Hi there! I want to put together a glossary of common real estate terms that homeowners may hear a lot from real estate agents and investors, but don’t necessarily know what they mean.
Every industry has a bunch of common terms and “industry-speak” that we throw around, but don’t always take the time to explain to our customers.
I’ll continue to add to this as more terms come to mind.
- After Repair Value (ARV) – The ARV is what investors think the house will sell for at market value after all repairs are finished. Investors get to this value by looking at comparable sales (Comps) in your neighborhood. The most reliable indicator of what a home will sell for is what similar houses have sold for in your area recently.
- Appraiser – A real estate appraiser is a licensed or certified professional that agents, lenders, and investors use to assess the value of your home. They use many statistics, home facts, and comparable sales in your area to determine the property’s value.
- Assignment of Contract – Assignment of contract (or just “assignment”) is one way that wholesalers transfer the sales contract to the final buyer from the homeowner. With this method, the Purchase & Sale Agreement will have a “right to assign” clause that allows the wholesaler to transfer the final buyer at the closing table. Note that with assignments, all parties involved are able to see how the money changes hands, whereas with a “double closing”, some of this information is hidden to the end-buyer and seller.
- Buy and Hold – One common method of real estate investing. An investor buys a house and then rents it or lease options it to get cash flow from the renter.
- Closing Costs – These refer to the costs required to close on the property. Attorney fees, title insurance, title exam, underwriting fees, loan costs are just a few closing costs typically included.
- Comps, Comparables, Comparative Market Analysis (CMA) – All of these terms refer to comparable real estate sales in your area within recent months. This is how a homeowner, a real estate agent, or investor can determine the ARV of your property. For example, if you have a 4 bedroom, 2 bathroom house that is 1800 square feet, then you can look for houses with 4BR/2BA and ~ 1800 sq. ft. that have sold within the last 1-6 months to get a general sense of what your house might sell for once repairs are finished. See my post for an example of how to use Zillow to do this. Realtors and lenders will use a professional appraiser to do this analysis.
- Cosmetic Flip – All homes will typically require cosmetic updates like new paint, carpet, floors, light fixtures, pressure washing and other light repairs before selling. Investors may call this “lipstick” and it simply refers to making the property look nice before selling it. Cosmetic updates do not include major repairs like new roof, appliances, flooring, siding, windows, etc.
- Double Close – This is the one common method that wholesalers use to sell the property to the end buyer, with the other method being “assignment of contract”. While an assignment allows all parties to see how the money changes hands, a double closing does not. During a double close, the seller (homeowner) and wholesaler close on the contract first. Afterwards, the wholesaler and end-buyer close on the contract.
- Earnest Money – Earnest money is basically a “good faith” deposit on the Purchase and Sale Agreement that establishes the buyer’s intent to purchase the home. If the sale does not go through for fault of the buyer, then the seller may be able to keep the earnest money.
- Flipping – Flipping or rehabbing a house refers to buying a house, fixing it up through repairs, and then selling it to an end-buyer. Flippers may buy a house directly from a homeowners, use a real estate agent, or buy it from a wholesaler.
- Holding Costs – Costs that you pay while waiting for your house to sell. Utilities, taxes, insurance, and loan payments are included. These costs are important for rehabbers and homeowners alike.
- Listing a Property – This refers to “listing” a property on the Multiple Listing Service (MLS) and/or the FMLS (First Multiple Listing Service).
- Multiple Listing Service (MLS) – the MLS is where agents list the properties that they have for sale with all of the relevant facts and pictures. Buyers’ agents can then narrow down the search to specific properties that their buyer is looking for. In Georgia, we have the GAMLS, and the FMLS (First Multiple Listing Service) databases that realtors use to list their properties for sale.
- Purchase and Sale Agreement – This is the form that puts a buyer and seller “under contract” for the property. If you use a licensed real estate agent to negotiate the contract, then they will use the standard Georgia Association of Realtors (GAR) form. Investors and wholesalers will have a variety of forms with a lot of “leagalese” terms and clauses that were written by lawyers. It is very important that you understand every clause in the Purchase & Sale Agreement before you sign it. Let us know if you need some help with this.
- Rehab – Rehabbing a house in preparation to “flip” it or rent it out.
- REO (Real Estate Owned) – This is a property that was foreclosed on but not purchased at auction. So the lender now owns the property.
- Retail – refers to selling a house on the retail market – usually through the MLS with a real estate agent.
- Short Sale – Selling your home when your mortgage balance is more than what the home is worth.
- Staging – Professional stagers are interior designers that use furniture and other items to make the home for sale look great for prospective buyers.
- Tire Kickers – home buyers or sellers who are not ready to commit. They take up a lot of time.
- Underwriting – Underwriting typically refers to the process that a lender takes to determine the risk of approving a loan. This can refer to a rehab loan to a house flipper, or a loan to a end-buyer on the retail market. The process can take several days to several weeks depending on the lender and the type of loan.
- Wholesaling – Wholesalers serve as the middle link between homeowner and house flippers. The wholesaler does the work finding a home that a flipper would want, puts the house under contract, and then assigns (or double closes) that property to the house flipper.
- Wholetailing – refers to buying a property at a discount, putting in some light repairs, and then selling it retail on the MLS.