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Ten Commonly Misunderstood Real Estate Terms

Being immersed into the real estate world is hard enough. Understanding the unique real estate terms/lingo is important when dealing with business transactions because good communication is key. Here are some terms to help understand the specific terminology used.

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10 Commonly Misunderstood Real Estate Terms

1.Appraisal: This term is very commonly used but is also sometimes mistaken for other meanings. An appraisal is simply and assessment of the property to discern the price, it is done by a certified appraiser.

2.CMA (Comparative Market Analysis): A CMA also known as a comparative market analysis is a professional report that agents give to their clients. The purpose of this report is to enlighten clients on values of similar homes in or around the same area so that they can have a better understanding of what a realistic listing price is and or selling price.

3.Equity: Equity is a home owner’s interest in a property. It is the difference between the fair market value of the home or property and the amount still owned on its mortgage and other legal claims.

4.Escrow: To place something in escrow means that it is placed in the hands of a third-party until certain conditions are fulfilled. For example, a specific deposit that usually is put into escrow is the earnest money deposits. Earnest money deposits are taken out of third-party hands when they are delivered to the seller at the end of a transaction.

5.Lien: A lien is a legal claim against the property that needs to be paid off when it is sold. The new owner does not have full possession of the property until the lien is paid off.

6.Air Rights: Are the legal ability to utilize or have control over the space that is above a property. Air rights can play a huge factor because they can be sold, rented and in some cases leased.

7.Cooling off Period: Is a three-day interval for particular loan transactions. During this time if a contract is to be terminated it can be without any loss.

8.LTV (Loan to Value): Measures what percentage of a property’s appraised value or selling price is attributable to financing. LTV is examined before approving a mortgage.

9.LTC (Loan to Cost): is used to compare the financing of a project as offered by a loan to the cost of building the project.

10.ARV (After Repair Value): Is when a property is purchased in a less than great condition and is then repaired. The repairs add value to the home so that when it comes time to resell or flip, a profit can be made.

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Having a good grasp of these 10 real estate terms can be extremely helpful whether you are beginning your investment career or continuing one. Knowledge is power, the more you know the better off you will be at making the right choices for what you want. Being knowledgeable is a vital tool in any industry especially the real estate industry, so have fun and keep learning!

“Real Estate Terms.” Investopedia. N.p., n.d. Web. 27 Feb. 2017.

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