Common Real Estate Terminology FAQ

What is a pre-approval?

A mortgage pre-approval is a letter from a lender stating how much you may be qualified to borrow based on your income, credit, assets, debts, and other financial information. A pre-approval is stronger than a simple pre-qualification and can help you understand your budget before you start shopping for a home.

What is earnest money?

Earnest money is a deposit a buyer makes after entering into a contract to purchase a home. It demonstrates the buyer's good-faith intention to complete the transaction. In Texas, earnest money is typically held by a title company and may be applied toward the buyer's closing costs or down payment at closing, depending on the contract.

What is an option period?

An option period is a negotiated period in a Texas residential purchase contract during which the buyer can terminate the contract for any reason, subject to the terms of the agreement, in exchange for an option fee paid to the seller. Buyers commonly use this time to conduct inspections, evaluate the property, and negotiate repairs.

What is a home inspection?

A home inspection is a professional evaluation of a property's major systems and components, such as the foundation, roof, electrical system, plumbing, HVAC, and structure. An inspection can help a buyer understand the property's condition and identify potential repairs or safety concerns.

What is an appraisal?

An appraisal is an independent opinion of a property's market value, typically ordered by a lender when a buyer is financing the purchase. The appraiser considers factors such as the property's condition, location, size, features, and comparable recent sales.

What are comparable sales, or "comps"?

Comparable sales are recently sold properties that are similar to the home being evaluated. Realtors and appraisers use comparable properties to help estimate a home's current market value.

What is market value?

Market value is the price a property would reasonably be expected to sell for under current market conditions when both buyer and seller are knowledgeable and acting without undue pressure. Market value is influenced by location, condition, features, supply, demand, and recent comparable sales.

What is a CMA?

A Comparative Market Analysis (CMA) is a report prepared by a Realtor to help estimate a property's likely market value. It typically looks at recently sold homes, active listings, pending sales, and other relevant market information.

What is equity?

Home equity is the difference between what your home is worth and what you still owe on your mortgage and other liens. As your home value increases and your mortgage balance decreases, your equity may grow.

What is a contingency?

A contingency is a condition that must be satisfied for a real estate contract to proceed. Common contingencies include financing, appraisal, inspection, and the sale of another property.

What are closing costs?

Closing costs are expenses associated with completing a real estate transaction. Depending on the transaction, they may include lender fees, title fees, appraisal fees, recording fees, prepaid taxes and insurance, and other costs. The exact amount varies based on the property, loan, contract, and parties involved.

What is title insurance?

Title insurance protects against certain financial losses resulting from problems with ownership or title to a property, such as undisclosed liens, ownership claims, or certain title defects. In Texas, title insurance is commonly part of a residential real estate transaction.

What is a title company?

A title company helps facilitate the closing process and handles important aspects of the transaction, including title research, title insurance, escrow funds, and closing documents. In Texas, the title company often plays a central role in coordinating the closing.

What does "under contract" mean?

When a property is under contract, the buyer and seller have entered into a purchase agreement, but the transaction has not yet closed. The contract may still be subject to contingencies and other conditions.

What does "pending" mean?

A property listed as pending generally means the seller has accepted an offer and the transaction is progressing toward closing. The exact meaning can vary depending on the MLS and circumstances of the transaction.

What does "contingent" mean?

A contingent listing generally means the seller has accepted an offer, but one or more conditions still need to be satisfied before the transaction can proceed to closing.

What does "active" mean on a real estate listing?

An active listing is generally available for purchase and does not currently have an accepted contract. Buyers can typically submit offers on an active property.

What is a seller's disclosure?

A seller's disclosure is a document in which the seller provides information about the property's known condition, history, and potential issues. Texas law requires sellers of many residential properties to provide a Seller's Disclosure Notice, subject to certain exceptions.

What is a buyer's agent?

A buyer's agent is a real estate professional who represents a buyer in a transaction and helps with the home search, property analysis, negotiations, contract process, and closing.

What is a buyer agency agreement?

A buyer agency agreement is a contract between a buyer and a real estate brokerage that establishes the terms under which the brokerage will represent the buyer in a real estate transaction. 

What is a listing agent?

A listing agent represents the seller in a real estate transaction. Their responsibilities may include pricing strategy, marketing, showing coordination, offer evaluation, negotiation, and guiding the seller through the transaction.

What is a listing agreement?

A listing agreement is a contract between a property owner and a real estate brokerage that establishes the terms under which the brokerage will represent the seller in marketing and selling the property.

