At American Real Title, we believe that informed clients make for smoother, more successful real estate transactions. That’s why we created this Real Estate Terminology page — to provide buyers, sellers, agents, and lenders with a clear, easy-to-understand resource for the terms they may encounter throughout the closing process. Whether you’re new to real estate or simply need a quick refresher, this guide can help you feel more confident and better prepared when working with our team to achieve a seamless and secure transaction.

Adjustable-rate mortgage (ARM)

An adjustable-rate mortgage, or ARM, features an interest rate that can fluctuate after an initial fixed period. The adjustments are tied to a financial index, such as LIBOR or COFI, which means payments can increase or decrease over time. While ARMs offer the possibility of lower rates initially, they come with less predictability compared to a traditional fixed-rate mortgage.

Appraisal

An appraisal is an independent evaluation of a property’s market value, typically required during a home sale or refinance. Mortgage lenders order appraisals to ensure the home is worth the amount being financed, helping to protect their investment while giving buyers peace of mind about the value of their purchase.

Appraisal contingency

An appraisal contingency gives buyers the ability to renegotiate or cancel a purchase contract if a home’s appraised value falls below the agreed-upon sale price. It ensures that buyers are not locked into overpaying for a property and gives lenders assurance that the loan amount is appropriate for the home’s true market value.

As-is

When a property is listed “as is,” just because the contract is “as is”, it does not mean that the seller won’t make any repairs, what it does is allow the seller to decide whether or not to make them after a Buyer’s inspection and both the seller and buyer then have the option of making repairs or not and cancelling or staying in the contract.

Backup offer

A backup offer allows a buyer to officially position themselves as next in line if the primary buyer’s contract falls through. It must be fully negotiated and accompanied by all necessary documentation and deposits to be legally binding. Only one backup offer is permitted per property, securing the next buyer’s place without creating multiple competing backup contracts.

Blind offer

A blind offer is made when a buyer submits an offer on a property without physically visiting it first, even though a visit would have been possible. Often used in fast-paced markets, blind offers aim to give buyers a competitive edge by acting quickly, though they do carry additional risk since the buyer hasn’t seen the property firsthand.

Buyer’s agent/listing agent

A buyer’s agent, sometimes called a selling agent, is a licensed real estate professional who represents the interests of the homebuyer. They help find suitable properties, negotiate terms, and guide the buyer through the purchase process, acting as a fiduciary. The listing agent, or seller’s agent, represents the homeowner selling the property. Their role is to market the home effectively, negotiate the best possible sale terms, and protect the seller’s interests throughout the transaction.

Covenants, conditions & restrictions (CC&Rs)

CC&Rs are guidelines set by homeowner’s associations, developers, or builders that outline what property owners can and cannot do with their homes. These rules can cover everything from property appearance to usage restrictions and may also involve association dues, special assessments, and penalties for non-compliance.

Conventional sale

A conventional sale happens when a homeowner either owns their property outright or owes less on their mortgage than the home’s current market value. Because there are no third-party approvals required (like in short sales, foreclosures, or probate sales), conventional transactions tend to be smoother and faster.

Closing

Closing marks the final stage of a real estate transaction when all documents are signed, funds are transferred, and — where required — the new deed is officially recorded with the county. Once all steps are complete, the buyer receives the keys and becomes the new homeowner.

Closing costs

Closing costs are the collection of fees and expenses due at the end of a real estate transaction. These can include lender charges, title company fees, attorney fees, insurance premiums, real estate commissions, taxes, and HOA dues, among others. Both buyers and sellers should be prepared for these costs when finalizing a sale.

Days on market (DOM)

Days on market (DOM) measures how long a property remains listed for sale on the multiple listing service (MLS) before a seller accepts a buyer’s offer. It’s an important metric for gauging the health of a real estate market. Lower average DOM numbers usually indicate a seller’s market with high demand, while higher averages point to a buyer’s market with more inventory. Seasonal trends, like the busy spring season, can also cause fluctuations.

Debt-to-income ratio

The debt-to-income (DTI) ratio is a calculation lenders use to assess your financial ability to manage monthly payments. It’s determined by dividing your total monthly debt obligations, including your future mortgage payment, by your gross monthly income, then multiplying by 100. Ideally, lenders prefer that housing costs do not exceed 28% of your income and total debt payments stay below 36%. If your DTI is too high, adjusting your budget may be necessary to qualify for a mortgage.

Due Diligence Period/Inspection Period and Contigency

The due diligence/inspection period gives buyers the chance to fully investigate a property before finalizing the purchase. During this time, buyers can order inspections, conduct tests, and gather information needed to make informed decisions. If significant issues arise, the buyer may have the option to renegotiate or even cancel the contract without penalty, provided it’s within the agreed-upon timeframe. This process helps ensure buyers know exactly what they are purchasing.

