Home Buying Terms, Explained

Plain-English definitions of home buying terms - from preapproval and offers to contingencies, appraisal, title and closing.

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Pre-Approval
A pre-approval is a lender's conditional commitment to lend a specific amount, based on a review of the borrower's credit, income, and financial documents — stronger than a pre-qualification.
Earnest Money
Earnest money is a deposit a buyer puts down when making an offer, showing the seller they're serious — it's held in escrow and typically applied toward the down payment or closing costs at closing.
Contingency
A contingency is a condition in a purchase contract that must be satisfied for the sale to proceed — if it isn't met, the buyer can typically cancel the contract and recover their earnest money.
Home Inspection
A home inspection is a professional evaluation of a property's condition — structure, systems, and major components — typically performed after an offer is accepted and before closing.
Appraisal
An appraisal is a licensed professional's independent opinion of a property's market value, ordered by a lender to confirm the home is worth at least the loan amount before approving financing.
Cash to Close
Cash to close is the total amount a buyer must bring to closing: the down payment plus closing costs and prepaid items, minus any earnest money already deposited and any seller or lender credits.

Step by step

All 72 terms

  • AppraisalIntermediate

    An appraisal is a licensed professional's independent opinion of a property's market value, ordered by a lender to confirm the home is worth at least the loan amount before approving financing.

  • An appraisal contingency lets a buyer renegotiate or cancel a purchase contract if the property appraises for less than the agreed purchase price.

  • Appraisal GapIntermediate

    An appraisal gap occurs when a property appraises for less than the agreed purchase price, leaving the buyer to cover the difference in cash, renegotiate, or walk away if an appraisal contingency allows it.

  • Appraised value is a licensed appraiser's professional opinion of what a property is worth, based on comparable sales, condition, and market data — used by lenders to confirm a loan amount is justified.

  • Appreciation is an increase in a property's value over time, driven by market conditions, inflation, local demand, or improvements made to the property.

  • Assessed value is a local government's estimate of a property's worth, used to calculate property taxes — often lower than market value and updated on its own schedule, not tied to a sale.

  • An AVM is a software-based estimate of a property's value generated from public records, tax data, and recent comparable sales — fast and free, but less precise than a licensed appraisal.

  • A backup offer is a fully negotiated purchase agreement that only becomes active if the seller's primary accepted contract falls through.

  • A bumpable buyer has a contract contingent on selling their current home, but with a "bump" (kick-out) clause that lets the seller keep marketing the property and accept a stronger, non-contingent offer if one comes along — bumping the first buyer unless they remove their contingency within a set window.

  • A buyer's agent is a real estate agent who represents the buyer's interests in a transaction — helping find properties, negotiate price, and navigate the closing process.

  • A capital contribution fee, sometimes called a "cap fee," is a one-time charge some HOAs and condo associations collect from a buyer when a unit sells, funding the association's reserves — distinct from ongoing HOA dues or a separate transfer fee.

  • Cash over valuation describes a situation, common in the UK and Ireland, where the agreed sale price exceeds the mortgage lender's valuation of the property — requiring the buyer to cover the shortfall in cash, similar to a U.S. appraisal gap.

  • Cash to close is the total amount a buyer must bring to closing: the down payment plus closing costs and prepaid items, minus any earnest money already deposited and any seller or lender credits.

  • Chain of title is the complete, chronological history of every owner a property has had, traced through recorded deeds — a title search reviews this chain to confirm current ownership is legitimate and unencumbered.

  • Clear to close is the status a loan reaches once underwriting has verified every condition of approval, meaning the lender is ready to schedule closing and disburse funds.

  • ClosingBasic

    Closing is the final step of a real estate transaction, where the buyer signs loan documents, funds are disbursed, the deed is recorded, and ownership officially transfers to the buyer.

  • Closing costs are the fees and expenses — beyond the down payment — required to finalize a real estate transaction, including lender fees, title insurance, taxes, and recording fees.

  • Comparable sales, or "comps," are recently sold properties similar in location, size, condition, and features to a subject property, used to estimate its value.

  • A contingency is a condition in a purchase contract that must be satisfied for the sale to proceed — if it isn't met, the buyer can typically cancel the contract and recover their earnest money.

