Real estate transactions involve a dense vocabulary of legal, financial, and procedural terms. Understanding these definitions before you make or receive an offer reduces the risk of signing something you do not fully understand and helps you navigate contracts, disclosures, and closing documents with more confidence.
Offer and contract terms
Purchase agreement - The legally binding contract between buyer and seller that defines the purchase price, contingencies, closing date, and what personal property (appliances, fixtures) is included. Signing the purchase agreement initiates the formal transaction process.
Contingency - A condition that must be satisfied for the contract to proceed. The three most common contingencies are financing, inspection, and appraisal. If a contingency is triggered and the buyer exits, they typically recover their earnest money. See Real Estate Contingencies Explained for detail on each type.
Earnest money - A good-faith deposit made by the buyer at the time of the offer, typically 1 to 3 percent of the purchase price. Held in escrow by the title company or broker. Credited toward the buyer's closing costs or down payment at closing.
Seller concessions - Credits from the seller to the buyer that reduce the buyer's closing costs. Common in buyer's markets or when a seller wants to avoid reducing the sale price directly. A $10,000 seller concession is functionally similar to a $10,000 price reduction but affects the way the transaction is recorded and financed.
As-is sale - The seller makes no repairs and offers no warranties about the property's condition. Buyers in an as-is sale retain the right to inspect and exit under any inspection contingency, but the seller is not obligated to negotiate repairs. As-is does not eliminate disclosure requirements -- sellers must still disclose known material defects in most states.
Counter-offer - A response to an offer that changes one or more terms -- price, closing date, contingencies, inclusions. A counter-offer is a new offer; the original offer is no longer binding once a counter is issued.
Financing terms
Preapproval - A conditional commitment from a lender stating how much it will loan, based on verified income, assets, and credit. Not a guarantee, but a strong signal to sellers that financing is likely to close.
Loan-to-value (LTV) ratio - The loan amount divided by the appraised value of the property, expressed as a percentage. A $280,000 loan on a $350,000 home is 80 percent LTV. LTV above 80 percent typically triggers private mortgage insurance on conventional loans.
Private mortgage insurance (PMI) - Required by conventional lenders when LTV exceeds 80 percent. Protects the lender -- not the borrower -- against default. Annual PMI premiums typically range from 0.5 to 1.5 percent of the original loan amount and cancel once LTV reaches 80 percent via payments or appreciation.
Amortization - The process of paying down a loan through scheduled installment payments that include both principal and interest. In the early years of an amortized mortgage, most of each payment is interest. As the balance declines, more of each payment reduces principal.
Points - Upfront fees paid to reduce the mortgage interest rate. One discount point equals 1 percent of the loan amount and typically reduces the rate by approximately 0.25 percent. The break-even period -- time until monthly savings offset the upfront cost -- is usually 4 to 7 years.
Escrow account - A lender-held account funded by the borrower to pay property taxes and homeowners insurance when they come due. Monthly mortgage payments typically include an escrow contribution. The lender manages disbursements and adjusts the contribution annually based on projected tax and insurance bills.
Title and closing terms
Title - Legal ownership of a property. Title establishes who has the right to sell, mortgage, or encumber the real estate. Title can be held by individuals, couples, trusts, or corporations under different forms of ownership (joint tenancy, tenancy in common, community property).
Lien - A legal claim against a property for unpaid debt, typically a mortgage, tax obligation, or contractor bill. Liens must be satisfied before a clear title can be conveyed to a new owner. A title search identifies existing liens.
Title insurance - A one-time premium that protects against financial loss from title defects -- unpaid liens, ownership disputes, recording errors -- that were not discovered before closing. Lender's title insurance is required by most mortgage lenders. Owner's title insurance is optional and protects the buyer's equity.
Closing disclosure - A standardized federal document (required by TRID regulations) that details every fee, credit, and payment at closing. Buyers must receive it at least three business days before closing. Compare it line by line to your Loan Estimate.
Deed - The legal document that transfers ownership from seller to buyer. Must be signed by the seller, notarized, and recorded in the county land records to be effective. The type of deed (warranty deed, quitclaim deed) affects the level of ownership guarantee provided to the buyer.
Property and appraisal terms
Comparable sales (comps) - Recent sales of similar properties in the same market area, used to determine a home's fair market value. Appraisers and real estate agents use comps to set list prices, evaluate offers, and defend valuations. Properties used as comps typically share similar size, condition, age, location, and features.
