Essential Real Estate Terms That You Must Be Familiar with
At some point in our lives, most of us will require to ponder about acquiring properties. However, we never get any academic training to venture through the world of real estate in Bangladesh. Especially the young generation has a tough time understanding all the real estate terms when they try to look for properties to buy. Hence, a glossary of essential real estate terms that everyone must be familiar with can be a real life-saver.
Advertising Real Estate Terms
With numerous competitors in the market and their aggressive selling and marketing campaigns, a new buyer is likely to get very confused with various real estate terms. Here are a few standard real estate terms used in advertising real estate.
On the Main Road
One of the most lucrative advertising real estate terms is “On the Main Road”. This phrase means the property is right next to the main road or very close to the main road. This real estate term suggests that the property will provide the most accessibility to transport. However, this term may also have an adverse effect on the buyers, as close the main road will come with its own set of problems such as extreme sound and dust pollution.
Down the Lane
Contrary to the phrase mentioned above, this real estate term means the property is far away from the main road. Usually, buyers prefer to stay close to the main road for more accessible transportation. However, some buyers prefer to stay further away from the main road as it reduces noise and dust pollution to some extent.
The Floor Below the Roof/ Top Floor
For most buyers, this real estate term is a red flag. This term means that the property is right below the roof or on the top floor. Due to excessive heat in the summer, the people living in the top floor properties suffer from the terrible heat in most houses. However, modern-day real estate properties use newer technology to tone down the heat.
In Developing Area
This real estate term gets misused most frequently by the sellers. While the phrase means the property is in an area that is developing rapidly. However, in the real world, in most cases, the term will be used to hide the fact that the property is far away from cities or within underdeveloped regions.
Below the Market Price
Below the market price is another lucrative real estate term used by most sellers to attract customers. This term means the seller is selling the property at a discounted price than its most competitors. While the term sounds lucrative, it can be deceptive as well. Often sellers will try to hide specific property issues by providing the discount. Hence, most buyers become cynical and skeptical of such terms and try to stay away from such advertised real estate properties.
State of the Art
This real estate term is used to describe modern properties. Usually, stylish properties that are embedded with high-end technology earn the term. Such properties are often described as “Smart Properties“ as well. Fancy features such as automatic control of electronic appliances, smart doors, security cameras are available in such properties.
This real estate term is often used when the seller is trying to sell off an old property. Properties built decades ago naturally have the design and style of that period. Often, buyers are not interested in those properties as they lack the modern touch. However, a certain customer base prefers the old-school look and design.
Financial Real Estate Terms
Buying property comes with a lot of financial complexities. Buying a property requires dealing with the seller of the property. The buyer must deal with the bank, other lending entities, insurance companies, attorneys, government officials, and other concerned parties. Here are a few financial real estate terms essential for the buyers to know.
In most cases, buyers take loans from the bank before buying any property. However, before approving the loan, the bank needs to conduct a valuation of the property. In real estate terms, an appraisal is when the bank appoints a person to estimate the right value of the property. This helps the bank to write the loan to the client and be sure of the risk and gains of the property as well.
Closing is a common financial term in the world of real estate. Whenever both parties of a deal finalize the terms of the deal- they close the deal. Closing means signing off all the papers and transferring the property as well. Upon closing, the buyer pays off the seller and becomes the rightful owner of the property.
Buying a property is expensive. One of the mistakes people new to the real estate industry make is that buying a property means paying off only the seller. However, in the real world, the case is quite the contrary. While closing the deal on the property, the buyer needs to pay off the seller and the lender, the title company, attorneys, insurance companies, taxing authorities, government officials, real estate agents, and other closing-related fees. Closing cost is the sum of all expenses, including the property’s price and all other additional fees to be paid to the other concerned parties.
Comparative Market Analysis
Comparative Market Analysis or CMA is very critical before buying any property. The buyers usually do this analysis. However, the sellers also perform the CMA to get a proper idea of the correct pricing of any property. The comparative market analysis analyses the price of properties near the property that the buyer is willing to buy against its all competitors. A clear and concise picture of the property can be obtained by doing so.
Debt to Income Ratio
The debt to income ratio or DTI ratio is critical when the buyer is willing to take a loan to buy a property. The bank calculates the DTI ratio before writing off the loan. The debt to income ratio is the ratio of the monthly loan payment to the buyer’s monthly income who is willing to take the loan. DTI is calculated in percentage. So, lenders such as banks are more eager to give the loan to people with a lower percentage of DTI as they are deemed less risky.
