Real Estate 101 is a section designed to have Real Estate terms spelled out as simply as possible, mostly for the homeowner who has limited knowledge of the Real Estate industry. It is a work in progress and more terms will be added as needed.

Notice: The definitions here are for conceptual understanding, they are not to be construed to be legal definitions or any other form of legal understanding of any term. For more specific information regarding any of these terms, consult a Real Estate Attorney or some other form of legal professional. Also, all information is specific to California State and Los Angeles County laws and regulations.

Listed Alphabetically:

  • Broker
  • “Bubble”

Refers to a market where the demand is driving the sales prices higher than the “true value” of a product. People refer to the bubble bursting when demand decreases sharply and prices return to what should be the true value.

  • Contractor

In Real Estate this refers to a person hired to complete a job for a certain price. Normally this includes bidding on how much money they will need in exchange for completing the work. If hired, a contractor is not payed by the hour, but payed the asking price in exchange for completing the job. Normally, they hire Subcontractors (sometimes called subs) to assist them. Contractors are licensed by the state to regulate the quality of their work.

  • Deed

A document issued by the county showing ownership of a home or piece of property.

  • Default

A term used to describe the official notice from your lender telling you that you are behind in payments. If you do not pay your delinquent balance in 90 days, your house will be in foreclosure. Generally, this happens after you are 3 months overdue.

  • Deposit

Money paid at the beginning of a rental relationship to ensure that the facilities are maintained by the tenant. If the facilities are damaged, the landlord is allowed to use the deposit money to make repairs.

  • Down Payment

Money that is paid at the beginning of a contractual agreement (in this case, getting a loan for a house). The larger down payment a homeowner makes, the less interest they will pay in the long run.

  • Fair Market Value (FMV)

What a house or property is worth. Normally this is derived by looking at comparable houses that have recently sold in a neighborhood (called “comps”).

  • Fixed Rate

A type of loan that a homeowner may obtain in which the interest charged does not vary with the market interest rates. It remains the same regardless of whether loan interest rates go up or down.

  • Flip

A term used to describe when an investor purchases a home, normally under market value with significant repairs needed, does repairs to bring the house up to date, and sells it for a profit. This is also known as “rehabing” a house.

  • Foreclosure

A period of time between the end of your Default and when your house will be sold at auction. At the beginning of the foreclosure period the entire balance of your loan is due. The foreclosure period is 21 days.

  • Interest (Rate)

The fee that homeowners pay to the bank in exchange for lending them money. Normally expressed as an annual percentage of the loan amount.

  • Interest Only (Loan)

A type of loan where all of the monthly payments go to the bank and none of the money actually goes to paying off the house. These are used when homeowners expect to see a short-term rise in house prices. That way they can sell their house or refinance later. These are beneficial because the monthly rates are significantly lower.

  • Investor

A person who makes money by purchasing and selling houses. This person normally does not have any plans to live in the house.

  • Lease

A rental contract between a renter and landlord. It specifically states the length of time that the renter will live there. It allows the renter to lock in a certain rental price for the time period and allows the landlord to ensure they will have a tenant for the length of the lease.

  • Lease Option

A Lease agrement in which at the end of the term of the lease, the renter has the option to purchase the house for a preset price. Normally lease option monthly rates are higher than the rental market price of a house and all of the monthly rent payed goes toward the purchase price.

  • Lender

The person or entity who loans money to a homeowner. This is normally a bank, but certain investors will lend large sums of money for a significantly higher interest rate (called a “Hard Money Lender”).

  • Mortgage

A agreement stating that a lender may repossess a house if a borrower does not make the required payments.

  • Note

Another name for a loan.

  • Option Consideration

A payment made at the beginning of a Lease Option agreement. Different from a down payment because it normally does not give the tenant the right to a share of the home’s equity.

  • Points

A fee paid to a lender at the beginning of a loan. Normally each point is 1% of the loan.

  • Principle

The total amount of money you need to borrow from the bank. If you have a down payment, it is the total home price, minus the down payment. If you don’t have a down payment, it is the cost of buying the home.

  • Probate

A state referring to a home that is owned by someone who is recently deceased. Normally there is an executor (attorney) who is in charge of distributing their assets and normally for selling the house.

  • Real Estate Owned (REO)

A house that is owned by a lender. If a house is foreclosed upon and no one buys it at public auction, the lender has to sell it by themselves.

  • Realtor

A professional house salesman. They help people buy or sell houses for a commission, normally 3%.

  • Refinance

Getting a new loan for your home. If you house has gone up in value, you can borrow more money than you owe and get cash back. People also refinance to change their monthly payment, the type of loan they have, or get a new interest rate.

  • Rehab

Buying a “fixer-upper” house, doing the repairs and selling it for a profit. Also known as “House Flipping”

  • Remodel

Reconstructing a section of a house. This is either done by the homeowner, or they hire a contractor.

  • Short Sale

A program the banks have created to satisfy a need for them to liquidate their assets to increase their lending power.  They do this by accepting less than the full amount owed on some mortgages which have fallen into default.

  • Subject To

Buying a house subject to the current loan staying in place. Normally a last resort for homeowners in foreclosure. This is considered risky because the homeowner signs away the rights to the house but still has the liability for the loan. Normally, an investor will pay the delinquent charges and start making the monthly payments.

  • Title
  • Title Insurance
  • Wholesale

Purchasing a product below retail value. In Real Estate, purchasing a home below the fair market value. This is normally done by an investor from a homeowner who has a need to quickly sell the house.

(Photo Courtesy Oli Haukur)


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