Appraisal - An independent assessment of a property's market value, conducted by a licensed appraiser and required by most mortgage lenders. If the appraised value comes in below the purchase price, it triggers the appraisal contingency and gives the buyer the right to renegotiate or exit.
Days on market (DOM) - The number of calendar days a listing has been active on the MLS. A low DOM signals strong demand; high DOM can indicate overpricing or property condition issues. DOM resets if a listing is withdrawn and re-listed, so cumulative DOM (CDOM) is a more accurate measure of total market time.
MLS (Multiple Listing Service) - A shared database of property listings used by real estate agents and brokers. Most buyers encounter MLS data through consumer sites like Zillow or Realtor.com, which display MLS listings. Properties sold off-MLS receive less buyer exposure and statistically tend to sell for lower prices.
Owner-occupied - A property where the owner lives as their primary residence. Distinct from investment or rental property. Owner-occupancy affects loan program eligibility (FHA, VA, primary-home conventional rates), capital gains tax treatment, and condo warrantability requirements.
Warrantable condo - A condo development that meets Fannie Mae and Freddie Mac guidelines, including owner-occupancy minimums, reserve fund requirements, and no single entity owning more than 10 percent of units. Non-warrantable condos require portfolio loans at higher rates or cash purchase.
Rental and landlord terms
Lease - A written contract between landlord and tenant specifying rent amount, term, security deposit, maintenance responsibilities, and permitted uses. A legally binding document in all 50 states; verbal leases are legally valid in most states for month-to-month tenancies but create significant evidentiary risk for both parties.
Security deposit - A refundable amount collected from the tenant at lease signing, held in trust, and returned (minus documented deductions for damage and unpaid rent) after the tenancy ends within the state's statutory return window.
Normal wear and tear - The expected, gradual deterioration of a rental unit from ordinary use -- scuffed paint, worn carpet, minor door hardware loosening over time. Landlords generally cannot deduct for normal wear and tear from a security deposit; only damage beyond normal use qualifies as a deductible expense.
Writ of possession - A court order authorizing a law enforcement officer to remove a tenant from a property after a judgment for possession has been entered. The final step in the court-supervised eviction process. Issued only after the tenant has had the opportunity to appear and contest at a court hearing.
Tip
When you encounter a term in a contract that is not defined in this glossary, ask the other party's agent or your own attorney to explain it in plain language before signing. Ambiguous language in a real estate contract is almost always resolved against the party who could have clarified it but did not. See How to Buy Your First Home for a guided walkthrough of the documents you will encounter at each stage.
Frequently asked questions
What is a contingency in a real estate contract?
A contingency is a condition that must be met for the purchase contract to remain binding. Common contingencies are financing (loan approval), inspection (buyer's right to exit based on findings), and appraisal (exit right if the home values below the purchase price). If a contingency is not satisfied, the buyer can typically exit and recover their earnest money.
What does it mean when a home is under contract?
Under contract means the seller has accepted a buyer's offer and both parties have signed a purchase agreement, but the transaction has not yet closed. The buyer is typically working through contingencies -- inspection, financing, appraisal -- during this period. The home is usually listed as 'pending' or 'under contract' on the MLS, though some sellers continue showing it as backup.
What is the difference between prequalification and preapproval?
Prequalification is an informal estimate of how much you might borrow, based on self-reported income and assets without verification. Preapproval involves submitting documentation -- tax returns, pay stubs, bank statements -- and receiving a conditional commitment from a lender. Sellers and agents treat preapproval as a serious indicator of financing readiness; prequalification carries much less weight.
What is earnest money and can you lose it?
Earnest money is a good-faith deposit made by the buyer when submitting an offer, typically 1 to 3 percent of the purchase price. It is held in escrow and credited toward the purchase at closing. If the buyer backs out without a contractually permitted reason -- such as a contingency -- the seller may keep the deposit. Contingencies protect the buyer's right to exit without forfeiting earnest money.
What does clear title mean in real estate?
Clear title means the property has no liens, encumbrances, competing ownership claims, or legal disputes that would impair the buyer's ownership. A title search conducted before closing identifies any title defects. Title insurance protects the buyer and lender if a defect surfaces after closing. Most lenders require lender's title insurance; owner's title insurance is optional but recommended.