Let our real estate glossary be your guide on your journey to real estate expertise. Learn key terms and important real estate concepts.

Let our real estate glossary be your guide on your journey to learn the language of real estate transactions and become an expert in its most important concepts.

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Real Estate Glossary - OfferMarket

Real Estate Glossary

The amount that the Buyer will be paying to the Seller in consideration for the Seller's real property. The Purchase Price is a fundamental component of the [Purchase And Sale Agreement](https://www.offermarket.us/real-estate-glossary/purchase-and-sale-agreement), otherwise referred to as the [Contract Of Sale](https://www.offermarket.us/real-estate-glossary/contract-of-sale).

The amount that the Buyer will be paying to the Seller in consideration for the Seller's real property.

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Purchase Price - Real Estate Glossary - OfferMarket

Purchase Price

The offer you have received is typically contingent upon the results of a home inspection. The buyer may try to re-negotiate or cancel the Purchase And Sale Agreement once they have reviewed the home inspection report.

 

With OfferMarket, there are no inspection contingencies. This means you don't need to deal with post-inspection negotiations or cancelled contracts.

The offer you have received is typically contingent upon the results of a home inspection. The buyer may try to re-negotiate or cancel the Purchase And Sale Agreement once they have reviewed the home inspection report.

Inspection Contingency - Real Estate Glossary - OfferMarket

Inspection Contingency

Has completed at least 300 hours of appraisal education and accumulated 3,000 hours of experience (at least 1,500 in non-residential appraisal work). Bachelor's degree or higher from an accredited university is required.

A Certified General Appraiser has completed at least 300 hours of appraisal education and accumulated 3,000 hours of experience (at least 1,500 in non-residential appraisal work). Bachelor's degree or higher from an accredited university is required.

Certified General Appraiser - Real Estate Glossary - OfferMarket

Certified General Appraiser

Has completed at least 200 hours of appraisal education and accumulated 1,500 hours of experience. Bachelor's degree, Associated Degree with minimum of 30 credits or CLEP is required.

A Certified Residential Appraiser has completed at least 200 hours of appraisal education and accumulated 1,500 hours of experience. Bachelor's degree, Associates Degree with minimum of 30 credits or CLEP is required.

Certified Residential Appraiser - Real Estate Glossary - OfferMarket

Certified Residential Appraiser

The Purchase And Sale Agreement ("PSA") or "[Contract of Sale](https://www.offermarket.us/real-estate-glossary/contract-of-sale)" between a buyer and a seller that outlines the terms of the transaction and expectations of each party (Buyer and Seller). The PSA establishes the [purchase price](https://www.offermarket.us/real-estate-glossary/purchase-price) and other terms of the contract such as the [inspection window](https://www.offermarket.us/real-estate-glossary/inspection-window).

The Purchase And Sale Agreement ("PSA") between a Buyer and a Seller that outlines the terms of the transaction and expectations of each party.

Purchase And Sale Agreement - Real Estate Glossary

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Purchase and Sale Agreement - Real Estate Glossary - OfferMarket

Purchase And Sale Agreement ("PSA")

NOI ÷ (Mortgage + Taxes + Insurance)

 

A DSCR of 1.0 means the property generates exactly enough cash flow to cover the cost of servicing the property. Let's say you own a rental property that generates $30,000 in NOI and the monthly mortgage taxes and insurance are $2,000 or $24,000 annually. That means the property has a DSCR of 1.25. This is a healthy margin of cash flow to cover any temporary spikes in vacancy or unexpected maintenance requirements.

Debt Service Coverage Ratio ("DSCR") = NOI ÷ (Mortgage + Taxes + Insurance). Learn how to calculate  DSCR.

Debt Service Coverage Ratio (DSCR) - OfferMarket

Debt Service Coverage Ratio ("DSCR")

Revenue - Operating Expenses

 

Net Operating Income is used to calculate capitalization rate ("cap rate"), a fundamental quantitative valuation metric for real estate investing.

 

Depending on the type of real estate, revenue can include: 

 

- Rental revenue
- Service fees
- Parking revenue
- Vending machine revenue

 

Operating expenses include:

 

- property management
- vacancy
- uncollectible rent revenue
- insurance
- property taxes
- maintenance

Net Operating Income ("NOI") = Revenue - Operating Expenses. Learn how to calculate NOI.