What is dual agency?

Dual agency occurs when one real estate agent or brokerage represents both the buyer and seller in the same transaction, where permitted by state law. Texas has specific rules regarding intermediary relationships, which are different from traditional dual agency.

What is an intermediary in Texas real estate?

In Texas, an intermediary relationship can occur when the same broker represents both the buyer and seller in a transaction. The broker must follow Texas law and the applicable agreements regarding representation and appointments.

What is a mortgage rate?

A mortgage rate is the interest rate a lender charges on a home loan. Your rate affects your monthly principal and interest payment and the total amount of interest paid over the life of the loan.

What is the difference between interest rate and APR?

The interest rate is the cost of borrowing the principal amount of your mortgage. The Annual Percentage Rate (APR) generally reflects the interest rate plus certain loan costs and fees, providing a broader measure of the cost of borrowing.

What is PMI?

Private Mortgage Insurance (PMI) is insurance that may be required by a lender when a conventional borrower makes a smaller down payment, typically when the loan-to-value ratio exceeds certain thresholds. PMI protects the lender, not the homeowner.

What is an HOA?

A Homeowners Association (HOA) is an organization that establishes and enforces rules and maintains certain shared amenities or common areas within a community. Homeowners typically pay HOA dues, and the amount and services vary by neighborhood.

What are property taxes?

Property taxes are taxes assessed on real estate by local taxing authorities. In Texas, property taxes help fund services such as schools, roads, emergency services, and local government. Property tax rates and exemptions vary by location.

What is a homestead exemption?

A homestead exemption can reduce the taxable value of a qualifying primary residence for property tax purposes. Texas homeowners may qualify for a residence homestead exemption if they meet the applicable requirements.

What is a fixed-rate mortgage?

A fixed-rate mortgage has an interest rate that remains the same for the life of the loan. This generally provides predictable principal and interest payments.

What is an adjustable-rate mortgage?

An adjustable-rate mortgage (ARM) has an interest rate that can change after an initial fixed period according to the terms of the loan. ARMs can have different adjustment schedules and caps.

What is a down payment?

A down payment is the portion of the purchase price a buyer pays upfront rather than financing through a mortgage. The amount required depends on the loan program, lender requirements, property type, and the buyer's financial circumstances.

What is closing?

Closing is the final stage of a real estate transaction when the required documents are signed, funds are transferred, and ownership is officially transferred according to the terms of the transaction.

What is a deed?

A deed is a legal document used to transfer ownership of real property from one party to another.

What is a mortgage?

A mortgage is a loan used to purchase or refinance real estate. The property typically serves as collateral for the loan.

What is a lien?

A lien is a legal claim against a property that can secure payment of a debt or obligation. Certain liens may need to be resolved before a property can be transferred with clear title.

What is a cash buyer?

A cash buyer purchases a property without obtaining a mortgage loan. The buyer still has expenses and may have contingencies, inspections, and other contract requirements.

What is a multiple-offer situation?

A multiple-offer situation occurs when a seller receives more than one offer on a property at approximately the same time. The seller may evaluate the offers based on price, financing, contingencies, closing timeline, and other terms—not simply the highest price.

What is a seller concession?

A seller concession is an amount the seller agrees to contribute toward certain buyer expenses or other allowable costs as part of the transaction, subject to the purchase contract, lender guidelines, and applicable rules.

What is a price reduction?

A price reduction occurs when a seller lowers the asking price of a property. A reduction may be used to attract additional buyers, respond to market conditions, or reposition a listing.

What does "days on market" mean?

Days on market (DOM) measures how long a property has been listed for sale according to the applicable MLS rules. It can provide insight into market activity but should always be considered alongside price, condition, location, and broader market conditions.

What is a buyer's market?

A buyer's market generally occurs when there are more homes available for sale relative to the number of buyers. Buyers may have more negotiating power, more choices, and potentially more favorable terms.

What is a seller's market?

A seller's market generally occurs when buyer demand is stronger relative to the available inventory. Sellers may receive more interest and potentially have greater negotiating leverage.

What is a balanced market?

A balanced market is one in which neither buyers nor sellers have a significant advantage. Supply and demand are relatively balanced, and pricing and negotiation tend to be more stable.

What is inventory?

Real estate inventory refers to the number of homes currently available for sale. Inventory is an important indicator of market conditions and can influence pricing and negotiating power.

