Real Estate Investing: 10 Real Estate Terms To Know

Published on
July 31, 2022

For seasoned real estate investors, and those just getting started, it can be a challenge to keep up with all of the important terms and phrases. Even if you’re just looking to buy a home, knowledge is power.

If you've ever invested in real estate, chances are you know a few of these terms, but surprisingly, even seasoned professionals use these real estate terms in the wrong context. Oftentimes, even your real estate agent may find themselves Googling a term they’ve never heard before.

The following are ten real estate terms to know for investors, buyers, sellers, and real estate agents:

1) Lien

This is an unpaid debt on a piece of property. It's a legal notification that indicates legal action taken by a lender to recover any owed debt. This can be put in action via unpaid taxes, court decree, or simply unpaid bills. If not resolved, it can significantly delay the home buying process.

2) Escrow

Escrow is when a third party holds something of value during a real estate transaction. In real estate, this is typically the buyer's money, property taxes, and insurance. When the transaction has been finalized, these funds will then be released to the seller. This is usually done by the title company you work with.

3) Staging

Staging is when an interior designer comes and rearranges the property's furniture or brings in new furniture to make the property more appealing to most people. This helps potential buyers envision what the house could look like with them living there. A recent study suggests that homes that use staging can sell 3x faster than homes that do not!

4) Per Diem

Per diem means per day, and it refers to the daily fees charged if a loan isn't approved by the date the loan was scheduled to be completed. The charges are typically paid to the lender at the closing phase. Not understanding this particular phrase can prove to be costly.

5) Home Value Report

A home value report is also sometimes known as competitive market analysis or CMA. It's created by the organization or individual that evaluates the value of your home and makes a recommendation on the suitable listing price. These reports take into account a few things, such as the price for which similar homes have sold in your local area.

6) Due Diligence Period

This is the period after an offer is accepted, and the buyers bring in inspectors and really test the home. This is to ensure that the buyer is getting everything they can out of the purchase and the entire home is looked over. They'll inspect key elements such as foundations, roof, light switches, plumbing, etc. Typically the due diligence period will last from 7 to 45 days.

Once this inspection is over, the details will be put into a report and turned over to the sellers of the property if there are issues that need to be fixed.

If they don't want to fix them, the sellers could lower the sale price, allowing the buyers to fix the issue after the transaction is complete. It's important to note that buyers can back out of the deal during the due diligence period.

7) Adjustable-Rate Mortgage

With an  Adjustable-rate mortgage, or AMR, the rate will change periodically. Your monthly mortgage payments could start off pretty low compared to a fixed-rate mortgage, but interest rate changes will affect these monthly payments and could make them rise in the future. AMR’s give you the opportunity to speculate whether you think interest rates will go up or down.

8) Homeowner's Association

Homeowner Associations are usually present when you purchase a development property. Sometimes you have to join them in order to buy the property, and you typically pay annual or monthly fees, which will cover maintenance, repairs, and upkeep of the amenities of the neighborhood or apartment building. It's also the name of our very own NFT collection.

9) Fixed-Rate Mortgage

This is the most popular type of home loan. The interest rate will remain the same for the entire loan duration. It's attractive to many people for its stability and security over the lifetime of the loan. Mortgage payments can still change depending on property taxes and as homeowner's insurance changes. In general, this type of mortgage ensures less volatile changes for those taking the loan. There’s always a crypto mortgage, as an alternative!

10) Fair Market Value

Fair market value is generally considered the most accurate valuation in a free and open market. It's the price of an asset under certain conditions, such as prospective buyers and sellers knowing the asset, acting in their own best interests, having no external pressures to buy or sell, and being provided reasonable time to transact.

11) Bonus: Equity Line of Credit

Otherwise known as HELOC, this is a line of credit that uses the equity in your home as collateral. You'll be given credit depending on your equity proportion, your credit score, and your debt-to-income ratio. HELOCs tend to have better interest rates than credit cards or loans.

Shared content and posted charts are intended to be used for informational and educational purposes only. Parcl does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. Parcl does not accept liability for any financial loss or damages. For more information please see the terms of use.

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