Earnest money deposit (EMD)

An earnest money deposit (EMD), sometimes called a good faith deposit, is a sum the buyer provides after an offer is accepted to show serious intent to purchase. Typically ranging from 1% to 5% of the sale price, the EMD is usually held in escrow according to the terms of the purchase and sale agreement. This deposit assures the seller that the buyer is committed to moving forward with the transaction.

Escrow holder

An escrow holder is a neutral third party that safeguards funds, documents, and other assets involved in a real estate transaction. Their role is to follow the written instructions provided by both the buyer and seller, ensuring that no money or property changes hands until all agreed-upon conditions have been met.

Equity

Equity represents the portion of a property’s value that the homeowner truly owns. To find your equity, subtract the outstanding mortgage balance from the current market value of the home. Building equity is beneficial because it can be used to secure financing for home improvements, pay off debts, or increase overall financial security. Equity grows over time as the home appreciates or as the mortgage balance decreases.

FHA loans

FHA loans are mortgages insured by the Federal Housing Administration, designed to make homeownership more accessible. Instead of lending money directly, the FHA protects lenders against losses if a borrower defaults. This insurance allows lenders to offer more flexible qualification standards, including lower down payments and credit score requirements.

FHA 203k rehab loan

An FHA 203k rehab loan helps buyers finance both the purchase of a home and the cost of needed repairs or renovations with a single mortgage. It’s ideal for buyers interested in properties that need work, covering essential updates like structural improvements or energy efficiency upgrades — but not luxury additions like pools or tennis courts.

Fixed rate mortgage

A fixed rate mortgage provides long-term stability by locking in your interest rate for the entire life of the loan. These loans typically come in terms of 10, 15, 20, or 30 years, with 15- and 30-year options being the most common. Fixed rate mortgages are favored by buyers who want predictable monthly payments and protection from rising interest rates over time.

Hard money loan

A hard money loan offers an alternative to traditional bank financing, focusing primarily on the value of the property rather than the borrower’s credit history. Hard money lenders usually require a substantial down payment and expect quick repayment, making these loans ideal for investors or short-term needs.

Homeowner’s association (HOA)

An HOA is a governing body responsible for managing the community’s common areas, amenities, and enforcing neighborhood rules. When you purchase a property under an HOA, you agree to follow its guidelines and pay regular dues. Failure to comply can result in fines, liens, or even foreclosure in some cases.

Home sale contingency

A home sale contingency allows buyers to make the purchase of a new home dependent on the successful sale of their current property. This is usually added to the purchase contract through a specific clause or addendum. Although it can protect the buyer, including this contingency may make an offer less attractive in competitive markets.

Inspection

A home inspection involves hiring a licensed professional to examine the condition of the property and document any needed repairs. It’s a vital step during the due diligence phase, giving buyers an opportunity to understand exactly what they are purchasing and negotiate repairs if necessary.

Inspection contingency

An inspection contingency is a provision in the purchase contract giving buyers a set period to perform inspections and back out of the deal or renegotiate terms if serious issues are found. It protects buyers from being locked into purchasing a property with undisclosed problems.

Land lease

With a land lease, the homeowner owns the physical structure but rents the land it sits on from a separate landowner. This arrangement can lower upfront purchase prices, but monthly land rent fees add ongoing costs, and lease terms can affect the home’s resale value.

Loan contingency

A loan contingency, often called a mortgage contingency, allows buyers to cancel the purchase agreement without penalty if they cannot secure financing within a specified timeframe. It safeguards buyers from losing their earnest money deposit if their mortgage falls through.

Mortgage pre-approval letter

A mortgage pre-approval letter is issued by a lender after evaluating your financial background, showing sellers you are qualified to borrow a specific loan amount. It strengthens your offer by providing proof of your purchasing ability and gives you a clear budget for house hunting.

Multiple listing service (or MLS)

The MLS is a shared database where real estate professionals list properties for sale and search for available homes. It offers detailed information on active, pending, and sold properties and helps ensure maximum exposure for listings within a local market.

Natural hazards disclosure (NHD) report

An NHD report informs buyers whether a property is located in areas prone to natural disasters such as floods, earthquakes, or wildfires. Provided during escrow, this report helps buyers assess additional risks and insurance needs before finalizing their purchase.

Offer/counter offer

When a buyer submits a formal offer on a property, the seller can accept, reject, or propose a counter offer to negotiate different terms. This back-and-forth process is a critical step toward reaching a mutually acceptable agreement between buyer and seller.

