33 Commonly Used Real Estate Terms

Real estate in Edmonton
Buying or Selling a Home in Edmonton can be confusing!  As Realtors, we often forget that we throw around terms and acronyms as if everyone should know them.  Here’s a glossary of the top 33 (my favourite number) terms that I can think of that may be confusing.
  1. Amortization: The length of time allotted to paying off a loan – in home-buying terms, the mortgage. Most maximum amortization periods in Canada are 25-30 Years.
  2. Balanced Market: In a balanced market, there is an equal balance of buyers and sellers in the market, which means reasonable offers can be more often accepted by sellers, homes can sell within a reasonable amount of time and prices remain stable.
  3. Bridge Financing: A short-term loan designed to “bridge” the gap for homebuyers who have purchased their new home before selling their existing home. This type of financing is more common in a seller’s market. It allows homebuyers to purchase without having to sell first.
  4. Buyer’s Market: In a buyer’s market, there are more homes on the market than there are buyers, giving the limited number of buyers more choices and often, greater negotiating power. Homes typically stay on the market longer, and prices can be stable or dropping
  5. Closing: This is the last step of the real estate transaction, once all the offer conditions outlined in the Agreement of Purchase and Sale have been met, and ownership of the property is transferred to the buyer. Once the closing period has passed, the keys are exchanged on the closing (possession) date outlined in the offer.
  6. Closing Costs: The costs associated with closing the purchase. These costs can include legal and administrative fees related to the home purchase. Closing costs are additional to the purchase of the home.
  7. Comparative Market Analysis: Comparative market analysis (CMA) is a report on comparable homes in the area that is used to derive the most accurate value possible for the home in question.
  8. Home Inspection: The home inspection is performed to identify any existing or potential underlying problems in a home. This not only protects the buyer from risk but can also give the buyer leverage when negotiating a reduced selling price.
  9. Condominium Ownership: A form of ownership whereby you own your unit and have an interest in common elements such as the lobby, elevators, halls, parking garage, and building exterior. The condominium association is responsible for the maintenance of the building and common elements, and collects a monthly condo fee from each owner, based on their proportionate share of the building.
  10. Contingencies: This term refers to terms and conditions, both for a seller and a buyer, that have to be met in order for the purchase of a home to be finalized. For example, there may be contingencies that the mortgage loan must be approved, or the appraised value must be near the final sale price.
  11. Deposit: An up-front payment made by the buyer to the seller’s brokerage at the time the offer is accepted or shortly after. The deposit shows the seller that the buyer is serious about the purchase. This amount will usually be held in trust by the seller’s brokerage until the deal closes, at which point it is applied to the purchase price.
  12. Down Payment: The down payment is the amount of money paid up-front for a home, in order to secure a mortgage. In Canada, the minimum down payment is 5% of the home’s total purchase price. Down payments of less than 20% of a home’s purchase price require mortgage loan insurance. The selling price, minus the deposit and down payment, is the amount of the mortgage loan.
  13. Dual Agency: Dual agency is when one agent represents both the buyer and seller, rather than having both a buyer’s agent and a listing agent.
  14. Equity: The difference between a home’s market value and the amount owing on the mortgage. This is the portion of the home that has been paid for and is officially “owned”.
  15. Fixed-Rate Mortgage: A fixed-rate mortgage guarantees your interest rate for a pre-determined amount of time, typically five years. When the term expires, you have the option to stay with the same lender or switch to a different one.
  16. Land Transfer Tax:  This is the tax payable by the buyer to the province and/or municipality in which the transaction occurred upon transferring land. The amount varies depending on the region, the size of the land, and other factors. Alberta does not have a land transfer tax.
  17. High-Ratio Mortgage: A high-ratio mortgage is a mortgage where the borrower has less than 20% of the home’s purchase price to make as the down payment. A high-ratio mortgage with a down payment between 5% and 19% of the purchase price requires mortgage loan insurance. In Canada, 5% is the minimum amount required for the down payment.
  18. Home Appraisal: A qualified professional provides a market value assessment and formal appraisal of a home based on several factors property size, location, age of the home, etc. This is used to satisfy mortgage requirements, giving mortgage financing companies confirmation of the mortgaged property’s value.
  19. Home Buyers’ Amount: There are federal homeowner assistance programs on qualifying homes, usually to assist first-time buyers with purchase-related costs.
  20. Home Buyers’ Plan: A federal program allowing first-time homebuyers to withdraw up to $35,000 interest-free from their Registered Retirement Saving Plan (RRSP) to help purchase or build a qualifying home. The borrowed amount must be repaid within 15 years to avoid paying a penalty.
  21. Land Survey: A land survey will identify the property lines. This is not required to purchase a home, but is recommended and may be required by the mortgage lender to clarify where on the property the owner has jurisdiction. This is important if issues arise between neighbours or the municipality, should the owner wish to make changes in the future such as installing a pool, fence, or other renovations involving property lines.
  22. Freehold Ownership: A form of ownership whereby you own the property and assume responsibility for everything inside and outside the home.
  23. Porting: Transferring your mortgage (and the existing rate and terms) from one property to another
  24. Seller’s Market: In a seller’s market, there are more buyers than there are homes for sale. With fewer homes on the market and more buyers, homes sell quickly in a seller’s market. Prices of homes are likely to increase, and there are more likely to be multiple offers on a home. Multiple offers give the seller negotiating power, and conditional offers may be rejected.
  25. Virtual Deals: The home-buying process is completed by means of technology in place of face-to-face contact. Some common digital tools include 360 home tours and video showings, video conference calls, e-documents, e-signatures, and e-transfers.
  26. Mortgage Pre-approval: A mortgage pre-approval helps buyers understand how much they can borrow before going through the mortgage application process. Allows you to make an immediate offer when you find a home, since you know how much you’ll be approved for with this lender, and locks n the current interest rate for a period of time insinuating you against near-term rate increases.
  27. Title Insurance: Title insurance is not mandatory in Canada, but it is highly recommended to protect both the buyer and the mortgage lender against losses related to the property title or ownership, such as unknown title defect, existing liens against the property’s title, encroachment issues, title fraud, errors in surveys and public records, and title-related issues that could prevent you from selling, leasing, or obtaining a mortgage. Your lawyer can advise you on this.
  28. Mortgage Loan Insurance: If your down payment is less than 20% of the purchase price of the home, mortgage loan insurance is required. It protects the lender in case of a payment default. Premiums are calculated as a percentage of the down payment, changing at the 5%, 10%, and 15% thresholds.
  29. Offer: An offer is a legal agreement to purchase a home. An offer can be conditional on a number of factors, commonly conditional on financing and a home inspection. If the conditions are not met, the buyer can cancel their offer.
  30. Interest Rates: The interest rate is the fee you pay your mortgage lender for the use of their money. Your mortgage lender, in turn, may be using the money from the Bank of Canada or another financial institution.
  31. Variable Rate Mortgage: A variable rate mortgage fluctuates with the prime rate. Your monthly payments remain the same, but the proportion of your payment going towards principal versus interest can change.
  32. Prime Rate: The prime rate is the basic interest rate used by your bank or mortgage lender to calculate your mortgage rate. All of Canada’s “Big Five” banks share the same prime rate, which is based on the interest rate set by the Bank of Canada.
  33. Inflation: The Bank of Canada calculates an inflation rate each month, which calculates how prices are rising in the economy. Roughly speaking, you can think of inflation as decreasing the value of your money- if the monthly inflation rate was 90%, the dollar you had at the beginning of the month would only be worth $0.90!