Property equity is another concern of the lending entities. When the buyer takes a mortgage to buy a property, the banks or other lending entities will weigh the buyer’s interest until the loan is fully repaid. Equity of the property of the buyer’s portion after paying off the mortgages. In simple terms, the property’s equity is the current value of the property minus the mortgage balance.
Forced Sell Value
Forces sell value or FSV is another real estate glossary that the banks use before writing off the property loans. FSV only comes to play when the borrower fails to pay the mortgage consecutively. Under such circumstances, the bank takes over the property and strips the borrower from its ownership. However, the bank does not hold any properties. They soon arrange an auction to sell the property to a new owner. The FSV is the value the bank expects to get while it auctions off the property.
The bank issues the pre-approval letter. This letter is another important to the property buyer who is taking loans from the bank to buy the property. The pre-approval letter clearly states the amount of money the bank has decided to provide the borrower. This letter gives a clear picture to the buyer about precisely what type of property they will be able to afford. The letter further contains additional information such as the interest rate, debt to income ratio, cash on hand, and the borrower’s credit history.
Inspection is a key real state term for buyers. The buyers need to all be aware of the condition of the bought property. Often, buyers come across various plumbing, foundation, electrical fittings, and other features with the property after closing the deal. It is too late, and the buyer has to fix the issues with their own money or has to live accepting the property’s faults. Hence, it is essential to conduct a proper inspection before buying any properties. There are professional property inspectors who inspect the property thoroughly for a fee.
Non-Encumbrance Certificate (NEC)
NEC is another dire important real estate term. NEC is one of the primary things to check prior to buying any property. NEC certificate provides the validation of the property’s ownership. The NEC certificate states that the property is devoid of any encumbrances and safe to transfer ownership. NEC is critical because without this certificate, even after the closing of the deal, legal issues from parties, who may claim to be the owner, will arise. To avoid such legal disputes, the buyer must always thoroughly check the NEC before closing any property deals.
Legal Real Estate Terms
Before closing a property deal, the buyer needs to go through various legal formalities to acquire the ownership of the property rightfully. However, like the other real estate terms, the legal real estate terms can be very confusing to newly interested buyers. Here’s a short guide to the essential legal real estate terms.
BIA Deeds, Khatiyans
BIA deeds are the previous sell history of the land. Before buying the property, the buyer must carefully go through the BIA deeds and check the chain of ownership. The BIA deed should contain the ownership history of the past 25 years of the property.
Buyers also need to seek the necessary documents about the property in the form of khatiyans from the seller. The khatiyans should be thoroughly inspected by a lawyer to confirm the documents. To further verify the khatiyans, it should be matched with the records of the Deputy Collectors Office.
Deed of Transfer
The deed of transfer is a common legal real estate term. It is prepared to close off the deal and transfer the ownership to the buyer from the seller. A lawyer must prepare the deed of transfer. In addition to preparing the deed, the lawyer needs to calculate the stamp fee which is required before transferring the ownership. The stamp fee will be paid to the land registry office of the government to officially register the transfer of the ownership.
Homeowners’ Association (HOA)
HOA is a common real estate term in the housing industry. Homeowners association is a private organization that sets specific rules and regulations for all the houses under its authority. Usually, every planned housing sector has a homeowners’ association. When the buyers buy properties that the HOA governs, they are obliged to abide by all the rules and regulations that are set by the HOA. Otherwise, the HOA has the right to act against the property owners.
The real estate industry can be confusing to most people. It is even more challenging to understand for the young generation interested in buying property for the first time in their lives. Different real estate agents will say various confusing terms to the buyer, and they will feel lost. In addition, they may often misinterpret the advertisements or fail to understand the inner meanings of certain terms. However, if one understands the real state terms and real state glossaries, it becomes easier to understand the world of real estate.
Is it possible to hire a professional to handle all the paperwork?
Ans: Any licensed real estate agent is qualified to manage all the paperwork and legal procedures involved in owning a real estate property.
How to avoid deceptive advertising terms when buying a property?
Ans: Marketers tend to rely on lucrative advertising terms to lure potential customers. To avoid being a victim to fraud, asking professional guidance from a real estate agent can be really helpful.
What is the first step of buying a real estate property?
Ans: The first step is reaching out to a real state agent who will show the appropriate available options to buy from.
Which location is the best to buy a property?
Ans: It varies from different buyers’ choices. A real estate agent will guide you towards the renowned property dealers such as Mir Real Estate.
How much can one borrow from the bank to buy a property?
Ans: The loan amount will depend on the income and wealth of the borrower. After assessing the borrower, the bank will decide how much it can provide. Before taking a loan you should check the Guide to Help the First Time Homebuyer with Home Loans.