Some of the questions I’ve been getting lately via email got me thinking it’s time for a review of some basic real estate terminology and processes. This article will focus on many of the acronyms used in Real Estate. Next week we’ll talk about the different ways to hold title and transferring of title.
ARM stands for Adjustable Rate Mortgage – An ARM is a mortgage with an interest rate that may change, usually in response to changes in the Treasury bill rate or the prime rate.
CMA stands for Comparative Market Analysis – An evaluation of recently sold homes (that are comparable; i.e. 3 bed, 2 bath, 1600 sq feet) in a neighborhood to determine a fair price range for a certain home on the market. Buyers need a CMA to get a sense of the value of a property before they make an offer, while a seller needs one to determine the listing price of their property.
DOM stands for Days on Market – How long a property has been for sale on the market. This is also dependent on the rules of the multiple listing services. For example if an owner switches brokers, this can reset days on market but it isn’t accurate data. Typically, properties that have been on the market longer will command a lower price; the perception is the property must be overpriced.
DOS stands for Due on Sales Clause – A provision in a mortgage contract that requires the balance be repaid in full upon sale (and/or) conveyance of the property. Most mortgages written now contain this clause.
FMV stands for Fair Market Value – The estimate of the market value of a property. What a willing seller will sell the property to a willing buyer for at a specific point in time.
FSBO stands for For Sale by Owner – A method of selling property without the use of an agent or broker. A seller often will choose this method because they want to avoid paying commission on the transaction. The seller often short changes themselves by using this method.
HUD stands for Housing and Urban Development – established in 1965 to coordinate and administer programs that provide assistance for housing and urban development through state, local or private action. It makes direct loans, insures mortgages, provides housing subsidies and it promotes and enforces equal housing opportunity.
LTV stands for Loan to Value – A ratio that expresses the amount of the first mortgage lien as a percentage of the total appraised value of the real property. LTV is one of the key risk factors that lenders assess when qualifying borrowers for a mortgage.
MLS stands for Multiple Listing Service – It’s a proprietary database and software used by real estate brokers. It allows for widely shared information on properties between buying and selling brokers. Only brokers (and agents through their broker) have direct access to this database.
NAR stands for National Associations of Realtors – An organization of over 1.3 million realtors, brokers, appraisers and others involved in the residential and commercial real estate industries. A real estate agent can only be called a Realtor if he or she belongs to the National Association of Realtors. Realtors agree to a code of ethics and to arbitrate their disputes themselves rather than in court.
NOI stands for Net Operating Income – Income after deducting operating expenses but before deducting income taxes and the cost of debt service (interest).
PMI stands for Private Mortgage Insurance – Lenders require borrowers to purchase private mortgage insurance to protect their investment. Generally lenders only require borrowers to have PMI if the loan is 80 percent or more of the value of the property.
REIT stands for Real Estate Investment Trust – Can be a corporation or trust that pools capital of many investors to purchase and manage income property or mortgage loans. REIT’s are traded on the major exchanges just like stocks.
SFR stands for Single Family Residence – The most common type of real estate. Can also be referred to as single family detached, because the home stands alone on its own lot. It is not attached to any other structure like condominiums, townhomes, co-ops, or multi-family properties are.
I hope you have found this helpful. Please continue to send me your questions.