Your Real Estate Glossary

Starting the process for buying or selling a property can be daunting. That’s where our agents come in; we’re here to help you through the entire process. There are no bad questions or ideas when it comes to working with us! We’ve been through the buying and selling process countless times and are here to support you—even if you just need to know the definition of a word.

There are dozens of industry terms when it comes to real estate, and we don’t want you to be in the dark. Here are some of the most important terms to add to your real estate glossary:

Appraisal

An appraisal is an assessment of a property performed by a professional appraiser. It informs the seller and buyer of a property’s value and confirms whether the pricing of the home is fair. It also impacts the property tax, mortgage lender decisions, and other financial aspects of the buying and selling process.

Broker

A broker is a real estate agent with a more advanced license. Brokers have all the responsibilities of a typical agent while also overseeing other agents and their transactions. Additional responsibilities of a broker may include mediating conflicts and managing a real estate brokerage with multiple agents to working under their purview.

Closing & Closing Costs

The closing is when the financial transaction is completed and ownership is transferred from the seller to the buyer. This transaction happens on an agreed-upon day called the closing date and comes with closing costs to be paid upfront. These costs may include fees for the appraisal, attorney, and escrow funds.

Collateral

Collateral is what you risk in return for a loan. With a mortgage, for example, your home is the collateral; if you fail to make mortgage payments, you risk foreclosure on your home, at which point the lender takes ownership of it.

Contingent

In real estate, when something is contingent, it means the sale is dependent on certain conditions. For example, if a sale is contingent on an inspection, it means that if that inspection uncovers things that are unfavorable to the buyer the buyer has the ability to pull out of the sale. Another example of contingency is a case where the buyer needs to sell their current home before they close on their new home.

Equity

Your home’s equity is the money you invested in your home so far, between your down payment and regular mortgage payments. To calculate this number, you can subtract your outstanding mortgage balance from the market value of your home. You can leave your equity in your home, or you can use that equity for home equity loans, home equity lines of credit (HELOCs), and cash-out refinancing to consolidate debts or pay for renovations, emergency medical expenses, or tuitions.

Inspection

An inspection is different from an appraisal but occurs around the same time. During an inspection, a professional inspector visits the home to check for any issues like mold, broken appliances, and structural problems. Their experience prepares them to see issues that might not be visible to the naked eye, giving buyers the opportunity to renegotiate their offers if needed.

Market Value

A home’s market value is the amount a potential buyer would be willing to spend on the property. Agents compare your property to other similar ones on the market and take its size, location, condition, and the state of the market into consideration to determine a fair price for your listing.

Mortgage

Your mortgage is the type of loan you receive from a bank or mortgage lender to finance the property you’re purchasing. It uses your property as collateral to ensure you make payments toward your mortgage on a monthly basis. 

Pending

When a property is pending, it means that a buyer has submitted an offer and the seller has accepted it, but the purchase is not officially closed. At this point, multiple steps need to be taken before the property is officially taken off the market, including setting the final closing date and the transfer of funds. During this time period, there are several possibilities for a property to once again become active: the buyer’s mortgage lender falls through, certain contingencies are not met, or one of the parties decides to back out of the deal.

Pre-Approval

Most buyers financing a purchase must get pre-approval before they make an offer on a property. A pre-approval letter informs the buyer what the mortgage lender is willing to lend, giving sellers proof that the buyer can afford the property.

Principal

Principal is the amount of money a homeowner owes a lender, not including interest. To calculate your principal, subtract the amount you paid toward your mortgage from the total amount you originally owe on the loan.

Rate Cap

A rate cap is a limit on the interest rate that comes with an adjustable-rate mortgage (ARM). This contains the amount your interest rate can increase or decrease while you’re paying down your mortgage. A rate cap specifically applies to adjustable-rate mortgages, but there are typically three types of caps: initial adjustment caps, subsequent adjustment caps, and lifetime caps.

Transfer Tax

When a property is transferred from one owner to another, the buyer has to pay a state or local tax at the time of closing. As of August 1, 2024, property transfer taxes in Vermont have changed, increasing the tax rate for second homes and lowering them for primary residences. Read more about these changes in our article.

Walk-Through

A walk-through is a clause that allows a buyer to take a final look at the property immediately before closing to ensure all necessary updates and contingencies have been met. This gives the buyer a final opportunity to pull out of the sale or renegotiate should they see fit.

Understanding these key real estate terms will help you navigate the buying and selling process with confidence. While the terminology may seem overwhelming at first, having this knowledge empowers you to make informed decisions and communicate effectively with sellers and real estate professionals. Our agents are here to clarify any uncertainties and guide you through every step of your real estate journey.