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.
Since there are many terms here, most of these terms can be clicked on that will take you to a specific blog on that topic. Just click the highlighted links!
These are in alphabetical order for easy reference!
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.
If you’re taking a long amort to get the best mortgage rate, do your math. Sometimes it may seem like a better deal, but the longer your amortization the more interest you’ll pay.
Most commonly in Ontario the amortization period is 25 or 30 years, although you can find some shorter and longer terms.
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 to the potential buyer.
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). Potential buyers need to do their own due diligence
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.
Generally, the higher the assessed value of your home, the greater property taxes you will pay.
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.
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.
Recently, there has a been a large number of Guelph houses for sale. This increase is beneficial to potential landlords as it means lower prices. Lower prices mean a better opportunity for cashflowing property.
Read our article on becoming a landlord in Ontario
Chattels (and fixtures)
A chattel is something that you can easily remove. It’s something like a lampshade or dining room chairs. Fixtures are things that are affixed and are assumed to come with the property upon closing. However there can be exceptions and grey areas.
Chattels and fixtures are typically included in the Purchase and Sale Agreement under inclusions and exclusions. This area outlines what is included and excluded with the sale of the property.
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 buying a house 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.
It’s worth noting and planning: real estate commissions, like legal fees are subject to HST.
Comparative market analysis
Comparative market analysis (CMA) is a report on comparable homes in the area based on prior sales. 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!
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.
Conditional offers in real estate are conditions that the buyer must complete or fulfil prior to an accepted offer is considered a done deal. 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.
In recent years in the 519 area code, firm, aggressive offers have become the norm. It’s highly advised to discuss this with your Guelph real estate agent.
Down payment versus deposit
Down payment 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. Once that downpayment is applied to your mortgage, it will determine your monthly payments.
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?
Fixed-rate mortgage 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 (sometimes known as adjustable-rate mortgage) means the interest rate can fluctuate during the loan term. These changes will directly impact your mortgage payments, the portion that goes to the principal and interest, as well as the overall amortization. For more information on fixed vs variable rate mortgage, read our blog titled Variable vs Fixed Mortgage.
It’s helpful to use a local Guelph mortgage broker when you’re dealing with a Guelph home. They know the ins and outs of pricing locally and have better local relationships. We have a few that we have had many positive experiences on that we can provide to you.
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, it often results in a lower sale price.
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 (read: what’s included in condo fees)
Make sure your Guelph Realtor clearly outlines whether the home you are considering is freehold (no fees) or condo (fees). If it’s a condo with fees, you’re likely going to encounter a status certificate.
In a strong sellers market, many sellers will take the pricing strategy of “holding offers”. What is holding offers in real estate? 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: reviewing offers 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.
In order to get a loan from a bank or mortgage lender to buy a home, home buyers 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 fair market 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.
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.
This is one of two common conditions in a purchase agreement, the other being a financing condition. Once you’ve completed the inspection, you can fulfill (waive) the condition in the real estate contract.
Getting a home inspector in Guelph done as a buyer during a strong sellers market is extremely difficult.
Many would say this is one of a few newer real estate terms.
House hacking means renovating your own personal property or a home you own 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 Jesses house hack here: what is house hacking
As housing prices increase, this process is becoming more and more common! The city of Guelph is encouraging increased rentals in Guelph and considering a property with a side or separate entrance is a bonus find!
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.
Multiple representation/ dual agency/ double ending
Sometimes known in the real estate industry as “double ending”, multiple representation or dual agency is when real estate professionals represent both the buyer and seller in the same transaction.
In many cases in the real estate business, this is a frowned upon practice. The agent representing both sides of the transaction can’t possibly represent the interest of both buyer and seller fairly.
Beth and Ryan will not take on a buyer if we are the listing agent in a transaction, but provide the buyer with a trusted colleague to prepare an offer.
This goes hand in hand with a mortgage approval. Before buying a home, a buyer should obtain a pre-approval letter from their financial institution to give you the confidence that you need to get your mortgage loan.
This written agreement provides an estimate on how much the bank will lend that person based on a number of financial measures. This could be type of employment, salary/ income, credit score and current debts. Once you receive a pre-approval, you’ll get a pre-approval letter that outlines what the buyers maximum purchase price will be.
Lenders also take into account what type of mortgage you’ll be getting (fixed or adjustable rate mortgage), your interest rate and monthly mortgage payment amount.
In a sellers market (like Spring 2022), this is extremely important because you’ll often need to waive a financing condition to be competitive.
As Beth and Ryan will tell you, this pre-approval should be in place before viewing homes.
Remember, a pre-approval is only for the mortgage portion. Depending on the house you buy, you will also need to consider taxes, condo fees, cost of repairs, updates, utilities and more.
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 (aka real property) 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 once the sale closes and lender is repaid.
A foreclosure 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.
Real estate agent vs real estate broker
These two job titles are often confused and rightfully so, as they are often used interchangeably.
A real estate agent, or real estate salesperson is what you become when you first receive your real estate license. You are also permitted to use the brand name of REALTOR as a real estate agent.
To become a real estate broker, you must take a few additional courses. Once you are a Broker, you can open your own independent brokerage, as well as all the duties that being a real estate salesperson offers.
A status certificate is a legal document for developments that charge an extra fee per month. These fees go towards both regular monthly maintenance, as well as long term repairs (held in the Reserve Fund).
When purchasing a home, you should review the status certificate closely. The major components of interest should be: the condo rules, the budget, the reserve fund study and plan.
Be sure you also understand what your condo fees pay for. As an example, if you are buying a condo with a $600/mth condo fee, but $100 of that goes towards maintaining a pool in the common areas that you don’t want, you may want to consider a non-pool condo to save that $100.
You will also see how the current condo board (aka homeowners association) is allocating funds. As an example, if the condo board consistently under plans for expenses, it may be a warning sign that the condo could have some future financial hardship.
In all Purchase and Sale agreements, buyers have the legal right to search title. That is why there is a “title search date” in the APS. This date is typically 2-3 weeks prior to closing to allow the buyers lawyer the time required to review the public records of the property. In particular, the lawyer is looking for:
- To confirm the current seller/ property owner is the one on title to own it
- To verify current mortgages or home loans on the property
- Ensure there are no liens on the property
This step is a necessary due diligence to ensure that the buyer understands what they are getting into. Sometimes, the buyer’s agent has access to some of this info, but prospective buyers need to get this done through a lawyer.
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 when looking at property online: a newly renovated (and recent purchase) home that is “turnkey”. It could be a quick flip where renovations were done with cut corners.
Need clarification on other real estate terms?
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.
Questions? Need more information about the terms listed above or any other real estate terms? Beth and Ryan Wallers team would love to help you out. They are top Guelph realtors who help buyers and sellers along their journey of home ownership.