NOI - Net Operating Income - Real Estate Glossary - OfferMarket

Net Operating Income ("NOI")

The Contract Of Sale is the agreement between the Seller and Buyer wherein the terms of the sale of real property are established. Also commonly referred to as a [Purchase And Sale Agreement](https://www.offermarket.us/real-estate-glossary/purchase-and-sale-agreement).

The Contract Of Sale is the agreement between the Seller and Buyer wherein real property is being sold. Also commonly referred to as a Purchase And Sale Agreement.

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Contract Of Sale

A modification or revision to the executed Purchase And Sale Agreement (the "Agreement") where the Parties (Buyer and Seller) agree to change one or more terms of the sale. This is common after an inspection or in the event there is a delay that prevents the transaction from closing by the original Close By date.

An addendum is a modification or revision to the executed Purchase And Sale Agreement (the "Agreement") where the Parties (Buyer and Seller) agree to change one or more terms of the sale.

Addendum - Real Estate Glossary - OfferMarket

Addendum

An individual training to become a licensed real estate appraiser who has completed at least 75 hours of education.

A Trainee Appraiser is an individual training to become a licensed real estate appraiser who has completed at least 75 hours of education.

Trainee Appraiser - Real Estate Glossary - OfferMarket

Trainee Appraiser

A real estate appraisal is the process of developing an opinion of value for real property. Appraisals are performed by licensed real estate appraisers.

 

Appraisals differ from Broker Price Opinion (BPO) and Real Estate Valuation in that appraisals can only be performed by licensed real estate appraisers.

 

You can receive a [free real estate valuation estimate](https://www.offermarket.us/tools/free-real-estate-valuation), compliments of OfferMarket.

Real estate appraisal is the process of developing an opinion of value for real property. Appraisals are performed by licensed real estate appraisers.

Appraisal - Real Estate Glossary - OfferMarket

Appraisal

An appraiser is a licensed real estate professional who has completed at least 150 hours of courses and accumulated 1,000 hours of experience. No college degree is required.

A Licensed Residential Appraiser is a licensed real estate professional who has completed at least 150 hours of courses and accumulated 1,000 hours of experience. No college degree is required.

Licensed Residential Appraiser - Real Estate Glossary - OfferMarket

Licensed Residential Appraiser

Cash Flow ÷ Invested Capital

 

The amount of cash flow (rental income less mortgage, taxes, insurance, maintenance) your rental property generates as a percentage of the amount of capital you invested in the property. If your rental generates $10,000 per year in free cash flow and you have invested $50,000 to buy and renovate the property (i.e. down payment plus closing costs and rehab), your cash on cash return is 20%. This is otherwise known as return on invested capital or (ROIC).

 

It is possible to have an incalculable Cash On Cash Return if you use the BRRR method highly effectively and pull all or more than the cash you originally invested out of the property by refinancing.

Cash On Cash Return is the amount of cash flow your rental property generates as a percentage of the amount of capital you invested in the property.

Cash On Cash Return - Real Estate Glossary - OfferMarket

Cash On Cash Return

Net Operating Income ("NOI") ÷ Current Market Value

 

Cap rates are a core quantitative metric used by real estate investors to assess the attractiveness of a rental property. It is also used by real estate sellers to set an appropriate asking price for rental investment properties. To standardize cap rate calculation for all investors, mortgage related fees including interest expenses are not included in cap rate calculation.

 

The higher the cap rate, the better. Investors often compare cap rates to the risk free rates of 30 year United States Government Treasury Bonds. Prevailing Cap Rates tend to be lower in competitive markets and for high demand and high conviction asset classes. For example, ecommerce distribution center cap rates should be expected to be lower than cap rates for retail strip mall assets because investors are concerned about the viability of strip malls and bullish on the growth prospects for logistics assets that service ecommerce.

