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Real Estate & Financial Glossary
Plain-English definitions for every term you'll encounter — with NJ-specific context where it matters.
1
1031 Exchange
A tax strategy (IRC Section 1031) allowing investors to defer capital gains tax by reinvesting proceeds from a sold investment property into a like-kind replacement property within strict time limits (45 days to identify, 180 days to close).
7
70% Rule
The formula most NJ cash buyers use: Maximum Offer = (After Repair Value × 70%) - Estimated Repair Costs. The 30% buffer covers investor profit, holding costs, and selling costs.
A
After Repair Value (ARV)
The estimated market value of a property after all renovations and repairs are complete. Cash buyers and investors use ARV as the foundation for calculating their maximum offer price.
NJ Context
NJ investors typically offer 65–75% of ARV minus their estimated repair costs.
Amortization
The process of paying off a loan through regular payments over time. Early payments are mostly interest; later payments are mostly principal.
As-Is Sale
A sale where the seller makes no repairs and the buyer accepts the property in its current condition. The buyer still typically has the right to inspect, but cannot require the seller to fix anything.
Appreciation
The increase in a property's value over time. NJ has averaged 3–5% annual appreciation historically, with northern counties sometimes exceeding this.
B
Break-Even Price
The minimum sale price at which a seller walks away with $0 after paying off the mortgage, liens, and all selling costs.
Bridge Financing
A short-term loan that bridges the gap between buying a new home before selling your current one. Allows you to make a non-contingent offer on a new property.
C
Cap Rate (Capitalization Rate)
A measure of a rental property's return: Annual Net Operating Income ÷ Property Value. A higher cap rate indicates higher return but often higher risk.
NJ Context
NJ's high property taxes compress cap rates. Typical NJ residential cap rates run 4–7% in northern counties.
Capital Gains Tax
Federal (and state) tax on profit from the sale of an asset. For real estate, gains are long-term if you've held the property over one year, taxed at 0%, 15%, or 20% depending on income.
Capital Gains Exclusion (Section 121)
A federal tax provision allowing homeowners to exclude up to $250,000 (single) or $500,000 (married) of profit from capital gains tax when selling a primary residence, provided they've owned and used the home for 2 of the last 5 years.
Cash-on-Cash Return
Annual pre-tax cash flow divided by total cash invested. A key metric for rental property investors measuring actual return on invested capital.
Clear Title
A property title free of liens, claims, or encumbrances. Required to transfer ownership. A title search and title insurance protect against title issues.
Closing Costs
Fees and expenses paid at the closing of a real estate transaction, paid by both buyers and sellers.
NJ Context
NJ sellers pay the NJ Realty Transfer Fee, transfer taxes, attorney fees, and any commission. Buyers pay title insurance, attorney fees, and lender fees. See our Closing Costs Calculator.
Commission
A fee paid to real estate agents, typically 5–6% of the sale price in NJ, split between buyer's and seller's agent.
Comparable Sales (Comps)
Recent sales of similar properties in the same area, used to estimate a property's market value. The foundation of any home valuation or appraisal.
Contingency
A condition that must be met for a real estate contract to be binding. Common contingencies: financing (mortgage approval), inspection, and appraisal.
D
Days on Market (DOM)
The number of days a property has been listed for sale. High DOM may indicate overpricing or property issues.
NJ Context
Northern NJ's current average DOM is roughly 35–60 days depending on county and price point.
Deed
The legal document that transfers ownership of real property from one party to another. Recorded with the county clerk.
Deficiency Judgment
If a foreclosed property sells for less than the mortgage balance, the lender may sue for the difference. NJ law has some limitations on these, especially for residential properties.
Depreciation
For tax purposes, the IRS allows rental property owners to deduct a portion of the property's value each year (residential: 27.5 year schedule). When sold, depreciation is "recaptured" and taxed at up to 25%.
Due Diligence
The process of researching and investigating a property before purchase: inspections, title search, permit history, environmental reports, etc.
E
Earnest Money Deposit
A deposit made by the buyer to demonstrate serious intent to purchase. Typically 1–2% of purchase price in NJ. At risk if the buyer backs out without a valid contingency.
Equitable Distribution
NJ is an equitable distribution state (not community property). In divorce, marital assets are divided "fairly" but not necessarily 50/50, based on factors like marriage length, each spouse's income, and contribution to the asset.
Equity
The portion of a property's value that the owner actually owns: Current Market Value − All Liens (mortgage, HELOC, etc.).
Escrow
A neutral third party (typically a title company or attorney in NJ) holds funds and documents until all conditions of the sale are met. NJ uses attorneys rather than escrow companies for most closings.
Executor (Estate)
The person named in a will to administer the estate. Also called a personal representative. The executor has fiduciary duties to beneficiaries and creditors.
NJ Context
In NJ, the executor receives Letters Testamentary from the Surrogate's Court, granting authority to act on behalf of the estate including signing contracts to sell property.
F
Fair Market Value
The price a willing buyer would pay a willing seller, both fully informed and not under pressure to transact. Used for tax purposes, estate valuations, and appraisals.
Foreclosure
The legal process by which a lender takes ownership of a property after the borrower fails to make mortgage payments.
NJ Context
NJ is a judicial foreclosure state — every foreclosure must go through the courts. Average NJ foreclosure timeline: 3–5 years, among the longest in the US.
