It’s no secret that the world of real estate is replete with jargon — from abstract abbreviations to vague phrasing and beyond. The problem? Understanding real estate terminology is vital for both buyers and sellers to navigate the market effectively.

Here are the most commonly misunderstood real estate terms today — along with their actual definitions.

#1 Appraisal

Misunderstood As: A thorough inspection of the property.
Correct Definition: An evaluation of a property’s market value by a licensed appraiser, often required by lenders to determine the precise loan amount.

#2 Assessment

Misunderstood As: The exact same thing as an appraisal.
Correct Definition: The value assigned to a property by a public tax assessor for the purpose of calculating property taxes.

#3 Closing Costs

Misunderstood As: The down payment.
Correct Definition: Fees and expenses (over and above the price of the property) incurred by buyers and sellers during the transfer of ownership of a property, including title insurance, escrow fees, and attorney fees.

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#5 Contingency

Misunderstood As: An optional clause in a contract.
Correct Definition: A condition in a purchase agreement that must be met for the contract to become binding, such as financing, home inspection, or appraisal contingencies.

#6 Earnest Money

Misunderstood As: Part of the down payment.
Correct Definition: A deposit made by the buyer to show their serious intent to purchase a property, which is applied toward the purchase price if the sale does, in fact, go through.

#6 Escrow

Misunderstood As: An extra fee paid by the buyer.
Correct Definition: A neutral third party that holds funds or documents until certain conditions of a contract are fulfilled. Often referred by agent as escrow agent or title company.

#7 Equity

Misunderstood As: The profit made from selling a home.
Correct Definition: The difference between the market value of a property and the amount owed on the mortgage.

#8 Fixed-Rate Mortgage

Misunderstood As: A mortgage where the payment amount is fixed.
Correct Definition: A mortgage with an interest rate that remains the same for the entire term of the loan.

#9 Interest Rate

Misunderstood As: The total cost of the mortgage.
Correct Definition: The percentage of the loan amount charged by the lender for borrowing money, expressed as an annual percentage of the loan balance.

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#10 Principal

Misunderstood As: The person who owns the property.
Correct Definition: The amount of money borrowed for a mortgage, not including interest.

#11 Private Mortgage Insurance (PMI)

Misunderstood As: Homeowners insurance.
Correct Definition: Insurance that protects the lender in case the borrower defaults on the loan, typically required when the down payment is less than 20% of the home’s purchase price.

#12 Title Insurance

Misunderstood As: Regular homeowners insurance.
Correct Definition: Insurance that protects against losses due to defects in the title, such as liens or encumbrances.

#13 Underwriting

Misunderstood As: The process of writing the mortgage contract.
Correct Definition: The process by which a lender evaluates the risk of a borrower’s ability to repay a loan, including the assessment of the borrower’s credit history, income, and the property value.

#14 Closing

Misunderstood As: The final payment on the property.
Correct Definition: The final step in a real estate transaction where the title of the property is transferred from the seller to the buyer, and the buyer finalizes mortgage documents.

#15 Short Sale

Misunderstood As: A quick property sale.
Correct Definition: A sale of a property in which the proceeds are less than the amount owed on the mortgage, but the lender agrees to accept the reduced amount in order to release the lien.

Questions for us? Ready to make moves? Give us a call today to put your home buying or selling plan into action. Get in touch with us directly by calling 202.280.2060 or emailing us at jsmira@jennsmira.com today!