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2 February 2017

Critical Real Estate Terms to Know

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The real estate industry has its own language. There’s a vast array of real estate terminology every real estate agent must know and fully understand in order to work efficiently and to grow successfully.  As such, learning the industry can be quite daunting and confusing, but it doesn’t have to be. With this cheat sheet, you can quickly learn the most important real estate terms, and reference back to them as needed. Over time, the real estate terminology will come to you like your native tongue.

 

  1. Amortization

The decrease in the value of an obscured asset over a period of time.

  1. Annual Percentage Rate (APR)

The yearly amount charged for borrowing (or investing), which represents the annual cost of funds (or income from an investment) over the term of a loan.  The APR is expressed as a single percentage value.

  1. Arrears

When a payment on a debt, such as a mortgage, has been missed. For example, a mortgage is in arrears if payments have not been made.

  1. Asset Management

The process of maximizing the market value of the property, so the owner can have a higher return on investment.

  1. Capital

Financial resources available, which can be used to invest in real estate.

  1. Capital Gains Tax (CGT)

The government regulation put in place to limits how much capital can be used for an investment, and how much tax income can be generated from the investment.

  1. Caveat Emptor

A term from the Latin language that means “let the buyer beware”. It essentially means to remind buyers to finish their due diligence when purchasing real estate.

  1. Closing
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The process of the sale of a property being completed.

  1. Closing Costs

The total amount of miscellaneous expenses and fees paid by the homebuyer (unless otherwise stated and agreed upon) when a real estate deal closes.

  1. Comparative Market Analysis (CMA)

A report of similar homes in the area that are either currently on the real estate market, or that recently sold. The information collected is used to aid in the process of determining a value of the home.  CMA’s are also referred to as “comps”.

 

  1. Consumer Price Index (CPI)

The average amount of price change for goods and services in which consumers have paid for.

  1. Contingency

Managing the risk of an investment, such as the potential drop in the real estate market

  1. Conveyancing

The process within real estate where the property is transferred between a buyer and a seller. This process requires a written contract that details the agreement, responsibilities of both parties and date of transfer.

  1. Covenant

A condition put in place within real estate property title or deed that limits and/or prevents someone from using the property for specific purposes.

  1. Depreciation

The result of a property decreasing in property value due to poor real estate market conditions.

  1. Due Diligence

The process of taking reasonable steps in order to satisfy the real estate laws, such as examining and signing the contract of sale.

  1. Earnest Money Deposit

A payment made to the seller in “good faith” to show that you’re serious about buying their property. It’s refundable if the offer is not acceptable, and if it is acceptable, the payment will count towards the down payment.

  1. Easement
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The right to use someone else’s property, typically for an agreed fee. This can affect the value of the property.

  1. Egress/Ingress

The right to exit or enter a property, typically relating to an easement, such as a shared driveway.

  1. Encumbrance

A charge on properties or assists, such as a mortgage.

  1. Equity

The difference between the real estate market value of a home, and the unpaid balance of the mortgage.

  1. Escrow

The process of funds being held on behalf of another party participating in a transaction. For example, funds are often put in an escrow account when purchasing a home, and are only released to the seller once all conditions of the transaction are completed.

  1. Force Majeure

Unforeseeable events that prevent someone from fulfilling a contract. For example, a natural disaster destroying a house your client just purchased would likely result in a force majeure.

 

  1. Gross Rental Yields

The gross rental income received annually, expressed as a single percentage value of the property purchase price.

  1. Lien

The right to retain possession of a property that someone else owns until a debt owed is cleared.

  1. Negative Gearing

The process of borrowing money to make an investment on an income-producing property, such as a rental unit, with the expectation that the gross income received from the property will be less than the cost of owning and managing the investment.

  1. Property Valuation

The process of determining an independent opinion of the value of a property.

  1. Real Estate Investment Trust (REIT)

A company that owns, and typically operates income-generating real estate, such as rental properties, apartment buildings, etc.

  1. Tenants in Common
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The process of owning a property with two or more individuals. Each co-owner has equal rights and use of the property.

These common real estate terms are used across the real estate market. With proper knowledge of each, you will have a better understanding of real estate and as a result, can work more efficiently and effectively throughout the buying and selling process.

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