H
Hard Money Lender
A private lender that offers short-term, asset-based loans for real estate investors. Rates are higher (9–13%), but approval is fast and not credit-dependent. The primary funding source for most NJ cash buyers.
NJ Context
Major NJ hard money lenders include EquityMax, Alpha Funding, Peak Private Lending, and A4 Capital Partners.
HELOC (Home Equity Line of Credit)
A revolving line of credit secured by your home's equity. Functions like a credit card. Interest rates are variable. HELOCs are liens against the property and must be paid off at closing.
Holding Costs
Ongoing expenses incurred while owning a property: mortgage, taxes, insurance, utilities, maintenance. Key factor in investor pricing — longer holds cost more.
I
Inheritance Tax (NJ)
A state tax on assets received from a deceased person. NJ rates depend on the beneficiary's relationship to the deceased.
NJ Context
NJ inheritance tax: Direct descendants (children, grandchildren) and spouses: EXEMPT. Siblings: 11–16%. Non-family: up to 16%. This is separate from and in addition to any federal capital gains tax.
Intestate
Dying without a valid will. When there is no will, NJ's intestacy laws determine who inherits the estate — typically spouse first, then children, then other relatives in order.
L
Letter of Authority / Letters Testamentary
A document issued by the NJ Surrogate's Court granting an executor legal authority to act on behalf of the estate, including selling real property.
NJ Context
In NJ, Letters are typically issued at the executor's first Surrogate's Court appointment, after the required 10-day waiting period following death.
Lien
A legal claim against a property for an unpaid debt. Common liens: mortgage, HELOC, property tax, contractor (mechanic's lien), judgment. All liens must be satisfied at closing.
Listing Agreement
A contract between a homeowner and a real estate agent that authorizes the agent to list and market the property. Typically 90–180 days with commission terms specified.
LSRP (Licensed Site Remediation Professional)
A professional licensed by NJ DEP to oversee environmental cleanup of contaminated sites, including underground oil tank remediation.
NJ Context
Required for all significant environmental remediation in NJ. Finding a qualified LSRP is the first step after petroleum contamination is confirmed.
M
MLS (Multiple Listing Service)
A database of properties for sale, shared among real estate agents. Listing on the MLS provides maximum buyer exposure.
Mortgage Payoff
The exact amount required to fully pay off and release a mortgage lien, including principal, accrued interest, and any prepayment penalties. Request this from your lender before listing.
N
Net Operating Income (NOI)
Gross rental income minus operating expenses (taxes, insurance, maintenance, vacancy), before debt service (mortgage payments). Used to calculate cap rate.
Net Proceeds
What a seller actually receives after paying off the mortgage, all liens, agent commissions, closing costs, and any repairs. The most important number for sellers.
NJ Exit Tax
NJ requires sellers who are non-residents (or in some cases residents moving out of state) to pay an estimated income tax at closing. This is a prepayment, not an additional tax — reconciled when you file your NJ return.
NJ Context
Even NJ residents may have this withheld if moving out of state. The Exit Tax is 2% of the sale price or 8.97% of gain, whichever is higher — but you get it back if your actual tax is lower.
NJ Realty Transfer Fee
A state fee paid by the seller on every NJ real estate sale. Calculated on a sliding scale based on sale price.
NJ Context
Approximate formula: 1% on first $350,000, then 1.45% on amounts above $350,000. Additional local fees may apply.
O
Offer Letter
A written offer to purchase a property, specifying price, terms, contingencies, and closing date. In NJ, offer letters are typically drafted by the buyer's attorney.
P
Pre-Approval
A lender's conditional commitment to loan a specific amount, based on a review of the buyer's credit, income, and assets. Stronger than pre-qualification.
Principal
The original loan amount borrowed, excluding interest. Each mortgage payment reduces the principal balance (amortization).
Probate
The court-supervised process of validating a will and overseeing distribution of a deceased person's estate.
NJ Context
NJ probate is handled by the county Surrogate's Court. Average timeline for clean estates: 9–12 months. Property can typically be sold after Letters Testamentary are issued (week 2–4).
Property Tax (NJ)
NJ has the highest property taxes in the US. The average effective rate statewide is approximately 2.2% of assessed value annually.
NJ Context
Northern NJ rates vary significantly by municipality. Annual taxes on a $450,000 home typically range from $7,000–$14,000 depending on town.
S
Short Sale
A sale where the home sells for less than the amount owed on the mortgage, with lender approval. Requires lender cooperation and approval of the sale price.
Stepped-Up Basis
When inherited property's cost basis is reset to the fair market value at the date of the owner's death (IRC Section 1014). This eliminates capital gains tax on appreciation that occurred during the deceased's lifetime.
NJ Context
One of the most powerful tax benefits available to NJ heirs. A home bought for $90k and valued at $700k at death means heirs pay tax only on appreciation above $700k, not the full $610k gain.
T
Title Insurance
Insurance that protects against defects in a property's title (unknown liens, ownership claims, etc.). Owners' title insurance is a one-time premium; lenders' title insurance protects the lender.
Title Search
A review of public records to verify the seller's legal right to sell the property and identify any liens, easements, or other encumbrances on the title.
V
Vacancy Rate
The percentage of time a rental property is unoccupied. Used in calculating effective gross income: Gross Rent × (1 - Vacancy Rate).
W
Wholesale Assignment
An investor puts a property under contract, then sells (assigns) that contract to another buyer for a fee — without ever purchasing the property. Many "we buy houses" contacts are actually wholesalers, not end buyers.