10 Real Estate Terms You Need To Know To Make It Towards Real Estate Fluency

Are you interested in real estate investment but you feel kind of overwhelmed and bewildered by the avalanche of real estate terms involved with all that is real estate?

Then before even starting going any step further with your investment and even before hiring a real estate agent, you need to make sure first your glossary is packed with all the terminologies you need to make it through your first investment.

We rounded up 10 of the most important real estate terms that guarantee you a real estate fluency.

1- Due Diligence

Have you found a house you really like?

Did you settle on closing the deal?

Are you 100% sure this is the right purchase?

If your answer on all of the above is a crystal clear YES; then congratulations on your new house.

However, there is one more step you need to take before your purchase your home.

The due diligence stage is an extremely important phase in the buying process and is usually done prior to signing the agreement contract.

This is where sellers allow buyers to inspect the house and the surrounding neighbourhood.

It is a comprehensive appraisal of the asset before going any further with the purchase.

So, make sure you check everything so as not to get scammed by hidden repairs, for instance, you weren’t told about.

2- Escrow Account

An Escrow Account is known in real estate terms as a holding tank.

During a real estate transaction, an escrow account is usually an amount of money held by a third party on behalf of the transaction parties.

A buyer then deposits a certain amount of money to ensure the seller his capability to close the deal until all the due diligence and all other conditions of the sale are finalised then the money is transferred to the seller.

On another context, an Escrow Account also means a trust account that your bank uses to pay your obligations such as taxes, interests and down payments.

In case you were late on your payments, the bank uses the Escrow Account to pay your late bills on your behalf.

3- Closing Costs

Closing costs in real estate terms are referred to money paid at the end of a real estate transaction.

Some of these costs as recurring such as tax fees and insurance fees and others are non-recurring such inspection fees, brokerage commission, Creation of loan fees…etc.

4- Contingency Clause

A contingency clause in real estate terms is usually put in a real estate contract.

The clause clearly states that involved parties have the right to back out of a sale if certain criteria are met with the purchase.

This makes the selling process contingent to certain terms that usually fall under inspection, appraisal and mortgage.

For example, a buyer can back out from proceeding with a real estate transaction if home inspection showed the house was of unfavourable conditions to be bought with the asking price, and all will be done without losing the deposit paid.

5- Appraisal

A house appraisal is usually done by an Appraisal Management Company that has the abilities to evaluate the worth of the property.

In this stage, the appraiser will determine the real value of the property through comparing it with similar sales that have been made in the same area as well as the house inspection phase.

This step is crucial as it will determine the loan amount you are allowed to get from the bank based on the appraisal report.

6- Abstract of Title

All property buyers should request this piece of document before going further with a sale.

Abstract of title is a brief history that lists all the legal actions the have been taken with regards to the property you are about to buy.

Without the abstract of title, you might get fooled by the legal status of the property.

7- Alligator Property

Let’s say you are an investor who decided to buy a property to let.

If the money you pay for mortgage, taxes, repairs and insurance …etc is way more than the rental income then your property is then known as the alligator property.

Alligator properties are the type of properties that eat up all of the profits you gain, leaving you with nothing.

It is the type of the investment that leaves investors with negative cash flow.

8- Capitalization Rate

It is the rate of the return on investment and it can be easily calculated sp that buyers are aware of their potential return on their investment.

Just divide Net Operating Income (the revenue a property makes) minus all operating fees (expenses required to maintain and run a property)by the current value of the property and you get your return on investment rate.

For example, if you bought a property for 900,000 BHD and expect the property revenues per year will reach 125,000 BHD, then the capitalization rate will be calculated as follows

Net Operating Income (125,000 BHD) / Market value (900,000 BHD)

= 1.389 (13.89% per year

9- Appraised Value

As mentioned earlier, an appraisal management company is hired by the lender (bank) to appraise the property and estimate an appraised value.

Based on the resulted value, the bank will determine the value of the loan buyers get to have.

The loan to value ratio (LTV) is usually based on the appraised value.

10- Curb Appeal

Curb Appeal is the enhancements a homeowner have made to bump up the house and add to the attractiveness of the real estate.

Let it be replacing fixtures, freshening up the house’s entry, paint trimming or landscaping, all of these adjustments play an important part in raising the property value.

To learn more about real estate investment see also:

3 Most Profitable Types of Real Estate Investment

Why Should You Invest in Real Estate? Think Long Term

7 Real Estate Myths You Probably Thought Were True