Terms, plainly defined.

The words that come up when you sell a house or a small business, in plain English, linked back to wherever they actually apply.

A staircase and upstairs landing inside an empty house

Plain EnglishNo definition longer than you need

76 terms

Four groups, and the one you need is probably the second.

Most of what goes wrong in a sale is a word somebody used without explaining it. Start with the group your question sits in, or scan the whole A to Z underneath.

Selling a houseOffers, agents, listings, and what a buyer checks before closing.
Money and financingPayoffs, closing costs, the tax on a gain, and carrying a note.
Title and legalDeeds, liens, probate and the steps in a foreclosure.
Selling a businessEarnings, multiples, and the paperwork a sale runs through.

Selling a house

Offers, agents, listings, and what a buyer checks before closing.

15 terms

After-repair value (ARV)ARV is the number every offer on a house that needs work starts from, so knowing it lets you check the math behind the offer instead of taking the figure on faith.AppraisalIf the appraisal comes in below the agreed price, the buyer's loan may not cover the gap and the deal can stall.Appraisal gapAn appraisal gap is the reason a signed contract at a strong price can still fail to close.As-isAgreeing to sell as-is does not remove your duty to disclose what you already know is wrong with the house.Buyer's agentThe person across the table from you in a listed sale is working for the buyer, not for you.Cash offerA cash offer removes the risk that a buyer's financing falls through days before closing.Comparable salesThe comps behind a number are what let you check whether a price, an offer or an appraisal actually holds up.ContingencyThe contingencies in your contract are the ways a buyer can back out, so fewer of them means a firmer deal.Days on marketA house that sits too long on the market usually needs a price cut to get moving again.For sale by owner (FSBO)Selling FSBO can save a commission, but only if you are ready to do the agent's job yourself.Home inspectionWhat an inspection turns up is usually the next thing a buyer negotiates over, whether or not you sell as-is.Listing agentA listing agent can widen the pool of buyers, at the cost of a commission and the time a listing takes to sell.Multiple listing service (MLS)Skipping the MLS trades a wider pool of buyers for a faster, more private sale.Open houseOpen houses take time and mean strangers walking through your home, which a private cash sale avoids.Proof of fundsAsking for proof of funds is how you find out whether a cash offer is real before you take your house off the market.

Money and financing

Payoffs, closing costs, the tax on a gain, and carrying a note.

22 terms

1031 exchangeA 1031 exchange defers the tax bill on an investment property sale, it does not erase it.AmortizationThe amortization schedule tells you how much of each payment you are actually collecting versus lending back out.Balloon paymentA balloon payment sets the date you actually get paid off in full, which is not the same as the note's amortization period.Capital gainsWhat you owe on a sale depends on your basis and how the house was used, not just the sale price.Closing costsThe number you actually net from a sale is the price minus every one of these line items.Depreciation recaptureYears of depreciation deductions on a rental come back as tax owed the year you sell it.DSCRA low DSCR is often the reason a rental property cannot qualify for financing even when the price looks reasonable.Earnest moneyA buyer's earnest money deposit is a rough measure of how serious, and how financially able, they actually are.EquityYour equity, not the price of the house, is what you actually walk away with after paying off what you owe.EscrowMoney held in escrow is protected from either side of the deal until the sale actually closes.Hard money loanHard money is fast and expensive, which is why it usually shows up in a deal with a tight deadline.Land contractHolding title instead of a deed of trust changes what you have to do to get the property back if the buyer stops paying.Lease optionA lease option delays your payout and keeps you as landlord until the tenant decides whether to buy.Loan-to-value (LTV)The LTV a lender allows sets how much cash a buyer needs at closing, which affects how fast a sale can happen.Payoff statementThe payoff statement, not your last mortgage statement, is what actually clears your loan at the closing table.Pre-foreclosureEvery option you have to sell on your own terms exists only during this window, before a trustee's sale is scheduled and held.Promissory noteThe note is the actual IOU behind a seller-financed sale, and its terms decide what you can do if the buyer stops paying.Prorated taxesA closing that lands near the tax deadline can shift a real amount of money depending on how the proration is written.Recordation taxKnowing who owes this tax by default helps you spot a contract that quietly shifts it onto you.Seller financingCarrying the note yourself can raise the total you collect, but it also means taking on the risk of the buyer defaulting.Short saleA short sale needs your lender's sign-off, so the timeline is largely out of your hands.Stepped-up basisStepped-up basis is usually why selling an inherited house soon after a death creates little or no taxable gain.