 

### Example

 

A multi-family rental property with NOI of $100,000 and a current market value of $1,000,000 has a cap rate of 10%. NOI is all revenue including rental income, parking fees, service charges, amenities fees minus all operating expenses. Depending on lease terms and management structure, operating expenses can include property management fees, insurance, maintenance, property taxes and utilities.

Capitalization Rate ("Cap Rate") = Net Operating Income / Current Market Value. Learn how to calculate cap rates.

Cap Rate - Capitalization Rate - Real Estate Glossary - OfferMarket

Cap Rate

Gross Annual Rent ÷ Current Market Value

 

Gross Rent is the total rent revenue collected. Current Market Value is the appraised or estimated value based on comparable properties (comps). Gross Yield does not consider expenses or taxes. Also referred to as Gross Rental Yield, this metric is a good starting point for rental property investors to determine the attractiveness of a rental property investment relative to other similar options in a given market.

 

### Example
If you own a single family rental property with $10,000 per year in gross rent (total rent) and the house is worth $100,000, your gross yield is 10%.

Gross Yield = Gross Annual Rent ÷ Current Market Value. Learn more about gross rental yield. 

Gross Yield - Real Estate Glossary - OfferMarket

Gross Yield

### What is a short sale?
A short sale is the sale of real property in which with proceeds will not cover the outstanding mortgage principal (loan amount).

A short sale is a sale of real property in which with proceeds will not cover the outstanding mortgage principal (loan amount).

Short Sale - Real Estate Glossary - OfferMarket

Short Sale

The Nationwide Multi-State Licensing System or NMLS is the system of licensure for mortgage companies and mortgage loan originators (MLO) in the United States. The acronym NMLS is commonly interpreted as the Nationwide Mortgage Licensing System.

The Nationwide Multistate Licensing System or NMLS is the system of licensure for mortgage companies and mortgage loan originators (MLO) in the United States.

Nationwide Multistate Licensing System (NMLS) - OfferMarket

NMLS

A mortgage loan originator or MLO is a licensed person or company who facilitates the mortgage process from application through closing. MLOs are licensed by state and national authorities, and are given an NMLS number. Mortgage brokers and loan officers are considered MLOs.

A mortgage loan originator or MLO is a licensed person or company who facilitates the mortgage process from application through closing.

Mortgage Loan Originator ("MLO") - Real Estate Glossary - OfferMarket

Mortgage Loan Originator ("MLO")

Multiple Listing Service or MLS is a brokerage listing syndication service. There are hundreds of regional organizations supported by real estate broker membership that support the listing of properties and reciprocal access to listings, listing status and market data. Services such as Zillow and Redfin access data feeds from many MLS organizations in order to display listings and accurate statuses on their site. Bright MLS, serving the mid-Atlantic region, is an example of an MLS. Multiple Listing Service® or MLS® are registered trademarks of the National Association of REALTORS®.

The Multiple Listing Service or MLS is a brokerage listing syndication service.

Multiple Listing Service ("MLS") - Real Estate Glossary - OfferMarket

The Inspection Window is the amount of time (defined in the Purchase And Sale Agreement) that a Buyer has to complete a home inspection of the Seller's real property. If the inspection deadline ends and the Buyer has not conducted the inspection and notified the Seller of defects that they need to be resolved either through repair or concession (i.e. reduction of price), then the Buyer's right to terminate the contract expires and they are expected to perform in their role as Buyer and close on the transaction.

The Inspection Window is the amount of time (defined in the Purchase And Sale Agreement) that a Buyer has to complete a home inspection of the Seller's real property.

Inspection Window - Real Estate Glossary - OfferMarket

Inspection Window

### What is foreclosure?

 

When a borrower has stopped making payments to a lender, foreclosure is the legal process in which a lender attempts to recover the balance of a loan from the borrower by forcing the sale of the asset (real estate) used as the collateral for the loan.

Foreclosure is the legal process in which a lender attempts to recover the balance of a loan from a non-performing borrower by forcing the sale of the asset (real estate) used as the collateral for the loan.

Foreclosure - Real Estate Glossary - OfferMarket

Foreclosure

The After Repair Value (ARV) is the value of a property after completion of a renovation. 

