The real estate terms & expressions you need to know
Are you a first-time buyer, trainee real estate agent or tenant? The real estate market is filled with jargon that newbie buyers and sellers may be unfamiliar with, adding a layer of uncertainty to complex property dealings. Whether you plan on investing in a home, getting a mortgage or delving into the workings of off-plan developments, we have come up with a list of real estate terms that you can add to your growing professional vocabulary.
Real estate glossary for buying property
Whether you want to purchase a property or invest in one for the long-term, it pays to know real estate terminologies that come with property sales. Here is some real estate terminology for beginner agents and new buyers:
Equity
When we say equity, we mean the money value of a property after all charges, such as those relating to a mortgage, have been paid. This figure usually changes from one day to another since the price of property keeps fluctuating and you continue to make payments as well. For example, if you pay off part of your mortgage, the equity is increased.
Buyer’s Agent
Also known as a selling agent, a buyer’s agent is a licenced real estate professional whose responsibilities include:
- Locating their client’s (the buyer’s) next property.
- Negotiating the property’s price on behalf of the buyer.
- Acquiring the best price and sales process for the client.
- Serving as a fiduciary or trustee for the buyer.
Escrow account
An escrow account is where the money is saved up for a specific purpose and withdrawals are restricted to make it easier to achieve said goal. In terms of real estate, an escrow account is managed by a lender to collect tax payments and advance insurance payments from a homeowner.
Land Lease
In a traditional home purchase, buyers own the home and the land that it is built on. In other circumstances, there is a land lease involved. A property purchase that comes with a land lease means that while the buyer owns the home, he will still have to pay rent for the land to the landowner.
Appraisals
A real estate appraisal is the valuation of a property. Basically, it is an estimation of a home’s current market value. Usually carried out by professional appraisers, an appraisal is generally calculated by comparing the recent sale of homes (often of comparable size and condition) to the appraised property. The process also involves a thorough inspection and also takes upgrades like an added stairwell into account.
Market Value
When a realtor talks about the market value, they mean the most likely amount that the property would bring in an open and competitive market. There is no easy or universal way to determine the market value in real estate. However, with real estate appraisals and recent comparable prices, we do get things done to ascertain a fair market value (FMV).
Return on Investment (ROI)
As the name suggests, the Return on Investment is a metric that helps you ascertain the return on a property’s investment relative to the investment’s cost. For example, if you are a property owner, subletting your apartment gets you a steady income, and the ratio between the amount you gain vs the amount you invest is called ROI.
For sale by owner (FSBO)
Properties that are up for sale without a real estate agent as a middle man are often listed for sale by the owner or FSBO. There are several benefits to this for sellers. One of the more obvious is that they won’t have to pay a commission fee to a real estate agent. A look at the pros and cons of buying properties directly from owners in Dubai can give you a perspective of the steps involved in For Sale by Owner properties.
Closing
The final stage of a real estate transaction is known as closing. Part of this is a closing date when a seller and buyer officially go under contract on the sale of a home. The property is legally transferred from the seller to a purchaser on this date.
Closing costs
Closing costs are the fees that are to be paid on a property sale’s closing date. In the UAE, this cost includes the property registration fee, real estate agency fee, land department, mortgage registration and processing fees. It can go up to 5% to 7% of the total sales price.
Commission
Sellers who rely on real estate agents to find buyers also have to pay them a commission fee as part of their service package. The commission is based on the price of the property to be sold. In the UAE, this amounts to about 5% to 6% of the total price.
Title Deed
A title deed is a legal document that transfers real estate ownership from a seller to a buyer. After the formalities are completed, the new deed is issued in the buyer’s name, making them the official owner of the property. There is also a fee involved in issuing the title deed. All in all, a title deed is one of many considerations in property buying steps in Dubai.
Freehold ownership
Freehold ownership is where the buyer enjoys absolute ownership of a property, including the land it is built on. Apart from occupation, the owner is also free to lease and sell the home at their will. Expats or foreign investors are allowed to purchase real estate in designated freehold areas in the UAE.
You may have come across this term, especially if you live in or have experienced property dealings in Dubai. After all, the emirate was the first to allow expats and foreign investors to own houses in the country.
Leasehold ownership
A buyer who purchases a property on a leasehold basis will own it for 99 years. However, unlike freehold ownership, leasehold properties do not allow buyers to own the land that the investment is constructed on. In such a case, the ultimate ownership of the land is for its freehold owner.
An analysis of buying freehold and leasehold real estate in the UAE can give more insight into the benefits of each.