Title and legal

Deeds, liens, probate and the steps in a foreclosure.

26 terms

AdministratorThe court, not a will, decides who has authority to sell a house when the owner died without one.Assignment of contractIn Tennessee, a buyer who plans to assign your contract to someone else has to tell you that in writing before you sign.Cloud on titleA cloud on title can stall or kill a closing until it is cleared, no matter how ready the buyer is to sign.Deed in lieu of foreclosureHanding over the deed does not erase what you owe unless the lender agrees in writing to waive the difference.Deed of trustThe deed of trust on a house, not a separate court process, is usually what lets a Tennessee lender foreclose.Deficiency judgmentA low sale price at foreclosure can leave you owing money on a house you no longer own.Due diligenceWhat a buyer finds during due diligence is the most common reason a signed deal gets renegotiated before closing.EasementAn easement on your property transfers to the buyer along with everything else, whether or not anyone mentions it during the sale.EncumbranceAn encumbrance found late in the process can change what a buyer is willing to pay or whether they will close at all.ExecutorWhether the will gives the executor power to sell without a separate court order can add weeks to selling an estate's house.Heirs at lawIf a house passed to more than one heir at law, every one of them generally has to sign to sell it.IntestateDying intestate means state law, not a document, decides who has to agree to sell the house.Judgment lienA lawsuit you lost years ago and forgot about can still show up on a title search and hold up your closing.Letters testamentaryA title company will want to see this document before it accepts anyone's signature as the seller of an estate's house.LienEvery lien against your house gets paid at closing before you do, which can shrink or wipe out your proceeds.Mechanic's lienAn unpaid contractor from months ago can file a lien on your house well after the work is finished.Power of saleThis clause is why a foreclosure in Tennessee can move on a set notice period rather than a court's calendar.ProbateA house generally cannot be sold with a clean title until probate identifies who has the legal authority to sign for it.Quitclaim deedAccepting a quitclaim deed means accepting the property with no guarantee about what you are actually getting.Redemption periodCheck your own deed of trust for a redemption waiver, because if the right was waived, the sale itself is the last chance to act.ReinstatementReinstating the loan, if you can raise the money, is usually the most direct way to stop a scheduled sale.Title insuranceA clean title search does not guarantee a clean title, which is why title insurance exists as the backstop.Title searchA title search is what turns up problems on your property you may not know exist, before a buyer's closing depends on them.Trustee's saleA trustee's sale can happen without a judge ever reviewing the case, which is why the notice period is the real deadline.Warranty deedA warranty deed is what most buyers and title companies expect, so offering only a quitclaim deed can raise questions.WholesalerKnowing you are dealing with a wholesaler tells you the person signing your contract likely will not be the one who actually closes on your house.

Selling a business

Earnings, multiples, and the paperwork a sale runs through.

13 terms

Add-backsEvery add-back you can support with records raises the earnings a buyer is willing to apply a multiple to.Asset saleHow the sale is structured, asset or stock, changes what liabilities you keep and how the proceeds are taxed.Customer concentrationA business that depends on a handful of customers is worth less to a buyer, no matter how strong its earnings look.EarnoutMoney tied up in an earnout depends on how the business performs after you are no longer the one running it.EBITDAWhether a buyer values your business on EBITDA or SDE depends on whether it can run without you.Form 8594The allocation on this form decides how much of your sale is taxed as ordinary income versus capital gain.GoodwillHow much of your price gets allocated to goodwill versus hard assets affects the tax rate you pay on that part of the sale.Letter of intent (LOI)Signing a letter of intent usually means agreeing not to shop the business to other buyers while the deal is worked out.MultipleThe multiple a buyer applies matters as much as the earnings figure it gets applied to.Non-disclosure agreement (NDA)An NDA is what lets you show a serious buyer your real numbers without broadcasting that the business is for sale.Seller's discretionary earnings (SDE)SDE, not the profit line on your tax return, is usually what a buyer's offer is actually based on.Stock saleA stock sale can move liabilities you did not know about onto the buyer, which is exactly why buyers tend to avoid it.Working capital adjustmentThis adjustment can move the final check up or down after closing, based on numbers settled after the deal is signed.

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