  • A cooling-off period is a legally defined window after signing a contract during which a buyer may cancel without penalty — availability and length vary significantly by state and contract type.

  • A counteroffer is a response to a purchase offer that changes one or more terms — price, closing date, contingencies — rejecting the original offer and proposing new terms instead.

  • "CTG" is the MLS status abbreviation for "Contingent" — a listing with an accepted offer that still depends on one or more contingencies, such as inspection, financing, or appraisal, being satisfied.

  • DeedBasic

    A deed is the legal document that transfers ownership of real property from a seller to a buyer, recorded with the local government at closing.

  • Depreciation is a decrease in a property's value over time — from market conditions or physical wear — or, for investors, a tax deduction that spreads a rental property's cost over its useful life.

  • A down payment is the portion of a home's purchase price a buyer pays upfront in cash, with the remainder financed through a mortgage.

  • Dual agency occurs when one agent (or brokerage) represents both the buyer and seller in the same transaction — legal in some states, prohibited in others, and requires disclosure where allowed.

  • Due diligence is the research and verification a buyer performs before finalizing a purchase — inspections, title review, and confirming a property's condition and legal status.

  • Earnest money is a deposit a buyer puts down when making an offer, showing the seller they're serious — it's held in escrow and typically applied toward the down payment or closing costs at closing.

  • End BuyerAdvanced

    In a wholesale real estate deal, the end buyer is the final purchaser — typically an investor or owner-occupant — who buys the property from the wholesaler, as opposed to the wholesaler who briefly controls the contract in between.

  • Escalation ClauseIntermediate

    An escalation clause automatically increases a buyer's offer by a set increment above any competing offer, up to a specified maximum price, without the buyer having to resubmit a new offer each time.

  • EscrowBasic

    Escrow refers to funds held by a neutral third party on behalf of a buyer, seller, or lender — during a purchase, to hold earnest money until closing, and afterward, to collect and pay property taxes and insurance on the homeowner's behalf.

  • An excess deposit is escrow or earnest money paid beyond the minimum amount actually required by the contract or lender — sometimes negotiated to strengthen an offer, and typically applied toward the purchase or refunded per the contract terms.

  • The Fair Housing Act is the federal law prohibiting discrimination in housing sales, rentals, and financing based on race, color, national origin, religion, sex, familial status, or disability.

  • "FFC" appears in real estate wire transfer instructions to route funds through an intermediary account — typically a title or escrow company's master account — into a specific, further-credited sub-account or client reference.

  • The final walk-through is a buyer's last inspection of a property, usually within 24 hours of closing, to confirm its condition hasn't changed and any agreed-upon repairs were completed.

  • A financing contingency lets a buyer cancel a purchase contract without penalty if they're unable to secure mortgage approval within a specified timeframe.

  • "HOI" is a common abbreviation for homeowners insurance, frequently used as a line item on mortgage, escrow, and closing documents.

  • A home inspection is a professional evaluation of a property's condition — structure, systems, and major components — typically performed after an offer is accepted and before closing.

  • A home sale contingency makes a purchase offer conditional on the buyer successfully selling their current home first, protecting them from owning two properties at once.

  • An "in lieu of repairs" credit or cash payment is money a seller gives a buyer at closing instead of actually performing repairs identified during inspection, letting the buyer handle the work themselves after closing.

  • An inspection contingency lets a buyer back out of a purchase, or negotiate repairs or a price reduction, if a home inspection reveals significant issues.

  • A kick-out clause — the same mechanism as a bump clause — lets a seller keep marketing a home under a home-sale contingent contract and "kick out" the buyer if a stronger, non-contingent offer arrives and the original buyer can't remove their contingency in time.

  • A lead-based paint disclosure is a federally required form for homes built before 1978, in which the seller discloses any known lead-based paint hazards and gives buyers the right to conduct a lead inspection before closing.

  • Listing price is the price at which a property is offered for sale — a starting point for negotiation, which may end up higher or lower than the final sale price.

  • LockboxBasic

    A lockbox is a secure container attached to a listed property that holds a key, accessible only to licensed agents with the correct code or electronic credential, letting buyer's agents show the home without the seller present.

  • Market value is the price a property would likely sell for in the current market, given normal conditions and a willing buyer and seller — distinct from appraised value or assessed value, which are formal estimates for specific purposes.