 

For example, if you bought a house for $100,000, invested $50,000 into a cost-effective renovation, and it then appraised for $200,000, the ARV is $200,000. To estimate the ARV of a property, you can look at the comparable home sales and listings ("comps") to see what properties with similar characteristics in a neighborhood are selling for.

 

Using the BRRR real estate investing method, your budget of purchase price plus rehab would ideally be no higher than 75% of the ARV. For example, let's say you bought a property for $50,000 and invested $25,000 into repairs. That's $75,000 of invested capital. Now, when you go to a lender to refinance the property by taking out a mortgage, the home appraises for $100,000. The ARV in this example is therefore $100,000. Since most lenders require 25% down for non-primary residences and investment properties, you're able to cash out 75% of the appraised value of the property -- that's $75,000 which is is the entire amount you invested in the project.

The After Repair Value (ARV) is the value of a property after completion of a renovation. 

After Repair Value (ARV) - Real Estate Glossary - OfferMarket

Net Annual Rent ÷ Current Market Value

 

Net Annual Rent is the total rent revenue collected minus all expenses (see below). Current Market Value is the appraised or estimated value based on comparable properties (comps). Also referred to as Net Rental Yield, this metric helps rental property investors understand the expected performance of a rental property relative to other investments on a net income basis.

 

### Expenses

 

- Mortgage interest
- Property management
- Maintenance
- Vacancy
- Uncollectible rent

 

### Example
If you own a single family rental property worth $100,000 with $10,000 per year in gross rent (total rent) and $6,000 per year in expenses: your net yield is 4%.

Net Yield = Net Annual Rent ÷ Current Market Value. Learn how to calculate net yield and how it's used in real estate investing.

Net Yield - Real Estate Glossary

Net Yield

### What is Single Room Occupancy?

Single Room Occupancy or SRO is the renting of a house room by room. This is similar to a boarding house where there are very few communal common areas. Typically a fixed price for one person per room, and a slightly higher rate for two people in one room.

 

Single Room Occupancy can be a great rental property investment strategy given the ability to maximize a dwelling's rent revenue. For example, a 2,500 SF 4 BR single family residence that rents for $2,000/month can be converted into an 8 BR SRO that generates $500 per BR or $4,000 per month in rental income. 

 

While in the example above we were able to double the monthly rental income, it's important to make sure you don't double your property management headaches. Rental property investors who are successful with SRO rentals have a disciplined system for screening tenants and often partner with Section 8, social security and veterans programs.

Single Room Occupancy or SRO is the renting of a house room by room. Learn more about single room occupancy at OfferMarket.

Single Room Occupancy ("SRO") - Real Estate Glossary - OfferMarket

Single Room Occupancy ("SRO")

Wholesale properties are properties where the owner (seller) is under contract with a wholesaler (buyer) who is selling the contract to another buyer.

What are wholesale properties? Learn about wholesale real estate and how anyone buying or selling real estate can benefit from the OfferMarket wholesale real estate marketplace.

Wholesale Properties - Real Estate Glossary - OfferMarket

Wholesale Properties

Turnkey rental properties are single family and multifamily houses that are sold to rental property investors in "turnkey" condition with tenants in place.

 

### Who buys Turnkey Rental Properties?

 

 Turnkey rental property investors are typically looking for a hands-off way to invest in the rental property asset class without needing to handle the core components of rental property investing:

 

- finding a property that needs renovation
- renovating the property
- screening tenants and leasing the property
- managing the property and tenants

 

Many turnkey rental property investors are out-of-state investors living in real estate markets that are not attractive for rental property investing.

 

### What metrics do turnkey rental property investors analyze?

 

Turnkey rental property investors look at several metrics when assessing investment opportunities. Here are the most important metrics:

 

- [Cap Rate](https://www.offermarket.us/real-estate-glossary/cap-rate-capitalization-rate)
- [Cash-On-Cash-Return](https://www.offermarket.us/real-estate-glossary/cash-on-cash-return)
- [Gross Yield](https://www.offermarket.us/real-estate-glossary/gross-yield)

 

### [Browse turnkey rental properties on OfferMarket](https://www.offermarket.us/listings)

Turnkey rental properties are single family and multifamily houses that are sold to rental property investors in "turnkey" condition either with tenants already in place or ready to rent.

