Each industry or area of work comes with a hatful of terms, sometimes called jargons. The financial world has its own, so has the legal fraternity, healthcare, IT… you name it. Unless and until you are working in a particular field or closely associated with one, you don’t necessarily need to have an understanding of these terms. No matter what your area of work is, getting familiar with the terms
used in real estate will come in handy for you, especially if you are yet to buy your first home.
Read on to know the terms commonly used in real estate and empower yourself.
Table of Contents
41 Key Real Estate Terms That You Must Know
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Appraisal:
An appraisal helps the lender to assess the actual worth of a home. This is important from the lender’s point of view to make sure that the loan amount requested by the borrower is accurate. After the appraisal, if it is found that the value of the home is inferior to the amount asked for, the lender asks the buyer to pay the difference in cost.
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Closing Cost:
A lot of buyers are not aware of the closing cost. Closing here refers to the transfer of title from the seller to the buyer. As a buyer, your closing cost may comprise the following: brokerage, inspection fee, property taxes, property insurance, stamp duty, attorney fee, loan application fee, administrative charges, and prepayment charges.
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Down Payment:
You are quite likely to be familiar with this term. A downpayment is what a buyer is expected to pay. Usually, down payment is a small percentage of the total amount of the property which you pay upfront.
Read More: Home Loan Down Payment – The Ultimate Guide!
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Escrow:
In real estate terms, a third party responsible for holding funds is called an escrow. This is a contractual agreement between the buyer and seller to make sure that certain conditions are met before the money is released to the seller.
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Homeowners Association (HOA):
An apartment complex is a community of its own. Inevitably, the smooth running of it requires certain overseeing. The Homeowners Association (HOA) becomes relevant in this context and ensures that the property is well maintained, community rules are adhered to, and periodical repairs are promptly done.
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Mortgage:
In mortgage, a loan is taken against the property. Unlike a home loan, which can be used for the sole purpose of buying a property, a mortgage loan can be used for any purpose. In mortgage loan, the lender uses the property as collateral for the money borrowed.
Read More: Mortgage Loan Vs Home Loan – What is the Difference?
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Approval:
In real estate terms, approval refers to the evaluation of an individual’s eligibility to obtain a home loan. If an individual is eligible to get a loan before he/she finalises a property, it is called pre-approval. Qualification for a pre-approved home loan is assessed by analysing various factors such as financial standing, credit history, net worth, age, as well as repayment history.
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Title:
The title of your home is the proof that states who is the legal owner of it. In other word’s your home’s title represents your rights to the property. A seller hands over the rights to the buyer when the real estate deal is in the closing stage.
Read More: What is Title Deed of Property? All You Need to Know!
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Lender:
A lender in real estate terms is a financial institution, mostly banks, that lends an individual the home loan. Indeed, it is based on various conditions agreed upon by both the lender and the borrower. The borrower is required to repay the amount to the lender with interest within the stipulated period.
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Lock-in Period:
When buyers obtain a home loan, it is agreed upon by them that the amount will be repaid with interest within a particular period. For instance, if the lock-in period is five years, the borrower can’t repay the amount before five years without incurring a penalty.
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Mortgage Banker:
A borrower can obtain a mortgage loan by contacting a mortgage banker. A mortgage banker is one who works directly with a lending institution to provide mortgage funds to a third party i.e., the borrower. He/she is also responsible for the entire mortgage process including evaluation of the property, and financial due diligence.
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Mortgage Insurance:
Intended to protect the lender, a mortgage insurance ensures that the lender doesn’t lose the amount of mortgage loan incase the borrower defaults it or passes away.
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No-cost Mortgage:
In a no-cost mortgage, the borrower is exempted from paying certain expenses such as closing costs. However, the same costs are included in the loan, requiring the borrower to pay it over time. Obviously, a no-cost mortgage will have increased monthly payments and higher interest rate.
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Commencement Certificate:
A commencement certificate is a very important document which is issued by the concerned local authority such as BBMP. The commencement certificate validates the legality of the property. The construction of the property is started only after obtaining the commencement certificate.
