The prospect of purchasing a new home is always both thrilling and challenging, at once. In addition to the daunting tasks of finding the right real estate companies and collating capital, first time home buyers are also faced with confusing real estate terminology. Understanding this jargon not only simplifies the home-buying experience, but also keeps you from missing important information.

In this article, let us try to understand 11 important real estate jargon related to finance and construction:

1. Amortization: To ‘amortize’ means to reduce debt. Amortization is the process of paying off a loan, in regular instalments, within a fixed span of time. For example, a mortgage is paid off in regular instalments, over a predetermined period of time. The time span within which the loan can be paid off is known as amortization period.

2. Appraisal: When you apply for a housing loan, your lender would want an estimate of how much the home you want to buy costs in the market. For this, your license appraiser does a comparative study of all the nearby properties, similar to the home you want to purchase. Based on this, he gives an estimate of the property’s value.
Your property’s appraisal value depends on the value of the surrounding properties, in addition to its own worth.

3. Appreciation: Appreciation is the increase in your property’s value over time. The value of your property depends on the demand for it. Appreciation usually happens when there is observable development in the surrounding areas, in terms of amenities and infrastructure.

4. Balloon mortgage: A balloon mortgage is a short-term loan that does not amortize over its span and requires the borrower to repay the principal in a lump sum towards the end. The borrower usually makes small payments for a certain span of time and one large payment towards the end of the loan period.

5. Caveat emptor: This is a Latin phrase meaning “let the buyer beware”. Under this principle, the buyer alone is responsible for making a fully informed purchase decision. If a buyer makes a purchase at the asking value, without gathering the necessary information about the quality and legality of a purchase, then the seller is not held responsible for it.

Whether you see this term in your agreement or not, it is always advisable for you, as a buyer, to fully investigate the pros and cons of a purchase before taking any major decision.

6. Common area: This is the area in a building that is commonly shared by all residents. Parking space, play area, recreational facilities, elevators, corridors, gardens, etc., come under common area.

7. Closing costs: These are the additional costs incurred on property purchase, apart from the property value. Closing costs include title insurance, attorney fees, taxes, loan origination fees, appraisal fees, among others.


8. Comparative market analysis: In order to establish the fair market value of a property, an agent or licence appraiser conducts a comparative market analysis. This will allow you to estimate what your house costs based on the value of comparable properties, nearby. This analysis is done to ensure that you do not pay more than what your property is actually worth.

If you are borrowing money to make a purchase, your lender would also want a thorough comparative market analysis run, before granting the loan. If you are a seller, you might want to find out ways to increase your home appraisal value.

9. Contingency: This is a clause or condition in a contract that relieves the buyer/seller off liability in case of occurrence/ non-occurrence of an event. In other words, the deal is sealed only when a condition is fulfilled.

For example, a seller may accept an offer on a property, but the deal closes only when the buyer is granted financing at a certain interest rate, or when the property passes inspection. In these cases, the deal is contingent on financing/ inspection.

10. Encumbrance: Encumbrances are all the liens, restrictions, encroachments, easements, and licences on a real estate property. For example, an encumbrance can restrict an owner’s ability to transfer title of his property. You are advised to make a note of the encumbrances on a property before making your purchase decisions.

11. Escrow: In simple terms, placing a property in escrow is to transfer the ownership of the property to a third party until the buyer and seller close the deal. An asset is placed in escrow to ensure that both the parties meet their respective obligations.

Gaining a deep understanding of the jargon pertaining to construction and finance is important for both the owner of an asset and the buyer. We hope this article helped you clear some air.

If you come across any new terms in the process of buying your new home from builders and developers in Bangalore, make sure that you find out the right meaning, to avoid misunderstandings and ambiguity.