Turnkey Rental Properties - Real Estate Glossary - OfferMarket

Turnkey Rental Properties

A **private lender** is a person or business that provides loans directly to real estate investors or home buyers. Private lenders typically provide capital to investors and homebuyers who would otherwise have a difficult time qualifying for or obtaining a loan from a bank or financial institution. 

 

Private lenders work with investors for renovations and [BRRR](https://www.offermarket.us/real-estate-glossary/brrr-buy-rehab-rent-refinance) rental property investments.

 

Private loans are typically guaranteed by the borrower and collateralized (backed) by real estate or other assets of the borrower. 

 

### There are two kinds of private loans:

 

#### Short term

 

Short term private loans are commonly used by fix and flip investors and rental property investors who need cash to buy a property in poor condition, rehab the property and either sell (flip) or rent and refinance (BRRR) the property in a 3 to 18 month timeframe. 

 

Investors are willing to pay 8% to 14% for these loans because they are only needed for a short period of time in order to complete the renovation of the property. 

 

#### Long term

 

Some private lenders are willing to provide longer term loans, in some cases 5 to 15 years at rates of 6% to 10%. These loans are attractive to investors and homebuyers who do not easily qualify for traditional mortgage loans from local or national banks.

What is a Private Lender? Learn about private lending and how to find private lenders for your real estate investments.

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Private Lender - Real Estate Glossary - OfferMarket

Private Lender

**Step 1:** Buy 
**Step 2:** Rehab 
**Step 3:** Rent 
**Step 4:** Refinance

 

Buy, Rehab, Rent, Refinance. This is a methodology of buying properties in cash, without taking out a mortgage, renovating them to increase their value, and then taking out a mortgage in hopes of recouping most, all or even more than your initial investment in the property.

 

### Example

Let's say you buy a property for $100,000 and rehab it for $50,000. Your investment is $150,000. You then rent it out for $1,500/month. You go to a bank or private lender to refinance the property. The property appraises for $200,000 because of the comparable home sales in the area and the monthly rental income you were able to demonstrate. You refinance into a mortgage loan with a 75% loan-to-value (LTV) ratio. This means the lender gives you $150,000 back which you can use for your next deal. You now have $50,000 in equity remaining in the property. Your outstanding loan principal is $150,000 which you will be paying down with interest on a monthly basis.

 

Keep in mind, you were able to buy off-market for a discount, and renovate cost effectively. This is the primary contributing factor to the $50,000 spread between your investment of $150,000 and the appraised value of $200,000.

Buy, Rehab, Rent, Refinance.  This is a highly effective methodology for high ROI rental property investing.

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BRRR - Buy, Rehab, Rent, Refinance - Real Estate Glossary

BRRR

### What is a home warranty?

 

A home warranty is either a legal warranty or service contract that covers a homeowner in the event repair or replacement is required for one or more components of the house. Home warranties typically cover appliances, HVAC, plumbing and can vary based on provider and customer preference.

 

### How much does a home warranty cost?

 

Home warranties typically cost $300 to $600 per year and vary based on location, home type, home size, and coverage options.

 

### Do I need a home warranty?

 

No, you do not need a home warranty. A home warranty is an optional protection that you can shop for to receive competitive quotes. A home warranty is advisable if you have any concerns regarding the condition of the home's major systems and appliances or your ability to afford proper repair or replacement in the event they unexpectedly fail.

 

### Home Warranty vs Homeowners Insurance

 

Homeowners insurance provides financial coverage for structural damage and loss of personal property from emergencies such as natural disaster, fire and theft. Unlike a home warranty, homeowners insurance will not cover the home's systems and appliances when they fail due to construction error or age.

A home warranty is either a legal warranty or service contract that covers a homeowner in the event repair or replacement is required for one or more components of the house.

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Home Warranty - Real Estate Glossary - OfferMarket

Home Warranty

#### What is a mortgagee clause?

 

A *mortgagee clause* is a provision included in a property insurance policy protecting the mortgagee (lender) from financial loss in the event of damage -- physical or otherwise -- to the property. 

