1031 exchange Named after Section 1031 of the IRS code, it is a law that allows you to defer federal (and some state) taxes on capital gains from the sale of a property that was used for trade, business, or investment purposes only. However, you must exchange the property for another that is similar in nature and equal to or greater in value than the one you are selling. Also known as a tax-deferred exchange, it is based on the premise that when you reinvest proceeds from a sale to another property, you haven’t really received funds to pay taxes on—it’s only a paper gain. Eventually, you will pay taxes when you sell a property that is not being replaced with another.

absorption rate This is essentially how long it takes for homes to sell in your area. It is usually referred to in months but, in a hot market, it can be referred to in weeks.

agent A person who represents someone else in the purchase or sale of real estate and is paid a commission. Commission is not paid directly to the agent, but rather it is paid to the agent’s broker.

appraisal An estimate of value.

attorney review A period of time when attorneys review the purchase contract only. Buyer or seller has the right to withdraw from the contract without penalty.

back-up offers Offers in a multiple-bid scenario (or bidding war) that are rejected but can later be accepted if the winning bid falls apart.

beneficiary A person named in a will to receive benefits from real estate, insurance policies, bank accounts, retirement accounts, and so on.

bidding war Having several buyers making offers and competing for the same property.

binding estimate A guaranteed estimate of moving costs, give or take about 10 percent.

broker The person who legally represents the client and receives a commission. The agent actually represents the broker.

Cape Cod-style A style of house built in colonial times (1600s-1700s); it’s a small, one-floor symmetrical home with a steep-pitched roof and a centered chimney. This type of home was built primarily in the New England region of the United States. In the 1930s and 1940s, thousands of Cape Cod revivals were built all over the United States, but particularly in Michigan, Ohio, and Pennsylvania.

capital gains tax A tax paid to the government for making a profit on the sale of an item, such as a home.

certificate of occupancy A document given by an official of the local government that allows a home to be occupied or used according to local rules, regulations, zoning laws, and ordinances.

closing The final event in the transferring of ownership of a piece of real estate. All relevant documents are signed and funds are transferred, as well.

cloud on the title An encumbrance, debt, or claim to a property which means that it cannot be legally sold. They are usually uncovered in a title search done by the buyer.

CMA (competitive market analysis) A study of similar homes in the area that are on the market, have recently sold, or have just gone under contract. The analysis is used as a pricing tool.

commission A fee paid in exchange for professional services, such as listing and marketing a home.

commission split How much of the commission the listing agent will share with an agent who brings the buyer.

comparables Similar homes in the area with regard to size, condition, style, and location.

condominium A form of ownership whereby someone owns entirely an individual unit in a multiunit building but also owns a part of the common area shared by all the owners in the building. There is usually one master deed.

contingency A plan of action that addresses an event that may or may not happen. If a contingency in a real estate contract is not met (or “resolved”), the contract ceases to exist.

co-op A form of ownership in multiunit buildings where individuals do not own any real estate but instead own shares in a corporation and a proprietary lease.

cosmetic improvements Any upgrades made to a home that are superficial and inexpensive relative to structural improvements. They improve the aesthetic appearance of a home in most cases. For example, painting, refinishing floors, and replacing light fixtures are considered to be cosmetic improvements.

counteroffer A response to an offer that is neither a rejection nor an acceptance but a suggestion of a new agreement.

credits and debits Money that is paid to the seller at closing by the buyer for any prepaid taxes or assessments, and money that is paid to the buyer by the seller for repairs or other agreed-upon payments.

curb appeal A home’s level of visual attraction from the street or curb.

death tax A common term for estate tax. A tax on the transfer of property after death.

deed A written legal document that transfers and demonstrates ownership of a property.

down payment The part of the sale price that is paid up front, in cash, by the buyer.

dual agency When a real estate agent or agency represents both sides in a transaction. Unless both parties agree to it, this is unethical. In some states, it is illegal.

earnest money A small amount of money put down by the buyer, often at the same time the offer is made, in order to show good faith.

equity Ownership. It is often the net difference between the value of the home and the amount of money owed on it.

escalation clause A term in a contract where a buyer tries to avoid participating in a bidding war by offering a certain amount of money over the highest bid.

escrow Money or documents held by a neutral third party until a property closes.

estate sale The sale of a deceased person’s real estate.

estate tax Also known as a death tax. It is a tax on the transfer of property from the deceased to an heir(s) and is paid before the property is distributed to those heirs.

exceptions When a seller names a party or parties who may purchase the home directly and will not be subject to a paid commission.

exclusive agency When the seller allows only one agency to both list and sell. If the seller finds his own buyer, a commission does not need to be paid.

exclusive right to sell When one agency has the sole right to represent the seller regardless of which agency sells it.

executor The person who carries out the terms of a will. A female is an executrix.

fair market value The value at which a licensed appraiser estimates a home to be worth. It can also be defined as the price that an able buyer is willing to pay for a home.

feature sheet A sheet(s) with beautiful photos of a property as well as impressive word descriptions showcasing a property at its best.

final walk-through The last in-person visit to and inspection of a property by the buyer, which is conducted immediately prior to closing.

fixture Something that is attached or affixed to a surface such as a chandelier, wall sconce, faucet, washing machine, and so on.

flat-fee listing A fee the seller pays up front instead of a percentage at closing. It does not matter if the property sells.

foreclosure A legal process where a seller either loses his interest in the home as a result of not meeting the terms of the loan, or when the sale of the home is forced by the lender.

