Real estate transactions involve various important terms that buyers, sellers, and investors should understand. Appraisals determine the market value of a property, while escrow ensures funds are held securely until the deal is complete. Closing costs include fees associated with finalizing the sale, such as title insurance and legal fees. A mortgage is a loan used to finance property purchases, often with terms like interest rates and amortization schedules. Understanding these concepts is vital for making informed decisions, avoiding common pitfalls, and ensuring a smooth property transaction. Familiarity with these terms enhances confidence and efficiency throughout the real estate process.
41 Key Real Estate Terms That You Must Know
1. Appraisal: An appraisal is the process in which a professional assesses the value of a property. This is crucial for lenders to ensure the loan amount requested by the borrower aligns with the actual worth of the home. If the appraisal finds the home's value lower than the requested loan amount, the lender may ask the buyer to cover the difference.
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2. Closing Cost: Closing costs are fees associated with finalizing a real estate transaction. These include expenses like brokerage fees, inspection fees, property taxes, insurance, stamp duty, attorney fees, loan application fees, administrative charges, and prepayment penalties. The closing process is when the title is officially transferred from seller to
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3. Down Payment: A down payment is the initial amount a buyer must pay when purchasing a property. It is usually a small percentage of the total price and is paid upfront. The rest is typically financed through a loan.
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4. Escrow: In real estate, escrow refers to a neutral third party holding the funds or documents until all the terms of the transaction are met by both buyer and seller. The escrow ensures that funds are only released after all conditions, such as inspections or repairs, are satisfied.
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5. Homeowners Association (HOA): An HOA is a governing body within a residential complex, responsible for maintaining the community’s common areas and enforcing rules. Residents typically pay monthly or yearly fees for maintenance and shared amenities.
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6. Mortgage: A mortgage is a loan in which the property serves as collateral. Unlike a home loan, which is strictly for purchasing property, a mortgage can be used for various purposes. The lender holds the property title as collateral until the borrower repays the loan.
7. Approval: Approval in real estate refers to the process of evaluating a borrower’s eligibility to secure a home loan. Pre-approval, in particular, means the borrower’s finances have been reviewed, and they are eligible for a loan even before finalizing a property.
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8. Title: The title is a legal document proving ownership of a property. During a property transaction, the seller transfers the title to the buyer, establishing the buyer’s ownership rights.
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9. Lender: A lender is a financial institution, such as a bank, that provides a loan to the borrower for purchasing a property. The loan is repaid with interest within an agreed period.
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10. Lock-in Period: This refers to the period during which a borrower is not allowed to prepay a loan without facing a penalty. For example, if the lock-in period is five years, the borrower cannot repay the loan within that time without additional charges.
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11. Mortgage Banker: A mortgage banker works with lending institutions to provide mortgage loans to borrowers. They are involved in the entire process, from evaluating the borrower’s financial status to processing the loan application.
12. Mortgage Insurance: This insurance protects the lender in case the borrower defaults on their mortgage or passes away. It ensures that the lender does not lose the loan amount.
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13. No-cost Mortgage: A no-cost mortgage allows the borrower to avoid upfront expenses like closing costs. However, these costs are added to the loan, resulting in higher monthly payments and a higher interest rate over time.
14. Commencement Certificate: This document is issued by local authorities to certify that construction can begin. The certificate ensures the legality of the project and that it follows the approved plans.
15. Occupancy Certificate (OC): This certificate, issued by local authorities, confirms that a building is complete and meets all necessary legal requirements like water, electricity, and sanitation systems.
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16. Immovable Property: This term refers to assets that cannot be moved, such as land or buildings. Furniture or equipment, on the other hand, is considered movable property.
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17. Promoter: A promoter is a person or organization responsible for developing and selling real estate projects. They play a key role in marketing and financing the project.
Essential Real Estate Terms Every Homebuyer Should Know
18. Developer: A developer buys land, constructs buildings, and sells them to make a profit. Many real estate companies have "Developers" in their names.
Essential Real Estate Terms Every Homebuyer Should Know
19. RERA: RERA stands for the Real Estate Regulatory Authority, established under the Real Estate (Regulation and Development) Act, 2016. It aims to protect homebuyers and promote transparency in real estate transactions.