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Occupancy Certificate:
Yet another important document, the occupation certificate or OC certifies that a property is built as per the plans approved by the authorities. It is issued by the concerned local authorities and assures the buyer that the property has all the necessities in place such as electricity, water supply, and sanitation.
Read More: Importance of Occupancy Certificate and Completion Certificate
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Immovable Property:
In real estate terms, an immovable property is an asset that cannot be moved. For example, land, house etc. While furniture and curios are considered assets, they are easily moveable from one place to another.
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Promoter:
One of the most commonly used real estate terms, promoter is a broad term. In simple terms, any person responsible for developing and selling a real estate property is called a promoter.
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Developer:
A person or an organisation that buys land and builds houses in order to sell them and make profit is considered a developer in real estate terms. In India, many real estate organisations add ‘developers’ to their name.
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RERA:
RERA stands for Real Estate Regulatory Authority and came into existence on March 10, 2016 as per the Real Estate (Regulation and Development) Act. The aim of the act is to protect homebuyers as well as to encourage investments in the real estate sector.
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Allottee:
When something is allotted to a person, he or she is called the allottee. In real estate terms, an allottee as per RERA is “a person to whom land parcel, a building or an apartment has been sold, allotted or transferred by a promoter.”
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Acre:
A common word, often appears in real estate terms, acre is a unit of measurement of land. It equals 43, 560 square feet or 4,046.86 square metre.
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Planning Area:
An area earmarked for future development either by the respective government or a competent authority is called the planning area in real estate terms. Some of the common types of land that fall under the planning area are agricultural, non-agricultural, railway land, or planning zones, which are further divided into residential, commercial, plotting, and mixed use.
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Sanction Plan:
To start any real estate project, the developer must get approval from the concerned authority. This is obtained after the submission of a range of documents such as blueprints, site plan, service plan, parking, and circulation plan, building plan, structural plan and so on. In case of violation, the authorities have every right to impose penalties on the developer or even demolish the property.
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Built-up Area:
In real estate terms, the total area of a building is called the built-up area. It includes all areas such as balcony, terraces, utility area, etc. Wall thickness and carpet area come under built-up area. Usually built-up area is 10-15% bigger than carpet area.
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Carpet Area:
Only the floor area is counted as carpet area – an easy way to remember it is to think of covering the floor with carpets and taking measurements. All other areas mentioned above such as balcony, terraces, utility area, duct etc., don’t come under carpet area.
Read More: Understanding Carpet Area, Built-up Area, and Super Built-up Area
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Common Areas:
As is evident by the term, common areas are for all residents living in an apartment complex. Common areas include lobby, corridor, elevator, stairways, clubhouse, recreational areas, playground, etc. Each resident has equal rights to use common areas.
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FSI or FAR
FSI or FAR, respectively Floor Space Index and Floor Area Ratio, denote the maximum permissible construction on a land. If developers want to increase it, they can do it by paying an additional fee, called the FSI fee. The area developed by paying an FSI fee is known as premium FSI.
Read More: FSI (Floor Space Index): Meaning, Calculation & Importance!
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Building Byelaws
There are quite a few rules and regulations laid down by the Town and Country Planning Organisation – a body under the Ministry of Urban Development. These rules regulate various factors integral to a building such as its design, height, structural safety, etc. All these, collectively, are called building byelaws.
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Agreement to Sell
Agreement to sell, also known as sales agreement or purchase agreement, is a contract that states the intention of the developer to sell the property for money. The purpose of the agreement is to safeguard the interest of both the developer and the buyer.
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Real Estate Agent
A real estate agent, a person working under a licensed real estate agency or broker, can represent either a buyer or a seller. From a buyer’s perspective, a real estate agent is involved in some of the crucial tasks in a transaction such as sales negotiations, documentation, overseeing legal compliance, etc.
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Advance Payment
As is evident in the name, an advance payment is the money paid in advance to book the thing you intend to purchase. In real estate terms, an advance is the amount of money paid to book a property. More than 10% of the total amount required to purchase the property shouldn’t be given as advance.
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Amortization
When a home loan is sanctioned, the repayment is scheduled for a fixed period. Amortization means the fixed schedule during which the borrower repays the debts over the specified duration.
