In the world of real estate, like any field or area of specialty, there are hundreds of words and acronyms the average buyer or seller may not be familiar with. While your trusted real estate professional should be able to guide you through your own process of selling or purchasing a home by helping to educate you on unfamiliar terms, the following list breaks down ten real estate terms you will want to know.
1. Certificate of Occupancy (COO)
A certificate of occupancy is a document issued by a local zoning or building department stating that a home or property is suitable for occupancy. To be considered suitable, it needs to be compliant with the building code that applies in that area (which means it needs to adhere to safety standards).
2. Competitive Market Analysis (CMA)
A competitive analysis is a strategy that involves researching major competitors to gain insight into their products, sales, and marketing tactics. Implementing stronger business strategies, warding off competitors, and capturing market share are just a few benefits of conducting a competitive market analysis.
3. Days on Market (DOM)
Days on market is the number of days that a property has been listed on the local multiple listing services (MLS) until a seller has accepted an offer and signed a contract. While a high DOM can be a sign to buyers that something is wrong with the house, it can also indicate a potential bargain. DOM can perhaps be a sign of sellers who are refusing to budge on their asking price. It can also identify sellers who haven’t gotten many good offers and who may be open to a dramatically lower offer.
4. Debt to Income Ratio (DTI)
Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. This number is one way mortgage lenders measure your ability to manage the monthly payments to repay the money you plan to borrow.
5. Fair Market Value (FMV)
Fair market value (FMV) is the determined value of a home and what it will sell for in an open market. Typically, a willing seller and willing buyer will agree on a property’s FMV, using their mutual knowledge of the property in the transaction.
6. Maximum Allowable Offer (MAO)
The maximum allowable offer (MAO) is a tried-and-true calculation real estate investors use to determine the price they would like to offer on a particular investment property. It is an equation that ensures investors maintain the desired profit while considering expected fixed and rehab costs.
7. Natural Hazard Disclosure (NHD)
Every state has real estate disclosure laws—and if that state has natural hazard zones, it likely has a law that requires you to disclose it to your sellers. This is especially true if you live in one of the top 10 natural disaster states. To be on the safe side, ask your agent about your state’s requirements for natural hazard disclosures, and any official natural hazard reports you may need to order as part of your home sale.
8. Principal, Interest, Taxes, and Insurance (PITI)
PITI is an acronym that stands for principal, interest, taxes, and insurance. Many mortgage lenders estimate PITI for you before they decide whether you qualify for a mortgage. Lending institutions don’t want to extend you a loan that’s too high to pay back.
9. Single Family House/Single Family Residence (SFH/SFR)
The legal description for this home is “a structure maintained and used as a single dwelling unit.” Characteristics include no common walls, it is on its own parcel of land, private and direct access to a street, one owner, one set of utilities, and only one kitchen.
10. Truth in Lending Act (TILA)
The Truth in Lending Act (TILA) is a federal law enacted in 1968 to help protect consumers in their dealings with lenders and creditors. Some of the most important aspects of the act concern the information that must be disclosed to a borrower before extending credit, such as the annual percentage rate (APR), the term of the loan, and the total costs to the borrower. This information must be conspicuous on documents presented to the borrower before signing and in some cases on the borrower’s periodic billing statements.