Essential Real Estate Terms Every Homebuyer Should Know
20. Allottee: An allottee is someone to whom land, a building, or an apartment has been allocated or transferred by a promoter.4
Essential Real Estate Terms Every Homebuyer Should Know
21. Acre: An acre is a unit of land measurement, equivalent to 43,560 square feet or 4,046.86 square meters.
Essential Real Estate Terms Every Homebuyer Should Know
22. Planning Area: This refers to a designated area marked for future development by the government or a competent authority. Planning areas can include agricultural, commercial, or residential zones.
Essential Real Estate Terms Every Homebuyer Should Know
23. Sanction Plan: A sanction plan is a set of approved documents, including blueprints, service plans, and structural plans, that a developer must submit before starting construction.
Essential Real Estate Terms Every Homebuyer Should Know
24. Built-up Area: The built-up area includes the total area of a property, including walls, balconies, terraces, and utility areas. It is typically 10-15% larger than the carpet area.
Essential Real Estate Terms Every Homebuyer Should Know
25. Carpet Area: Carpet area refers to the actual usable area of a home, excluding balconies, walls, and other non-living spaces.
Essential Real Estate Terms Every Homebuyer Should Know
26. Common Areas: Common areas in a residential complex are shared spaces like lobbies, hallways, staircases, elevators, and recreational areas that all residents can use.
Essential Real Estate Terms Every Homebuyer Should Know
27. FSI/FAR: Floor Space Index (FSI) or Floor Area Ratio (FAR) defines the maximum permissible construction on a piece of land. Developers can increase FSI by paying an additional fee.
Essential Real Estate Terms Every Homebuyer Should Know
28. Building Byelaws: Building byelaws are rules and regulations governing the design, safety, height, and construction of buildings, ensuring they comply with legal and safety standards.
Essential Real Estate Terms Every Homebuyer Should Know
29. Agreement to Sell: This is a contract between a developer and a buyer stating the intention to sell a property for a specified amount of money, protecting both parties' interests.
Essential Real Estate Terms Every Homebuyer Should Know
30. Real Estate Agent: A real estate agent is a licensed professional who assists buyers and sellers in real estate transactions, including negotiations, documentation, and legal compliance.
Essential Real Estate Terms Every Homebuyer Should Know
31. Advance Payment: An advance payment in real estate is the amount paid upfront to book a property. It is typically not more than 10% of the total purchase price.
Essential Real Estate Terms Every Homebuyer Should Know
32. Amortization: Amortization refers to the process of gradually paying off a home loan through regular installments over a specified period.
Essential Real Estate Terms Every Homebuyer Should Know
33. Absolute Title: An absolute or clear title means the property has no outstanding claims, debts, or encumbrances, allowing the owner to sell or mortgage it freely.
Essential Real Estate Terms Every Homebuyer Should Know
34. Valuation: Valuation is the process of estimating the future worth of a property based on various factors, primarily its location.
Essential Real Estate Terms Every Homebuyer Should Know
35. Credit Score: A credit score is a numerical representation of a borrower’s creditworthiness, used by lenders to assess loan eligibility. It ranges from 300 to 900.
Essential Real Estate Terms Every Homebuyer Should Know
36. Bare Shell: A bare shell refers to a property where only the structure, walls, and basic services are completed, allowing the buyer to customize the interiors.
Essential Real Estate Terms Every Homebuyer Should Know
37. Force Majeure: This legal term refers to unforeseen events, such as natural disasters, that prevent one party from fulfiling their contractual obligations. It is often referred to as an "Act of God."
Essential Real Estate Terms Every Homebuyer Should Know
38. Per Square Foot Rate: This rate is used to calculate the price of a property based on its size. For instance, a property with a 1,500-square-foot area priced at Rs. 250 per square foot will cost Rs. 375,000.
Essential Real Estate Terms Every Homebuyer Should Know
39. Clearance Area: A clearance area is a designated space that should remain free of buildings, ensuring the smooth flow of traffic and people.
Essential Real Estate Terms Every Homebuyer Should Know
40. Gross External Area (GEA): Also known as Gross Floor Area, GEA includes the total surface area of a building, including external walls, roofs, and terraces.
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