Off-plan property
An off-plan property is a piece of real estate before a structure has been constructed on it. So, buying off-plan real estate means purchasing a property that hasn’t been built yet.
Selling off-plan is beneficial for developers since it helps create a buzz around sales, thereby increasing demand. And since such real estate is heavily discounted, it proves advantageous for buyers as well.
Home insurance
Home insurance is a requirement for buying a home. Its primary purpose is to protect a homeowner from liabilities against any loss or accidents on the property like theft, damages from natural disasters. With this in mind, it’s also important to get the right home insurance in the UAE by acknowledging factors like expected coverage.
No Objection Certificate (NOC)
This is a legal document that affirms no objections from the developer to another person buying the property. It is usually required by developers during property sales in the UAE. Commonly abbreviated as NOC, a No Objection Certificate also confirms that all utilities and service charges have been paid and accounted for.
Memorandum of Understanding (MOU)
Part of the property buying process, an MOU or Memorandum of Understanding is an agreement that a real estate agent puts together. The seller and buyer sign the document. It includes necessary clauses like terms, conditions and an outlined timescale of the purchase.
Snagging
While snagging is more of a slang term, it is still popularly referred to by contractors as it is important for home inspections.
Snags are small flaws that remain in a property after it has been constructed. Think a missing hinge on a door or marks on the walls. Slight defects like these aside, a snag can also be a large crack on a kitchen wall because a fixture hasn’t been properly fitted.
Therefore, a snag list contains details of oversights or problems that happened during development and is given to the concerned parties to rectify.
Real estate terms to know for renting a property
If you plan on renting out your property or live as a tenant, here are some phrases you can add to your mental dictionary of real estate terms:
Tenancy Contract or lease contract
A prospective tenant and landlord need to enter into a tenancy contract or agreement before the tenant can move into the property. This is a legally binding rental agreement that states clauses from both parties and allows occupation for a certain period of time. For example, a tenancy contract in Dubai may include details about who pays for certain services and to what extent residents can carry out maintenance, if any.
Rental Yields
Let’s end it with another easy one. A rental yield is synonymous with ROI. When we say ‘rental yields for apartments in Business Bay were as high as 8% last month’, we mean the same thing as we do when we say ‘the average ROI in Business Bay is 8%’.
Lease
Properties that are on contract to be used by a lessee for a specific period of time in return for periodic payments are said to be on lease.
Lessee and Lessor
A tenant who rents property from a landlord is known as a lessee. In such a case, the lessor will be the landlord who grants the lease to the tenant.
Lease Agent
A licenced real estate agent, responsible for leasing real estate properties and signing them in place of a lessor.
Security deposit
Add “security deposit” to your list of real estate key terms. This is a refundable deposit paid to a landlord and is usually set at 5% of a property’s annual rent. Think of it as security against any damages to the home you will stay in as a renter. A tenant’s security deposit is returned in full, provided if the property is in the same condition before the move-in. All outstanding bill payments have been made before the contractual term ends.
Rent to own
Homeowners who can’t pay the full price of a home upfront need a mortgage to finance their purchase. — with a good credit score and down payment being necessary prerequisites. An alternate solution is a rent-to-own agreement where a buyer agrees to rent a property for a specific time with the option to buy it before the lease runs out. Such schemes in the UAE come with fees. For instance, a rent to own scheme in Dubai requires a buyer to pay 2% of the sales price, title deed issuance fee and other payments before entering the agreement.
Top real estate terms for getting a mortgage
Mortgages or mortgage loans are used to purchase a property or borrow money against the value of the said property. A mortgage is a legal agreement between a lender and a borrower. It gives the lender the right to take the property from the borrower if he defaults on his loan payments with interest.
Whether you intend to acquire a mortgage or process one for a client, here are the real estate terms you must be aware of:
Down payment
A down payment on, say, a townhouse is the minimum amount you are required to pay the mortgage lender upfront. It’s usually somewhere between 5%-20% of the property’s total value and most often comes out of your savings. If you hear a phrase like ‘Ahmed put down a 20% down on his villa’, that means Ahmed has made a 20% down payment.
Mortgage interest
The interest charged on a loan to purchase a home is known as mortgage interest. It may be fixed or variable and is calculated as a percentage of the total amount of a mortgage by a lender.
Fixed rate
You can either opt for a mortgage with a fixed rate or one with a variable rate. A fixed-rate mortgage is where the interest paid on the borrowed amount is fixed or locked for a certain time period. Typically, this will usually extend from one to five years. The interest rate will only revert to a higher value once this period expires. The hiked value can either be a fixed margin above a bank’s own rate or above the EIBOR rate. The security against bank-based interest rates is one of the advantages for those who opt for fixed-rate mortgages.