 

In other words, if the property suffers damage, the insurer agrees to financially compensate the mortgagee for their portion of the loss.

 

#### How to add a mortgagee clause

 

If you are a private lender providing a private loan to a real estate buyer (borrower), you can have the borrower contact their property insurer to add a mortgagee clause with you as the mortgagee.

A mortgagee clause is a provision included in a property insurance policy protecting the mortgagee (lender) from financial loss.

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Mortgagee Clause - Real Estate Glossary - OfferMarket

Mortgagee Clause

#### What is a cash buyer? 💰

 

A cash buyer is a real estate investor -- either an individual or business entity -- that buys houses in cash. Cash buyers can be particularly attractive to a seller because they are typically able to close the transaction faster and have a lower risk of having the deal fall through because there is no lender involved.

 

#### What should I know about cash buyers?

 

In reality, however, many people tell sellers they are cash buyers but in actuality they are representing other cash buyers. These people are called real estate wholesalers. Real estate wholesalers place sellers under contract by providing cash offers, and then assign their role as Buyer in the contract to another Buyer who purchases the property at the seller's agreed upon terms. Wholesalers are compensated by the buyer they bring into the transaction, typically in the form of an "Assignment Fee". For more on this, read our guide [Wholesale Real Estate 101](https://www.offermarket.us/guides/wholesale-real-estate-101).

 

#### How do I find serious cash buyers?

 

If you are looking to sell your house fast, the easiest way to find actual cash buyers is to [create your free listing](https://www.offermarket.us/sell) on OfferMarket. Every month, thousands of qualified cash buyers browse our marketplace looking for off-market real estate.

A cash buyer is a person or business entity that is able to purchase real estate without using a lender. Learn more about cash buyers.

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Cash Buyer - Real Estate Glossary - OfferMarket

Cash Buyer

#### What is a motivated seller? ⏱️

 

A motivated seller is a person or business entity that needs to sell real estate fast. In traditional real estate sales, motivated sellers end up accepting lower offers from buyers because there is not sufficient time to attract buyers and make them submit competitive offers.

 

With OfferMarket you can sell your house fast by running an auction on our real estate marketplace. Auctions generate significant buyer interest and competition, and have a forced bidding deadline to help you close quickly.

 

#### Motivations to sell real estate quickly:

 

- Divorce or separation
- Financial loss (i.e. job loss, business bankruptcy)
- Medical bills
- Job relocation
- Inheritance and estate liquidation

 

#### Related content

 

- [Guide: How To Sell Your House Fast Without An Agent](https://www.offermarket.us/guides/how-to-sell-your-house-fast-without-an-agent)
- [Guide: Selling A House As Is](https://www.offermarket.us/guides/selling-a-house-as-is)
- [Sell My House Fast](https://www.offermarket.us/sell-my-house-fast)
- [We Buy Houses](https://www.offermarket.us/we-buy-houses)
- [Real Estate Wholesaling: How To Find Motivated Sellers](https://www.offermarket.us/guides/real-estate-wholesaling-how-to-find-motivated-sellers)

A motivated seller is an owner of real estate that needs to sell fast. Motivated sellers on OfferMarket sell fast and for a fair price.

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Motivated Seller - Real Estate Glossary - OfferMarket

Motivated Seller

Fix and flip is a real estate term to describe the activity of buying a house, rehabbing it, and selling it for a profit.

 

#### Let's look at an example:

 

House A was in poor condition and available for sale on OfferMarket for significantly below it's after repair value ([ARV](https://www.offermarket.us/real-estate-glossary/arv-after-repair-value)). Joe the flipper bought the house for $100,000 because he knew that if he invested an additional $100,000 into repairs, he would be able to sell it for $300,000 based on comparable homes ("comps") in the neighborhood. Because he sold his completed fix and flip on OfferMarket, he avoided real estate agent commissions and received a competitive price because he made buyers compete with an [auction listing](https://www.offermarket.us/real-estate-auctions). Joe made $100,000 in gross profit and over $50,000 in profit net of short term capital gains tax, closing costs and interested owed to his [private lender](https://www.offermarket.us/real-estate-glossary/private-lender).

Fix and flip is a real estate term to describe the activity of buying a house, rehabbing it, and selling it for a profit.