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Absolute Title
When a property is devoid of any other claims, debts or encumbrances and solely belongs to its owner, it is given an absolute title, also known as a clear title. An owner can sell, mortgage, or lease it out only if the property has an absolute/clear title.
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Valuation
While buying property, it is important to understand its potential to appreciate over the years. This assessment is called valuation. The most important factor that decides the value of a property is its location.
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Credit Score
A credit score is a 3-digit number between 300 and 900 that is used by lenders to evaluate the creditworthiness of the borrower. Various factors contribute to an individual’s creditworthiness such as repayment history, utilisation of credit, number of loans availed, etc.
Read More: CIBIL Score for Home Loan – How it Affects Your Application?
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Bare Shell
When the structure as well as flooring, plastering of walls, and installation of basic services are done in a property, it’s called a bare shell. Since a lot of customers prefer to customise their homes, some developers offer bare shells.
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Force Majeure
A French phrase, which, in legal parlance, means inevitable accident or ‘Act of God’. This clause is mentioned in the contract between the builder and buyer to give more time to a party to fulfill any obligations in the wake of an event that is unforeseen or beyond one’s control. The finance minister has declared Covid-19 as a force majeure for the real estate sector.
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Per Square Foot Rate
The price of an apartment, villa, or a row house is calculated based on its size. The per square foot rate in real estate terms refers to the price a buyer pays per square foot. For example, if the per square foot rate is Rs. 250 and if a buyer has opted for a 1,500 square feet home, the price can be calculated by multiplying 250 x 1, 500.
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Clearance Area
As per the government, a clearance area should not have any buildings. Clearance areas are important to ensure smooth movement of vehicles and people.
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Gross External Area (GEA)
Gross External Area, also known as Gross Floor Area, is the total area of a building. It includes the entire surface such as the external face of walls, roof, terrace, roof shafts, etc.
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Brokerage
A broker acts as an intermediary between the homebuyer and the developer. The amount required to pay for the service of a broker is called brokerage.
Property Types and Features
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Single-family Homes
A single-family home is a stand-alone residential building. Single-family homes don’t have shared walls and hence offer more privacy.
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Condos
Condos is a shortened version of condominiums. A condo refers to a flat and means an individually owned home in a residential complex which comprises other residential units.
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Townhouses
A townhouse is a tall narrow house which has a roof of its own and has adjoining homes on its side. Sometimes a townhouse will have a front yard and a backyard.
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Multi-family Properties
As can be derived from the term, a multi-family property is where multiple families stay. A town house, ana apartment complex, etc., are examples of a multi-family property.
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Bedroom
Considered as one of the most important spaces in the house, the bedroom is where the family retire to for the night, for a good night’s sleep. An ideal bedroom should have good ventilation.
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Bathroom
Bathroom or washroom is an area where individuals take a shower, freshen up, etc. A bathroom will typically have a shower, taps, commode or even a bathtub.
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Square Footage
Square footage is an area measured in square foot. To get the square footage of a room, first measure the length and width of it, and then multiply the numbers with each other.
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Open Floor Plans
When it comes to the interiors of a home, there are two types of plans – an open plan and a closed plan. In an open floor plan, the living space has minimal or no separation from other major rooms of the house.
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Amenities
Amenities in real estate terms refer to the various spaces designed for recreation in a property. Swimming pool, playground, clubhouse, etc., are some of the most common amenities found in a residential community.
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Freehold Property
Each property consists of a building and the land upon which it stands. If both the building and land belong to a single owner, it’s called a freehold property.
Legal Terms and Contracts
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Purchase Agreement
During the process of buying a home, buyers and sellers sign a plethora of contracts/agreements. Purchase agreement is the last one of them, which documents the transfer of property from the seller to the buyer.
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Contingencies
A real estate agreement will have multiple contingencies. A contingency in real estate terms means a clause in the agreement specifying an obligation. Only if the specified obligation is met, the contract becomes legally binding.
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Title Insurance
A title insurance unequivocally proclaims that the ownership of a property belongs to a single individual and no one else has any claim on it. Before issuing a title insurance, the concerned authority ensures that the property has an absolute title.
