Looking for the most common real estate terms for todays market? Purchasing or selling a house can be a very stressful and confusing process, the terminology shouldn’t be. Like many industries, real estate has some of it’s own lingo that not everyone uses or understands.
As a buyer or seller in this marketing, it’s useful to have an understanding of the common terms used. So, we’ve put together a list of common real estate terms used during purchasing and selling of a house. Let us know if you think it’s helpful!
Since there are many terms here, we’ve created a whole blog post on some of them. Click the highlighted links to go directly to a blog post on a specific topic!
Common Buying Real EstateTerms
Amortization is the process of combining both interest and principal in payments, rather than simply paying off interest at the start. This allows you to build more equity in the home early on.
You’ll often hear your mortgage broker or bank talk about the amortization period, or shortened to “amort”. This is the length of time it will take to pay off the mortgage assuming you maintain the terms of the mortgage.
Most commonly in Ontario the amortization period is 25 or 30 years, although you can find some shorter and longer terms.
In order to get a loan from a bank to buy a home, you first need to get the home appraised. This way, the bank can be sure they are lending the correct amount of money.
The appraiser will determine the value of the home based on an examination of the property itself, as well as the sale price of comparable homes in the area.
Home appraisals happen on about 99% of home purchases, so it’s nothing to really worry about. The only real worry you should have is if you knowingly paid well over market value for the home. If you did, the bank may make you pay the difference between your purchase price and what the home appraiser appraised the home at.
For a full article on home appraisals, click here.
This is how much a home is worth according to a public tax assessor. They makes that determination in order to figure out how much property tax the owner should pay.
In a housing market like Guelph, where prices are rapidly increasing, the assessed value can sometimes be 50% less than the value of the purchase price. In this case, it’s likely that MPAC will be reviewing your taxes and likely increase them.
Note that “assessed value” and “appraised value” are two different things. The assessed value has no impact on your purchase price or ability to get a mortgage, it’s used for property tax purposes.
Fixed and Variable Rate Mortgage
These are the two types of conventional loans commonly used in Canada: Fixed rate and variable rate. With a fixed rate, the interest rate remains the same for the entire term of the loan.
Variable means the interest rate can fluctuate during the loan term. For more information on fixed vs variable rate mortgage, read our blog titled Variable vs Fixed Mortgage.
A home inspection is typically done by a buyer of a home. The purpose of a home inspection is to check that the house’s plumbing, foundation, appliances, and other features are suitable to the buyer.
Issues that may turn up during an inspection may factor into the negotiation on a final price. Failing to do an inspection may result in surprise costly repairs down the road for the home buyer.
Getting a home inspector in Guelph done as a buyer during a strong sellers market is extremely difficult.
This goes hand in hand with a mortgage approval. Before buying a home, a buyer should obtain a pre-approval letter from a bank. This provides an estimate on how much the bank will lend that person. This letter will help determine what the buyer can afford. In a sellers market, this is extremely important.
As Beth and Ryan will tell you, this pre-approval should be in place before viewing homes.
Property marketed in “as is” condition usually indicates that the seller is unwilling to guarantee the condition, age or status of some or all items in the house. If a home is for sale as part of an estate sale, for example, it will likely be for sale as is. This is because the owner has passed away and the executors of the will have no idea about the state of anything in the home. Therefore, they’re not making any guarantees. This could also be found on properties that are being sold as Power of Sale.
Certain items in a home could also be “as is”, which means that the seller makes no guarantee that the item works. This could be something that perhaps the current owner has never used (like central vacuum for example).
Downpayment versus deposit
Downpayment and deposit are typically two interchangeable terms, but they’re not the same thing.
A deposit is the amount of money that the buyer hands over once a buyers offer has been accepted. Years ago, the deposit used to be 5% of the purchase price. It’s now roughly 2-5% of the purchase price. Deposits are held by the listing brokerage and the lawyer subtracts the deposit from the purchase price on closing.
A downpayment is the amount of money being provided to the bank as part of your mortgage. Depending on the purchase price and lender, you may need to put anywhere between 5% to 20% downpayment before qualifying for a mortgage.
Freehold vs condo
People as us about this one a lot. The simpleist answer is that freehold means “no monthly fees”. This is most often found on detached homes and townhomes. The alternative to freehold is that the property has a condo board and therefore condo fees.
However, there are some townhomes that are freehold, and some that are part of a condo corporation and have fees associated. Condos, especially highrise almost always have condo fees.
Make sure your Realtor clearly outlines whether the home you are considering is freehold (no fees) or condo (fees)
Easement or Right of Way
An easement grants someone else the legal right to use another person’s land or property while leaving the title in the owner’s name. These type of easements are usually related to utility companies or part of a condo corporation.
A right of way (ROW) is where one owner owns the land, but legally must provide shared access to another owner. You will most likely find these in older neighbourhoods.
A common right of way is a shared/ mutual driveway between two homes. Both homes need to access the driveway to get to their parking spot behind their home, but only one person owns it. There are certain rules that apply with a ROW, including not blocking access to the other party.
Read: whats the difference between an easement vs right of way
Conditions are items that the buyer must complete or fulfil prior to the closing. They could include such things as a home inspection, obtaining financing, or selling your existing house.
In a balanced market, conditions are a regular occurance. However in a strong sellers market, a buyer who has conditions to their offer is less desirable. The seller is likely going to receive a “firm offer”, which means it’s a done deal without any conditions required. This is always the most desired outcome for a seller.
Closing costs are an assortment of fees that both buyers and sellers pay. These closing costs are typically paid at the time of closing a real estate transaction. You can use one of many online calculators to help estimate your closing costs.
