We have compiled a list of some of the must-know vocabulary for all you hustlers working in wholesale real estate or thinking about getting into it. The vocabulary you need to know is a bit different from that used by real estate agents and bankers since real estate wholesalers work with cash buyers, not buyers who need mortgages or loan financing.
So, you can skip over the mortgage and financing stuff and focus on real estate terms that you absolutely must know to work with wholesale real estate.
What Is Real Estate Wholesaling?
Real estate wholesaling is when a third-party real estate wholesaler signs a purchase and sale contract with a property seller for the exclusive control of the equity of the seller’s property. The real estate wholesaler then finds an end buyer to assign his purchase and sale contract to for a fee. The fee is the difference between the seller’s price and the end buyer’s offer.
To be fair, some real estate wholesalers find a buyer and then a seller who wants to unload the kinds of property that the real estate wholesaler’s buyers want to purchase.
Regardless of how you do it, you will need to know the meanings of the terms below so that you can competently discuss them with others and appear as a reputable, well-informed professional real estate wholesaler.
Real Estate Wholesaling Terms and Definitions
Agent – A real estate agent; a licensed professional who works with a seller, buyer, or both in a real estate transaction
Appraisal – The estimated value of a property that a licensed appraiser gives; the estimated value of a property used to calculate loans, mortgages, and other financial instruments; the explanation of the estimated value of a property generally based on the values of similar properties in its vicinity
Appraised Value – A licensed appraiser’s opinion about the fair market value of a property based on the appraiser’s professional experience, knowledge, assessment of the property, and analysis of similar properties in the area based on the other properties’ purchase prices
Appraiser – A licensed professional who visits a property, assesses it, and determines its fair market value; a person licensed to assess a property’s value because of the person’s education, experience, and training
Appreciation – The increase in value of a property due to market conditions (e.g., economy, neighborhood, inflation)
Assessment – A property’s value given by an assessor and used for tax purposes
Assessed Value – The value placed on a property by a government tax assessor to determine its property tax
Assessor – A government worker who determines property values for tax purposes.
Asset – Anything of value that belongs to a person; assets include real estate, bank accounts, corporate stocks, bonds, and personal property
Assignment – When someone transfers a contractual right to sell or buy something to someone else (usually for money)
Broker – A company or person that connects borrowers and lenders or investors but does not lend money (in real estate); A third party who brings at least two parties together to make a deal and is paid for doing it
Buyer’s Agent – A real estate agent who represents and advocates for the buyer in a real estate transaction
Capitalization Rate – The percentage of a property’s value that the rental income makes up; a way to calculate a property’s value based on the net income from its rentals, generally used for multi-family residential structures; to calculate the rate divide the property’s net income before debt by the property’s fair market value
Chain of Title – An assessment of the transfer of a property’s title over time
Clear Title – When the title of a property has no liens, judicial judgments, or other items against it; when there is no legal question about the ownership of a property
Closing – There are two possible meanings: (1) the meeting in which the buyer and seller sign the real estate transaction documents and money is exchanged for the property’s title; and (2) when the transfer of property’s title is recorded at the local property recorder’s office
Closing Costs – Costs associated with completing a real estate transaction (e.g., commissions, inspection fees). There are non-recurring closing costs, including the purchase price of the property (e.g., title transfer) and pre-paid costs, which are recurring costs like homeowner’s insurance and property taxes
Cloud on Title – Anything attached to the title of a property that has a negative effect on it
Commercial – A zoning classification for a property that refers to property used for business activities such as retail stores, farms, offices, etc.
Commission – The percentage of a seller’s price or buyer’s offer paid to the real estate agent(s) who facilitate the transaction
Comparable Market Analysis – An assessment of the purchase prices of recently sold properties similar to the property being sold; this is done to estimate the value of the property for sale
Comparables (Comps, Sales Comps) – The purchase prices of properties similar to the property being sold
Contingencies – Escape clauses in a contract that protect a buyer from being forced to buy a property if the buyer and seller have not met prior agreed-upon conditions for sale
Contract – A legally binding oral or written agreement to do something or not do something
Deed – A legal document that establishes the property owner’s identity; when a property is purchased, the deed is transferred from the seller to the buyer at closing
Default – When a mortgage payment has not been made within the contractual period of time; When a borrower fails to pay the mortgage payment
Delinquency – When mortgage payments are not made by the deadline for payment
Dual Agency – When someone represents a buyer and seller at the same time in the same transaction
Earnest Money (Deposit) – A percentage of the buyer’s offer paid to show that the person is serious about buying the property
Effective Age – A licensed appraiser’s opinion about a structure’s age (the structure’s actual age may be greater or lesser)
Encumbrance – Claims or liabilities held by a party other than the current titleholder that may affect transferability and free use of a property until the encumbrance is lifted (e.g., liens, leases, easements)
Equity – The fair market value of a property minus the money owed on it and any liens.
Escrow – A neutral third party who handles documents, money, and any items of value in real estate transactions and delivers them to the appropriate parties when contract conditions are met.
Escrow Disbursements – Using money from escrow to pay for property expenses like homeowner’s insurance, hazard insurance, and real estate taxes.
Estate – The total value of a person’s personal property and real property (e.g., real estate) upon the person’s death.
Eviction – The legal removal of someone from real estate (land or a structure).
Examination of Title – A report written about a property after searching public records.
Fair Market Value – The highest market value a buyer would pay for a property and the lowest price that the seller would accept.
Foreclosure – When the bank reclaims property after the property owner has defaulted on the loan payments and cannot pay them in full during the foreclosure proceedings
Be sure to check out part two of this wholesale real estate must-know terminology guide.