FSBO (For-Sale-By-Owner) When a homeowner attempts to sell his home without the aid of a real estate agent.

guaranteed buyout When an employer or relocation company pays a transferring employee an agreed-upon amount of money for the home, whether it sells or not.

home equity loan When a seller borrows money and uses his home as collateral. It is also known as a second mortgage.

home stager A person who, for a fee, transforms a home into a condition suitable for selling.

home warranty insurance Insurance against problems with appliances and the systems of the home, such as heating and plumbing.

homeowner’s insurance Insurance that protects a homeowner from the loss of the home, its value or contents through theft, liability, damage from storms or wind, and other circumstances.

inspection A review or examination of a home, its structure, and its systems.

inspection cap When a buyer volunteers or agrees to a cap or limit to the amount of money or credits that he may ask for as a result of an inspection.

keypad The device that Realtors use to access lockboxes and the keys to a home.

lien A claim or a debt against a property.

list price The amount of money that a seller is asking.

listing agent The real estate agent who is representing the seller.

listing agreement The contract between the seller and the agency representing him.

listing presentation When a Realtor makes a case to be hired by the seller to market the home.

listing sheet The printout from the MLS with the essential information about the property for sale: list price, size, number of rooms, taxes, and so on.

lockbox A box made of strong material with a combination or electronic code. It houses a key to the property and is attached to a permanent fixture of the home so it cannot be removed from the property by anyone but the listing agent.

long-term real estate investment An investment that you hold for 10 years or more. The reason is that the market will fluctuate over the course of your ownership. It can take a dip (even a serious one), but history tells us that the real estate market will always recover within a 10-year time frame. lowball offer An offer on a property where the amount is considered to be well below the actual value.

MLS (Multiple Listing Service) An Internet database of homes currently for sale and on the market.

mortgage A loan that uses a piece of property as collateral.

NAR (National Association of Realtors) The nationwide trade organization for real estate agents.

net listing These listings are illegal in some states. The property is listed at an agreed-upon net price. If it sells for more than that, the Realtor takes the balance as commission.

nonbinding estimate A mover’s rough estimate or guess at what a move will cost.

nonresident seller One who sells property in a state other than the one in which he lives.

notary public A person who is legally authorized by the government to authenticate and verify signatures and documents. He or she receives the designation through a state-administered exam.

one-step bidding process When buyers making an offer on a home have one chance to offer their highest offer and best terms, usually without the benefit of a counteroffer or the ability to improve it at a later date.

open listing Paying a reduced fee to any Realtor who happens to bring a buyer. These are not always in writing.

passive income Type of income that comes from one of only two sources: a rental property or a business in which the taxpayer does not “materially participate.” Passive income is received on a regular basis with little or no effort to maintain it.

point Equal to 1 percent of the amount of a loan.

power of attorney A legal authorization to act on someone’s behalf.

preapproval letter After securing certain written documentation from the buyer, a bank or lender issues a letter that states how much money the buyer can borrow.

prequalification letter A letter that states what a bank or lender believes that a buyer can borrow based on a verbal statement of assets and income by the buyer.

purchase contract A promise to buy a piece of real estate for a certain amount and under certain terms.

Realtor A trademarked symbol of membership of a licensed real estate agent who belongs to the National Association of Realtors. They must abide by a strict code of ethics.

realty transfer tax Usually paid by the seller, it’s a state or local tax on the sale of any real estate. It is often a percentage of the sale price.

refinance When a homeowner pays off one loan and replaces it with a new one, usually for the purpose of paying a lower interest rate.

relocation clause The clause that a listing Realtor must disclose in a listing to alert buyers that a relocation company will be involved in the transaction.

relocation package A bundle of services that a company provides for a new employee who will be moving to a new location.

remediation To correct, clean up, or remove contamination on a property.

seller’s disclosure A written form where the seller shares or reveals to the buyer what he understands the condition of his home to be, specifically with regard to the structure, electrical and plumbing systems, and appliances.

settlement statement A document that itemizes all costs, fees, and payments in a real estate transaction. It is also known as a HUD (Housing and Urban Development) Statement or RESPA (Real Estate Settlement Procedures Act) Statement.

shopping an offer When a seller (or Realtor) discloses the amount of one buyer’s offer to another buyer for the purpose of obtaining a better offer.

staging The process of transforming a home through the strategic use of furniture placement, props, and color to create the most appealing visual interest. This enables buyers to take in its best features and to envision themselves living there; it creates the greatest perception of value to potential buyers.

supply and demand An economic law about the relationship between buyers and sellers and the equalizing effect that price has on quantity and desire.

survey To measure and establish the legal boundaries of a property.

tare weight The weight of a moving truck before your belongings are loaded onto it. The gross weight is what it will weigh after it’s loaded. The net weight is the difference between the two. Interstate movers will often use net weight to estimate the cost of a move.

tax assessed value What the local government thinks a home is worth. The worth is used to establish what the property taxes should be.

tax revaluation The process of reassessing values to homes in a community for the purpose of adjusting property taxes.

taxable profit The portion of the profit of the sale of a home that can be taxed by the government.

term A condition in a contract.

title search A process done by a title company where public records are searched to determine if there are any claims to a property through debt or liens as well as by other unknown owners.

two-step bidding process The receiving of multiple offers on a home in two stages. Sometimes the first round is responded to by the seller with a blanket counteroffer to all bidders.

under contract The status of a home that has a signed contract for its purchase but has not yet closed.

use and occupancy agreement An agreement to allow the buyer to occupy the property before the closing or the seller to occupy it after the closing.

zoning The regulation (usually by local government) of the various ways that a property may be used.