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Deed
A deed in real estate terms is a legal document, which is used to transfer the ownership of a property from the seller to the buyer. A deed needs to have the name of the property as well as the names and signatures of the buyer and seller.
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Disclosure Statements
When a house is sold, a seller must divulge certain information. In disclosure documents, the seller reveals information including the condition of the property.
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Foreclosure
In the event of nonpayment of loan from a buyer, the lender recovers the balance amount by selling the property used as collateral. This process is called foreclosure.
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Lease Option
Both residential and commercial properties are rented out. At the end of the specified rental period agreed upon by both parties, the tenant has the option of buying the property – it is called the lease option.
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Breach of Contract
In any transaction, including real estate, certain conditions are specified. Any violation regarding the conditions is considered a breach of contract.
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Allotment Letter
An allotment letter is an important document that is issued by the developer to the buyer once the booking is done. When applying for a loan, an allotment letter is a must-to-have document.
Home Inspection and Appraisal Terms
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Home Inspection
The term refers to the inspection of a home with regard to its condition and safety. A buyer arranges for a home inspection before the final nod to ensure that the property is devoid of any damage.
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Repairs
As a home ages, it may require various upkeep and maintenance work or repairs. It is mandatory to do repair works on your home at regular intervals to make sure that it remains in good condition for long.
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Market Value
In real estate terms, market value indicates the value of a property at a specific time. Often it goes up with the passing of time, acquiring more and more value. But it is not entirely impossible for the market value to come down.
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Comparables
In real estate terms, comparables or simply ‘comps’ indicate properties which are comparable in a specific area. The method is used to assess the value of a property.
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Due Diligence
Due diligence refers to an elaborate procedure in which a property is thoroughly inspected for any possible issues. Only after performing due diligence on a seller, a buyer should make the final decision.
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Assessed Value
When a property is assessed for tax purposes, it is called assessed value. It is done once a year and considers property value and the prevailing market conditions in the neighbourhood.
Closing Process and Terms
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Closing Date
When you initiate the process of buying a home, you reach an accord with the developer regarding the closing date, i.e., the date the developer hands over the property to you. In other words, the closing date is the one when you become the legal owner of the property.
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Settlement Statement
A settlement statement is a set of terms and conditions between two parties. It is commonly used for loan agreements and details all conditions, costs etc.
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Prorated Expenses
All operating expenses or any kind of expenses are considered prorated expenses. Property taxes, for example, are considered as a prorated expense.
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Closing Agent or Attorney
A closing agent or an attorney is a professional who helps in closing a real estate deal. They primarily work for the buyer and ensures that a real estate transaction is going smooth.
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Offer
An offer in real estate terms is a proposal made by either a seller or a buyer. It is a formal announcement that an individual is willing to buy or sell a property based on a set of conditions.
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Transfer of Ownership
When a property is bought or sold, the most important part of the transaction is the transfer of ownership. With the execution of a sale deed, the ownership can be transferred.
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Transfer Tax
When a real estate transaction takes place, the state or local government charges a transfer tax. It is decided by assessing the value of the property.
Real Estate Agent Terminology
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Buyer’s Agent
A self-explanatory term in real estate, a buyer’s agent is one who helps a buyer. A buyer’s agent can help the homebuyer to find the right property, save time and money, and help throughout the buying process.
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Seller’s Agent
Working with the seller, a seller’s agent’s job is to make the transaction process easier for the seller. A seller’s agent identifies the right buyer and helps in closing the deal smoothly.
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Dual Agency
If a buyer’s agent works for the buyer, and a seller’s agent works for the seller, a dual agency works for both. It is up to the buyer or seller to decide whether they want to opt for a dual agency or a single agency.
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Listing Agent
A listing agent lists the home which is up for sale in the market and hence the name. He is also called the seller’s agent and acts on behalf of the seller.
By now, you must have acquired a fair grasp of the terms used in real estate. Keeping this guide handy will help you as you can refer to the terms as and when required. Knowing these terms will empower you in your homebuying journey and ensure that you don’t get flummoxed by the terms your agent or the representative of the developer uses.