What is absorption rate?The absorption rate measures how quickly available homes are being sold in a particular market. It can help real estate professionals evaluate whether conditions favor buyers, sellers, or neither.

What is a mortgage pre-qualification?

A pre-qualification is generally an estimate of how much a buyer may be able to borrow based on information provided to a lender. Unlike a full pre-approval, it may involve less documentation and verification.

What is the difference between pre-qualification and pre-approval?

A pre-qualification is generally an initial estimate of borrowing ability, while a pre-approval typically involves a lender reviewing more detailed financial information. Requirements vary by lender, so buyers should ask exactly what has been reviewed.

What is a real estate broker?

A real estate broker is a licensed professional who has met additional education and licensing requirements beyond those required for a sales agent. A broker may operate a brokerage, supervise agents, and represent clients in real estate transactions.

What is a Realtor®?

A REALTOR® is a real estate professional who is a member of the National Association of REALTORS® and agrees to abide by its Code of Ethics. Not every real estate agent is a REALTOR®.

What is MLS?

MLS, or Multiple Listing Service, is a database used by real estate professionals to share information about properties for sale. MLS systems help agents market properties and access listing information, although not every property is necessarily listed in an MLS.

What is a pocket listing?

A pocket listing is a property marketed privately or to a limited audience rather than broadly marketed through an MLS. Availability and rules surrounding such listings vary by market and brokerage.

What is new construction?

New construction refers to a home that is newly built and has not previously been occupied as a residence. Buyers may work directly with a builder's sales team or have their own Realtor represent them, depending on the builder's policies.

What is a resale home?

A resale home is a property that has previously been owned and occupied or otherwise previously sold. Resale homes can range from older properties needing significant updates to nearly new homes.

What is an investment property?

An investment property is real estate purchased primarily to generate income, appreciation, or both. Examples include long-term rental properties, multifamily properties, and certain commercial properties.

What is a 1031 exchange?

A 1031 exchange is a provision of the U.S. tax code that may allow an investor to defer capital gains taxes when exchanging certain qualifying investment or business properties for another qualifying property. Strict rules and timelines apply, so investors should consult a qualified tax professional.

What is a flood zone?

A flood zone is an area classified according to its potential risk of flooding. Flood-zone designation can affect insurance requirements, financing, and property considerations. A property outside a designated high-risk flood zone can still experience flooding.

What is a survey?

A property survey identifies the boundaries and certain physical features of a parcel of land. Depending on the transaction and circumstances, a survey may be required by a lender or requested by a buyer.

What is a home warranty?

A home warranty is a service contract that may cover the repair or replacement of certain home systems and appliances. Coverage, exclusions, deductibles, and service fees vary by provider and plan. A home warranty is different from homeowners insurance.

What is homeowners insurance?

Homeowners insurance is insurance designed to protect a home and its contents against certain covered risks. Mortgage lenders commonly require homeowners insurance, although coverage requirements vary.

What is an escrow account?

An escrow account is an account used to hold money or documents on behalf of parties involved in a transaction. In a mortgage context, an escrow account may also be used by a lender to collect funds for property taxes and insurance.

What is an assumable mortgage?

An assumable mortgage is a loan that may allow a qualified buyer to take over the seller's existing mortgage under the lender's requirements. Not all mortgages are assumable.

What is a title commitment?

A title commitment is a document issued by a title company that outlines the conditions under which a title insurance policy may be issued. It can identify existing liens, restrictions, exceptions, and other matters affecting title.

What is a closing disclosure?

A Closing Disclosure (CD) is a document provided to a mortgage borrower that outlines the final terms and costs of the loan and transaction. It allows the buyer to review important financial details before closing.

What is a seller net sheet?

A seller net sheet is an estimate of how much a seller may receive from the sale after accounting for expected expenses such as the mortgage payoff, commissions or fees, taxes, title expenses, concessions, and other closing costs.

What is a buyer's estimated cash to close?

Cash to close is the estimated amount a buyer needs to bring to closing. It can include the down payment, closing costs, prepaid expenses, credits, deposits already paid, and other transaction-specific amounts.

Real estate terminology can feel like a language of its own.

And while understanding the terminology is important, you don't have to figure it all out alone. Whether you're buying your first home, selling a property, relocating to Houston or Austin, or simply trying to understand the market, a knowledgeable Realtor can help explain what each term means for your specific situation.

Have a question about a real estate term you don't see here?

Reach out to Real Haven Realty. We're happy to help you make sense of the process—without the jargon.

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