Pre-qualification

Pre-qualification is an informal estimate from a lender regarding how much a buyer might be able to borrow, based solely on self-reported financial information. It’s a useful first step but carries less weight than a full pre-approval when making an offer.

Principal

The principal is the original loan amount borrowed for a home, excluding interest. Each monthly mortgage payment includes contributions toward both principal and interest, but initially, a larger portion goes toward interest. Over time, more of each payment reduces the principal balance.

Probate sale

A probate sale occurs when a property must be sold to settle the estate of a deceased owner who did not leave clear instructions. The process is court-supervised and often takes longer and involves more legal steps than a standard real estate sale.

Proof of funds

Proof of funds demonstrates that a buyer has enough liquid assets to cover the down payment, closing costs, or full purchase price if paying cash. Acceptable forms include bank statements, money market statements, or certified financial documents.

Purchase and sale agreement (PSA)

The PSA is a legally binding document that outlines the agreed-upon terms for a real estate transaction between a buyer and seller. Once signed, it signals that both parties are committed to completing the sale, subject to any contingencies in the contract.

Real-estate owned (REO)

Real-estate owned (REO) refers to properties that a lender or bank has taken ownership of after an unsuccessful foreclosure auction. Typically, these properties are priced competitively below market value since the lender is eager to recoup its investment quickly. However, these homes are usually sold “as-is,” meaning the bank will not cover any repairs, which can make financing the property more challenging.

REALTOR®

While the term “real estate agent” and “REALTOR®” are often used interchangeably, a REALTOR® is a licensed real estate professional who is a member of the National Association of REALTORS® (NAR). As a member, they pledge to follow the NAR’s strict Code of Ethics and uphold high standards when working with clients, ensuring fair and ethical business practices throughout the transaction.

Rent-back

Rent-back, also known as leaseback, occurs when the buyer allows the seller to remain in the property for a specified time after the sale has closed. The seller becomes the tenant, and both parties agree on the terms, such as rental rate and duration. This arrangement can help the seller secure more time to move out without disrupting the buyer’s plans.

Seller concession

Seller concessions are incentives provided by the seller to make the deal more attractive to the buyer. These typically involve the seller covering a portion of the buyer’s closing costs, which can help reduce the buyer’s financial burden and potentially expedite the transaction. The amount of the concession is typically limited and subject to the buyer’s lender’s approval.

Seller disclosure

A seller’s disclosure is a legally required document that informs potential buyers about the condition of the property. It includes details about any defects, damage, or potential issues that could affect the buyer’s decision. Sellers must disclose known issues such as pest infestations, property disputes, or external factors like nearby construction, all of which could influence the buyer’s choice.

Short sale

A short sale occurs when a property is sold for less than the amount the seller owes on their mortgage. For a short sale to proceed, the seller’s lender must approve the sale, which can be a lengthy process. As the proceeds will fall short of the mortgage balance, the lender typically needs to negotiate terms, often making this a more time-consuming option than a standard sale.

Tenancy in common (TIC)

Tenancy in common refers to a form of joint property ownership where multiple individuals share ownership of the property but may own different percentages of it. Unlike joint tenancy, tenancy in common does not include the right of survivorship, meaning that if one owner passes away, their share is inherited according to their will or the laws of inheritance, rather than passing automatically to the surviving owners.

Termite report

A termite report, or Wood-Destroying Insect (WDI) report, details any termite infestations or damage in a property. This inspection includes a visual examination for active or past infestations, and typically includes recommendations for treatment, such as fumigation or localized spraying. The report helps the buyer assess the condition of the property and decide if they are willing to accept the costs of remediation.

Title Search/Title Commitment

A title search is the process of reviewing public records to ensure the property has a clear title and no unresolved claims or liens. A title examiner searches county records to identify the current owner, as well as any legal encumbrances such as unpaid taxes or mortgages that could affect the buyer’s ownership. The title commitment provides detailed information on a property’s title, including ownership history, existing liens, and easements. This document is essential for ensuring that the title can be transferred cleanly and is often a requirement for issuing title insurance.

Trust sale

A trust sale occurs when a property is sold by a trustee who manages a living trust, often due to the death of the original homeowner. The trustee acts on behalf of the trust’s beneficiaries and may be more inclined to sell the property quickly and without emotional attachment, which could sometimes lead to accepting a lower offer.

VA loan
A VA loan is a government-backed mortgage program offered to current and former military service members, as well as some eligible spouses. These loans typically require little to no down payment and come with competitive interest rates and terms, making homeownership more accessible to veterans and their families.