Variable rate
A variable rate mortgage is where the interest rate changes depending on inflation — with the interest rate generally linked to a one, three or six-month EIBOR.
Such an option often appeals to those who prefer long-term mortgages since it spares them from paying high reversion rates after a certain period, as is the case with fixed mortgages.
Default
If a buyer defaults on a loan, it means that they have not made their mortgage loan payment on time or is behind on payments.
Mortgage broker
Acquiring a mortgage loan can seem complex if you aren’t familiar with the ins and outs of the process. Most homeowners rather rely on the expertise of a professional mortgage broker to deal with home loans for them. Think of one as an intermediary or independent advisor responsible for arranging a loan between a bank and the borrower to fund a property.
Conventional mortgage
In a conventional mortgage, a borrower’s loan repayments include an interest rate paid to the bank. The charged interest is their profit for lending you funds.
Islamic mortgage
An Islamic mortgage follows Sharia Law and is a popular form of mortgage in the UAE. According to Islamic law, it is forbidden to charge interest on a loan. A bank that follows Sharia’s principles will make a profit by typically buying a property on the borrower’s behalf and leasing or renting.
Emirates Interbank Offered Rate (EIBOR)
An Emirates Interbank Offered Rate or EIBOR is a fixed rate that banks in the UAE lend to each other. The current lending rate can be a crucial piece of information whether you plan to invest in or sell property in the country. These rates change daily and can be checked on the official website of the Central Bank of the UAE.
Other real estate terms
Can’t get enough? Apart from the mention phrases, here are some other real estate terms that you may come across:
Art Deco
Art Deco originated in the 1920s in France, then became massively popular in Western Europe and the US in the 30s. As you can see in the image, art deco is slightly over the top and flashy and elegant and regal. You can recognise it by layered lighting, polished and shiny chrome and brass fixtures, geometric shapes and angular patterns, mirrored pieces, or sprinkled glass. You can also spot it by polished wood and metal, as well as glossy paint. Keep in mind, an object such as a clock can also be an art deco, not just a room or a whole building.
En-suite
This one is quite common, although some of you still might not know it. In a nutshell, en-suite refers to a bedroom with a direct connection to a bathroom and vice-versa. It’s a big plus for a property listing, so definitely worth memorising.
Pergola
A pergola is a garden fixture or a shaded walkway, passageway, or sitting area between four pillars that usually support cross-beams and a sturdy open lattice. A beach pergola is very common in Dubai, especially with curtains made of floaty sheer fabrics for extra shade.
It is not to be confused with an arbour, which is also a type of gazebo but one that contains a seat in the middle akin to a loveseat.
Amenities
This word is one of the most common ones on Bayut, but since the UAE is such a multi-cultural environment, we have to brush up on its meaning as well. When a property listing says ‘villa with an abundance of amenities’, that means the villa probably comes with a garden, a swimming pool, a barbeque area and other desirable property features.
Pied-à-terre
Like en-suite, this real estate term comes from French. If a reasonably wealthy person owns or rents a small unit some miles away from their primary residence, that apartment or house is called a pied-à-terre. In short, it is an extra little abode used sporadically for relaxation or retreat for those who can afford it.
Frequently Asked Questions
Is it more beneficial to buy or rent a home in the UAE?
The UAE’s real estate market is one of the most successful in the world. However, some are still uncertain whether it will be a good decision to rent a property or buy one. The decision depends on factors like your personal preferences, length of stay and financial situation. Please look at our guide on renting versus owning property in the UAE for a better idea of available prospects.
What kind of mortgages are available in Dubai?
While some buyers can purchase homes in cash, not everyone has that kind of money saved up — with most opting for mortgage home loans in Dubai. This includes types like capped mortgage, discount rate mortgage and others.
How do I get a mortgage in Dubai?
You need to qualify for a mortgage in Dubai. At present, UAE nationals, persons between the ages of 21 and 65 and those with a specific monthly income can apply for the loan. Learn how to get a mortgage in Dubai for a more detailed account of the process.
That concludes our guide on the real estate terms buyers, sellers and real estate agents should be familiar with. You’ll be talking like a real state expert before you know it! Moreover, avoiding home buying mistakes like overbidding or neglecting inspections can save you a lot of stress and money in the long run.
For more insight into the UAE real estate market, stay tuned to MyBayut.
