disposal of the interest on a property by a freehold or leasehold owner where the rent is geared to a fixed percentage of some variables.
Comparative market analysis = Comparative market analysis (CMA) is a report on comparable homes in the area that is used to derive an accurate value for the home in question.
Capitalization Rate – it is used in making decision whether to accept or reject an investment based on the expected income that the property will generate. It is computed by dividing net operating income produced by the asset over the original capital cost of the asset- the price which will be paid to buy the asset.