The Everyman’s Real Estate Dictionary

When trying to sell your house, it can be easy to get bogged down in all the real estate jargon. Real estate agents can help explain some of it, but by the time you have one you have more important things to worry about than deciphering what they are saying.

We did some of the leg work for you and found some of the common terms and phrases that can be a little confusing when it comes to real estate.

Addendum

These are commonly part of rental agreements. They can include non-smoking clauses, lock-out fees, roommate regulations, guest policies, laundry room policies and more. You want to make sure you read them thoroughly and understand them before you sign the lease. They are legally valid, as is the rest of the lease. They are also referred to as riders or appendices.

Board Package

With certain apartments in condos or co-op buildings, you may need to submit a version of a board package to the building’s board of directors if you are looking to buy/sublet. It details your financial history, current worth, and earnings with documentation including your job/salary history, any investing portfolios, recommendations, tax returns, and more. These are much more extensive than the screening done by most property managers for a rental building.

Broker Fee

This is common in New York City (and other large cities). Real estate brokers will charge a fee for finding you a rental apartment. This covers them finding and showing you apartments and helping with the paperwork. It is usually equivalent to one or two months rent, or 10-17% of the years rent.

Buyer’s Agent vs. Listing Agent

The listing agent represents the person who is looking to sell the home. The buyer’s agent represents the person looking to buy a home. The key thing to remember when buying a home: your agent doesn’t get paid until the sale is complete. They get a commission from the home seller. There is also a thing called dual agency, where one person represents both sides

Fixed Rate vs. Adjustable Rate Mortgage

Most loans include fixed or adjustable rate mortgages. Fixed rate means the interest rate is decided in the beginning and it stays the same throughout the life of the loan (around 30 years). Adjustable rate mortgages have interest rates that can vary depending on the market. These loans tend to be shorter, between 5 and 10 years.

Closing Costs

Closing costs are a common part of real estate transactions. They are usually 2-5% of the purchase price of the home (not including the down payment). This covers things like the excise tax, loan processing costs, and title insurance.

Contingencies

This term has several different meanings, but in real estate it refers the specific conditions that must be met before the deal goes through. You set these when putting an offer on the house. They typically include financial (you getting the loan), inspection (there is nothing seriously wrong with the house), and appraisal (the appraised value is close to what you are offering). Those are the common ones, but there are many others you can discuss with your agent.

Debt to Income Ratio (DTI)

This is the thing mortgage lenders use to see how much you can afford to pay monthly for your mortgage. It is the total of your debt expenses (including monthly housing payments) divided by your gross monthly income. Multiple this by 100 and you get a percentage. Lenders prefer people who pay 28% or less to housing and 36% or less on debt payments. If you think your percentages might be higher, consider adjusting your budget.

Due Diligence

This term has a similar meaning both in and out of real estate. It means you take the time to make sure you know what you are getting into. The due diligence time period is negotiated in the purchase contract, where the buyer examines the home. i.e. the inspection.

Escrow

Escrow is the unbiased third party that watches the transaction. They hold all of the funds, instructions, and documents related to the purchase of the home during the sale process. This includes the earnest money, down payment, documents for the sale and loan, hazard and title insurance, and the deed from the seller. They also ensure the signatures on the final paperwork, disburse the funds, and oversee the transfer of the deed.

Equity

This is the market value of the home minus any mortgages or liens against the property. It is the investment the homeowner has in their home. Building equity is important because it allows the homeowner to leverage it as a financial asset. It can help you get loans to help with home repairs, sending your kids to college, or paying off a higher interest debt.

Pre-Approval Letter

You get the pre-approval letter from your bank. This is an estimate of how much they are willing to lend you. Having this will help you figure out what you can afford, and it helps to assure the home sellers that you will be able to get the loan. Make sure to ask the bank about closing costs, fees (and what you get for those fees), and what the interest rate will look like.

Title Insurance

This is typically part of the closing costs. The title insurer searches the public record to make sure the person selling the home a) has the right to the title for the home and b) that there are no liens on the house. This could be an unpaid contractor or even unpaid taxes. You don’t want to skip this step.

Hopefully you will find this list helpful in preparing you to take that first step towards selling your house.