If you’re a buyer, closing costs typically include fees charged by your lender, lawyer, land transfer tax, utilities and municipal taxes. The largest costs for a buyer are land transfer taxes. First time buyer? You may qualify for a credit of up to $4000 on land transfer tax. If you are purchasing in Toronto, you have both a municipal and provincial land transfer tax to pay.
If you’re a seller, the big difference is that you’re not paying land transfer tax. However sellers pay the real estate commission (both the buyer and seller side), which equates to 5% in most cases. Otherwise, most other closing costs are the same.
Note that real estate commissions and legal fees are subject to HST.
Debt-to-income, or DTI, ratio is a number used by mortgage lenders which is determined by the total of your debt expenses, plus your monthly housing payment, divided by your gross monthly income, and multiplied by 100. This helps lenders determine affordability based off of their available loan programs, and allows them to estimate how much you can afford to pay monthly for a mortgage.
Duplex is synonymous with other real estate terms like “in law suite”, “accessory apartment”, “legal apartment” and more. What they all really mean is that there the property has two separate units in one building that has one owner.
Be careful with a duplex though- some are legal, some are not and some are non conforming legal. Read: what is a duplex?
This is one of those real estate terms that are especially important for investors. “Cashflow” refers to the amount of money left over once a tenant provides you with monthly rent and you have paid all the bills associated with the property. If a tenant gives you $2500 per month and the bills cost $2300, you are “cashflow positive” $200 per month.
If the rent was $2500 and the costs to own the property are $2700, you are “cashflow negative” $200 per month.
In Guelph and most of Southern Ontario, it is becoming increasingly difficult to be cashflow positive. This is due to rising housing costs. The higher it costs to own a property, the more rent to you need to charge.
Many would say this is one of a few new real estate terms. House hacking means renovating a home and putting in an accessory apartment. Jesse from our team did exactly this on his own home, so he went through the process. Read about it here!
As housing prices increase, this process is becoming more and more common!
Common Selling Real Estate Terms
Comparative market analysis
Comparative market analysis (CMA) is a report on comparable homes in the area based on prior MLS listings. A Realtors will use this to derive an accurate value for the home in question. Often times when you are asking a real estate agent for a “Home valuation”, you are going to receive a CMA.
In more recent days, sellers are also looking at sold prices through newer apps such as HouseSigma. We wrote a blog post that discussed how a Realtors role has changed. This includes the impact on technology vs traditional CMA’s. It’s our most popular article and you can read it here.
Closing date/ completion date and pending date
Closing is the final stage of the real estate transaction. The date is agreed upon when both the buyer and seller go under contract on the home. On the closing date, the property is legally transferred from seller to buyer.
Pending is the day the home is sold after all conditions (if any) have been met and the buyer and seller are moving toward closing. At this point, it’s unlikely the sale will fall through, and the buyer or seller risk losing the deposit money (and a whole lot more!) if they try to walk out on the deal at this point.
Irrevocable means “not retractable”. If a buyer submits an offer to a seller that is irrevocable until 10pm, it means the buyer must honour their offer until 10pm, no later. From a sellers perspective, they know that they must reply/ accept/ counter offer the buyers offer prior to 10pm. If they don’t, the offer expires and the deal is dead.
Essentially, an irrevocable period is the deadline that the buyer or seller is proposing to ensure the negotiations happen in a timely manner.
In a strong sellers market, many sellers will take the pricing strategy of “holding offers”. This has become more common in the world of real estate terms. It simply means that the seller is holding off reviewing any and all offers until a specific date. It’s typically 5-7 days after the house comes onto the market. The seller clearly outlines that the seller will review offers at a certain time on a certain date (for example: offers will be reviewed Tuesday at 5pm)
The purpose of this strategy is to allow all potential buyers enough time to get through the house, with the goal of receiving more than one offer, creating a bidding war and driving the price up.
What is a bully offer? In the above scenario of holding offers, a very aggressive buyer may submit an offer in advance of the offer date, effectively trying to “bully” their way to buy the house. There are some rules of engagement if you plan to submit a bully offer:
For sale by owner (FSBO)
For sale by owner means that the seller is trying to sell their home without the help of a Realtor. There are services out there like Purplebricks/ Fairsquare or Property Guys that do some of the work, but ensure you know the fully story about these before making a decision.
The other alternative is to simply sell the house yourself (as the seller). However, numerous studies show that using the services of a Realtor results in a much better outcome. Although you may save commissions by not using a Realtor, this amount or more is often lost in a lower sale price.
Power of Sale or Foreclosure
Although this is highly unlikely in Canada (and Guelph has a lower deliquency rate than Canada or Ontario) is a power of sale or foreclosure.
A power of sale is when a bank forces a homeowner to sell their house in order to get their money back. This happens after a homeowner ignores many requests to sort out an option. The homeowner gets any money left over after the home is sold and the lender is paid back.
A foreclsoure is when a bank takes over title of a house. They sell it and keep all the proceeds and the owner gets nothing. This is a long, drawn out legal process that banks prefer not to use.
This term describes a home that is move-in ready, which includes furniture and appliances. This term also ensures that the overall structure of the home is in functioning order and doesn’t require any immediate work.
Be careful of a newly renovated (and recent purchase) home that is being marketed as “turnkey”. It could be a quick flip where renovations were done with cut corners.
This is not a complete list of real estate terms you will come across during purchasing or selling a property. It is simply a list of some of the most common terms.
If you have any questions or would like more information about the terms listed above or any other real estate terms, Beth and Ryan would love to help you out. They are the best Guelph realtors (self surveyed :))