  • The MLS is a database where real estate agents share listings of homes for sale, giving buyers and their agents access to comprehensive, up-to-date property data within a market.

  • A multiple offer situation occurs when a seller receives more than one competing offer at the same time, often driving the final sale price above the original listing price.

  • A UK property listing marked "no onward chain" means the seller isn't simultaneously buying another property to move into, so the sale doesn't depend on — and can't be delayed by — a purchase further up their own chain.

  • Non-recurring closing costs are one-time fees paid to complete a transaction — loan origination fees, title insurance, appraisal, and recording fees — as opposed to recurring costs like prepaid property taxes and insurance that continue every year.

  • An open house is a scheduled block of time when a listed property is open for the public to walk through without an individual appointment, typically hosted by the seller's agent.

  • An option period, common in states like Texas, is a negotiated window of days after contract signing during which a buyer can back out of the purchase for any reason, in exchange for paying the seller a small non-refundable option fee.

  • A planned unit development is a zoning designation for a project designed as a single, cohesive development — often mixing housing types, shared amenities, and common areas — governed by its own set of rules rather than standard lot-by-lot zoning.

  • POC, marked next to a line item on a Closing Disclosure or settlement statement, means that fee was already paid before closing — such as an appraisal fee paid directly to the appraiser — so it isn't collected again as part of the funds due at closing.

  • Prepaids are amounts paid at closing for expenses that belong to the period after you own the home - typically mortgage interest from the closing date to the end of the month, the first year of homeowners insurance, and initial deposits that fund your escrow account.

  • Price per square foot is a property's price divided by its total livable square footage, used to compare properties of different sizes within the same market.

  • Pro RataAdvanced

    Pro rata means dividing a shared cost or income proportionally — based on ownership percentage, square footage, or time — rather than splitting it equally.

  • A property survey is a professional measurement of a property's exact boundaries, structures, and easements, often required by a lender or title company before closing to confirm there are no encroachments.

  • ProrationsIntermediate

    Prorations are the day-by-day splitting of costs — like property taxes, HOA dues, or rent — between a buyer and seller at closing, based on how many days each party actually owned the property during the billing period.

  • Radon testing measures the level of radon — a naturally occurring, odorless radioactive gas linked to lung cancer — inside a home, often performed as part of due diligence before closing.

  • Redlining was the historical practice — now illegal — of denying mortgages or insurance to residents of certain neighborhoods, disproportionately minority areas, based on maps that literally outlined them in red.

  • A restrictive covenant is a recorded rule limiting how a property can be used or altered — set by a developer, HOA, or prior owner — that runs with the land and binds future owners, not just the person who agreed to it.

  • Sale price is the final, agreed-upon price a buyer and seller settle on for a property, which becomes part of the public record and future comparable sales data.

  • Seller ConcessionIntermediate

    A seller concession is an amount a seller agrees to contribute toward a buyer's closing costs, typically to make a deal more attractive without lowering the purchase price directly.

  • A reverse contingency flips the usual arrangement: instead of the buyer's purchase depending on selling their own home, the seller's ability to close depends on finding and closing on their own replacement property.

  • A septic inspection evaluates the condition and function of a property's septic system — common due diligence for homes not connected to municipal sewer service.

  • Settlement is another term for closing — the final step in a real estate transaction where ownership legally transfers and remaining funds are exchanged.

  • Steering is the illegal practice of an agent directing homebuyers toward or away from certain neighborhoods based on a protected characteristic like race or national origin, rather than the buyer's own stated preferences.

  • Title insurance protects a buyer and lender against financial loss from title defects — such as undisclosed liens or ownership disputes — that a title search may not catch.

  • A title search is a review of public records to confirm a property's legal ownership history and check for liens, unpaid taxes, or other claims that could affect the sale.

  • Warranty DeedIntermediate

    A warranty deed transfers property with the seller's legal guarantee that they hold clear title and the right to sell it, and that they'll defend the buyer against any future ownership claims — the standard deed type used in most home sales.

  • Well water testing checks a private well's water quality and quantity — for bacteria, contaminants, and flow rate — common due diligence for homes not connected to a municipal water supply.

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Definitions are provided for general educational purposes and are not financial, legal, tax, or real estate advice. Rules vary by transaction and location - verify important decisions with qualified professionals.