Real Estate Terms People Confuse

The cost of borrowing the principal, expressed as a yearly percentage — used to calculate your monthly principal-and-interest payment.

A broader annualized borrowing cost that folds in certain lender fees and closing costs on top of the interest rate — usually a bit higher than the rate itself.

A licensed appraiser's formal opinion of value, ordered by a lender to confirm a loan amount is justified.

What a property would likely sell for right now, given current buyer demand — an estimate, not a formal figure.

A local government's valuation used to calculate property taxes — often lower than market value and updated on its own schedule.

An informal, non-binding estimate based on self-reported financial information — a quick first step, not verified.

A lender's conditional commitment to lend a specific amount, based on verified credit, income, and financial documents — carries far more weight with sellers.

Private Mortgage Insurance — required on most conventional loans with a down payment below 20%, and can typically be removed once enough equity builds up.

Mortgage Insurance Premium — required on FHA loans as both an upfront and ongoing fee, in most cases regardless of down payment size, and often lasts for the life of the loan.

Assesses a property's physical condition — structure, systems, and major components — for the buyer's benefit.

Provides an opinion of a property's value for lending purposes, ordered by the lender to confirm the loan amount is justified.

The portion of the purchase price paid upfront in cash — reduces how much you finance.

Separate fees — lender charges, title insurance, taxes, recording fees — required to finalize the transaction, typically 2-5% of the purchase price.

Property-level operating return before financing — NOI divided by property value. Useful for comparing properties independent of how they're financed.

Return relative to the actual cash invested — the down payment, closing costs, and upfront renovation spend — after accounting for financing.

Improperly mixing a client's trust or escrow funds with an agent's or company's own operating funds — a violation even if every dollar is still accounted for.

Actually using a client's trust or escrow funds for a purpose other than what they were entrusted for — a more serious violation than commingling.

The cost to build an exact replica of the existing structure, using the same materials, design, and methods — including any outdated features.

The cost to build a structure of equivalent utility using current materials and modern construction methods — not an exact copy.

The cap rate at the moment of purchase — first-year projected NOI divided by the purchase price.

The cap rate assumed at the end of the holding period, used to estimate resale value from projected future NOI.

Funds From Operations — net income with real estate depreciation and property-sale gains/losses added back or removed, a REIT-standard profitability measure.

Adjusted Funds From Operations — FFO further reduced by recurring capital expenditures and leasing costs, meant to approximate actual distributable cash flow.

One-time fees to complete the transaction — loan origination, title insurance, appraisal, and recording fees.

Prepaid amounts for costs that continue every year — property taxes and homeowners insurance collected upfront into escrow.

The property's value in its current physical condition and current occupancy, right now.

A hypothetical value assuming the property has reached a normal, sustainable level of occupancy and operations — after lease-up or renovation is complete.

Transfers whatever interest the grantor has, with no guarantee of clear title — common between family members or to fix a title defect.

Transfers ownership with the seller's legal guarantee of clear title and a promise to defend against future claims — standard in arm's-length sales.

Carried out through the court system — slower, but gives the borrower more opportunity to contest it.

Carried out under a "power of sale" clause without going to court — faster, and used wherever a deed of trust (rather than a mortgage) secures the loan.

Equal ownership shares with automatic right of survivorship — a deceased owner's share passes directly to the surviving owners, bypassing probate.

Ownership shares can be unequal, and each owner's share passes to their own heirs, not automatically to the other owners.

Tenant pays base rent plus taxes, insurance, and maintenance — the landlord's income is highly predictable.

Tenant pays one flat rent; the landlord covers taxes, insurance, and maintenance out of that rent.

A revolving credit line, usually at a variable rate — borrow, repay, and re-borrow as needed during the draw period.

A one-time lump sum at a fixed rate, repaid in equal installments — predictable, but no flexibility to re-borrow.

Pays replacement cost minus depreciation for age and wear — a lower payout, but a cheaper policy.

Pays the full cost of a new equivalent item or structure, regardless of the age of what was damaged.

The wholesaler never takes title — they transfer their contract rights to the end buyer for an assignment fee.

The wholesaler briefly takes actual title in one closing, then resells to the end buyer in a second, separate closing.

At or below the FHFA's annual loan limit — eligible for purchase by Fannie Mae or Freddie Mac.

Above the conforming loan limit — can't be sold to Fannie Mae or Freddie Mac, typically requiring stronger credit and a larger down payment.

The lender can pursue the borrower's other assets and income if foreclosure doesn't fully repay the loan — the default of most residential owner-occupied mortgages.

The lender's recovery is limited to the property itself — common in commercial and many DSCR investment loans, shifting more risk to the lender.

Supply exceeds demand — buyers have more negotiating leverage, homes sit longer, and price reductions are more common.

Demand exceeds supply — sellers have more leverage, homes sell faster and closer to (or above) asking price, and multiple-offer situations are more common.

Built entirely in a factory to federal HUD code, on a permanent chassis — financing and appraisal typically work differently than site-built homes.

Built in sections in a factory to the same local/state building codes as a site-built home, then assembled on a permanent foundation.

Payments cover interest only for an initial period — lower payments up front, but no equity built through payments and a payment jump when the period ends.

Every payment includes both principal and interest from day one, steadily paying the loan down to zero by the end of the term.

A buy-and-hold rental screening test — monthly rent should be at least 1% of purchase price.

A fix-and-flip screening formula — maximum offer is 70% of after-repair value, minus repair costs.

Price divided by gross annual rent, before any expenses — a fast screening number that ignores operating costs entirely.

Net operating income divided by property value, after operating expenses — a more complete (but slower to calculate) return measure.

Defers capital gains tax by reinvesting the full sale proceeds into another "like-kind" property, with strict identification and closing deadlines.

A fractional-ownership structure that still qualifies as like-kind real estate for a 1031 exchange, letting an investor exit active management while keeping the tax deferral.

Defers (and can partially exclude) capital gains tax by reinvesting just the gain — not the full proceeds — into a designated Opportunity Zone fund; no replacement real estate required.