Fix and flip definition real estate glossary

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Fix and Flip - Real Estate Glossary - OfferMarket

Fix and Flip

#### What are comps?

 

Comps are a real estate valuation method using comparable properties as the basis for estimating the value of a subject property. Running comps is a skill that anyone can learn and a skill that improves with practice and repetition. Producing accurate and conservative comps is extremely important to avoid real estate investments that do not provide a satisfactory return on investment.

 

#### How to run comps?

 

To run comps, you should find 3 to 5 properties within a 1 mile or less radius that have sold within the last 6 months and match the profile of the subject property you are valuing (i.e. year built, number of bedrooms, number of bathrooms, sq. ft., lot size, stories). If these constraints are not practical, then you can expand your radius and timeline.

 

Next you add or subtract value from your subject property based on objective differences between the subject and the comparable property. For example, remove $10,000 if the comparable property has a new roof and the subject property needs a roof replacement.

 

#### How accurate are Zillow and Redfin estimates?

 

In some cases Zillow's Zestimate and Redfin's estimated house values are accurate but they do not have enough knowledge of the property condition to provide an accurate or relevant estimate in many cases. These estimates are especially inaccurate for houses that were built more than 30 years ago. You will notice these estimates are more reliable for communities built recently by a common builder with similar floor plans and lot size.

Comps are a real estate valuation method using comparable properties as the basis for estimating the value of a subject property.

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Comps - Real Estate Glossary - OfferMarket

Comps

#### What does rehab mean?

 

In the real estate lingo, to "rehab" means to rehabilitate or renovate a house. [Fix and flip](https://www.offermarket.us/real-estate-glossary/fix-and-flip) and rental property investors commonly purchase properties that require anywhere from minor to major rehab work in order to cost effectively build equity value in a property.

 

#### What is an example of a rehab project?

 

Let's say you buy a home for $100,000 that, based on [comps](https://www.offermarket.us/real-estate-glossary/comps), will be worth $300,000 if you invest in repairs and cosmetic improvements. The question now is how much will it cost to rehab this property? See the sections below to learn how to estimate your rehab budget.

 

If your rehab budget is $100,000, then your total investment (not including financing and closing costs) is $200,000. If your goal is to [BRRR](https://www.offermarket.us/real-estate-glossary/brrr-buy-rehab-rent-refinance) the property (buy, rehab, rent, refinance), then you are looking at pulling out $225,000 if you refinance at 75% LTV. 

 

In this example you will end up with 25% equity in a cash flowing rental property and as much as $25,000 more than you started with to use on your next deal. This is why many rental property investors focus on [cash on cash return](https://www.offermarket.us/real-estate-glossary/cash-on-cash-return) as their primary deal evaluation metric.

 

#### How to estimate rehab budgets?

 

To accurately estimate a rehab budget, you must carefully assess all of the work required to bring a property to its target after repair value ([ARV](https://www.offermarket.us/real-estate-glossary/arv-after-repair-value)). 

 

#### How to keep your rehab budget low?

 

To keep your rehab budget low, you want to eliminate unnecessary costs. For example, if you have enough time to manage the project yourself, then you do not need a general contractor. General contractors typically take 10 - 15% of the total project value. So if you are quoted at $100,000 for a rehab project, you can assume your general contractor is making $10,000 - $15,000.

 

Another way to drive down your rehab costs is to make your suppliers (sub contractors, materials) submit competitive bids. This will keep them honest and bring out the best value they are willing to offer. We recommend asking for bids to show, line item by line item, exactly how the component costs add up to the total quote. For a kitchen rehab, this means you will want to know exactly how much the contractor or supplier is budgeting for counter tops material (price per square foot) and labor (installation).

 

A final way to keep your rehab budget under control is to understand the cost basis for the work you are sub contracting. If you understand material costs and cost of labor for each component of your project, then you will know what to budget for each component and you will know when a contract might be overcharging or taking advantage of you. There is often an "investor" price and a "retail" price, and the difference can be considerable.

In the real estate world, to rehab means to rehabilitate or renovate a house. Learn more about rehabbing on OfferMarket.

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