Buying or selling real estate, whether commercial or residential, is a complex process. If you’re doing it for the first time, it helps to familiarize yourself with key real estate terminology so that you’re better prepared for negotiations and preparation of documents.

Here are 12 real estate terms that are not known to most people, unlike the more common terms such as principal, mortgage, APR, broker and so forth.

Amortization

A payment plan wherein your initial home loan payments include not only the interest (as is the norm in most cases) but also the principal amount. Amortization enables gradual reduction in your debt via monthly payments.

Appraisal

It is a professionally prepared document by a disinterested, licensed individual that provides the estimated sale value of a property based on current market price of similar homes in the neighborhood. Appraisals are usually sought by lending institutions as a way to ensure that the mortgage applied for by a homebuyer is not more than the market value of the property.

Arbitration

The legal process of resolving a real estate dispute out of court. Out-of-court resolution is generally the first course of action suggested by a good real estate attorney, as litigation is both costly and time-taking.

Closing

The term used for finalization of a real estate sale. This is done at a meeting attended by the buyer, the seller, their respective attorneys (to oversee the closing process) and the real estate agents. The sale is finalized when both parties sign documentation and the buyer pays down payment to the seller.

At this time the buyer also pays closing costs such as title search, title insurance, home loan origination fee, lawyer’s fee, survey, and taxes.

Closing Attorney

A real estate lawyer who’s a natural at closing real estate transactions. A property law attorney takes all measures to ensure that the real estate transaction is ready for closing. They prepare and review key documentation, including title search, title insurance and the purchase agreement. At the meeting they explain all documentation to both parties and obtain their signatures.

Contingencies

These are provisions or clauses in a real estate purchase contract that allow the buyer to abandon a purchase if certain conditions are not met. For instance, the final sale of a property may be subject to loan approval, sale of buyer’s existing property, home inspection, and so forth. The seller may also include contingencies in the contract.

Contract for Deed

Also known as a Bond for Deed or an Instalment Contract, a Contract for Deed is a contract wherein the real estate buyer pays the seller in instalments. The buyer gains possession of the property, but will gain the actual title only once the final instalment is paid.

Dual Agency

This is when a real estate agent represents both the buyer and the seller in a property transaction.

Escrow

The process wherein the real estate buyer deposits payments and/or documents with an independent and impartial third party, to be disbursed to respective parties once the sale of real estate in question is final or when all conditions for the transaction have been successfully met.

Home Inspection

An inspection of a property listed for sale. Once a seller receives an offer, they are required to have the property inspected to ensure that key elements such as plumbing, HVAC, appliances, electrical wiring, roofing, foundation and so forth are in good condition. Home buyers who do not ask for an independent inspection may end up either paying more than the property is worth or spending a fortune on costly repairs later.

Lien

A lien is a legal claim or right over the title of a property which must be settled before it is sold and its ownership transferred to the buyer. For instance, if the present owner of a building took out a loan using the building as collateral, the loan must be paid off before they can sell the property. Other examples of lien are unpaid taxes or unpaid renovation costs (mechanic’s lien). A lien is considered a defect on the title of a property and affects the solubility of a land or building.

Title Insurance

Title search is the process of researching the government’s public records to determine if the title of a property is free of lien and good for sale. Title insurance is an insurance cover that safeguards a property buyer’s right to ownership of the said property. Purchasing title insurance is often a part of the closing process.