The following definitions are
offered for your convenience. These are terms that you may
encounter during your real estate projects. If there are terms
and acronyms that you would like to know the meaning of, send
me a message and I will be happy to reply.
Either click on the letter or just
scroll down.
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A
ACRE - A unit of land measurement.
There are 43,560 square feet in an acre. A perfectly square
acre has sides of 208.71 feet.
ADJUSTABLE RATE MORTGAGE (ARM)
- A mortgage without an expressed fixed rate. This kind
of mortgage has a rate that adjusts up or down according to
some specified economic index. Also called a variable-rate
mortgage (VRM).
ADVERSE POSSESSION - The
act of acquiring title to property by continuous and outright
possession against the title of another for a specific period
of time.
AGENCY - An agency relationship
is created when you appoint someone to act on your behalf.
In so doing, the agent then becomes bound by certain fiduciary
duties, which include obedience, loyalty, disclosure, confidentiality,
accountability and reasonable care and diligence. An agency
relationship can be created by a desire to be represented
and a consent to represent, however it is more often created
as a result of a listing agreement or a buyer representation
agreement.
AGREEMENT OF SALE - A written
document or contract in which a purchaser agrees to buy and
a seller agrees to sell a specific property.
AMORTIZATION - The systematic
repayment of a loan over a specific period of time at a specific
rate of interest.
AMORTIZATION SCHEDULE -
A table showing how a loan is systematically repaid during
its term.
ANNUAL PERCENTAGE RATE (APR)
- Sometimes called the “true” rate of interest, it includes
interest and certain loan fees and discount points.
APPRAISAL - An estimate
of the fair market value of a specific property arrived at
through application of certain techniques which consider many
market condition and economic aspects.
APPRAISER - A person who
conducts appraisals and writes reports of the appraisal. Usually
certified by a state regulatory agency.
APPRECIATION - An increase
in property value, due to a variety of market and economic
conditions.
APPURTENANCE - Anything
which is a part of, or annexed to real property, either attached
or not, such as a building, or an easement, that it will pass
as part of the property upon sale.
ASSESSED VALUE - A value
placed on property by the legal taxing body for the purpose
of determining real estate taxes.
ASSESSMENT - A specific
one - event tax designated for a specific purpose.
ASSESSOR - A person, usually
an employee of, or an independent contractor for a taxing
body who estimates the value of property for tax purposes.
Very often this value is not the fair market value.
ASSIGN - The act of transferring
or assigning one’s rights under a contract or agreement to
another.
ASSIGNEE - The person to
whom rights are assigned or transferred.
ASSUME A LOAN - A buyer
assumes the responsibility to repay an existing loan under
all of its existing terms and conditions.
B
BALLOON MORTGAGE - A mortgage
in which the final payment is larger than any of the preceding
payments. A balloon mortgage is usually one in which the loan
has been amortized for a specific period of time, but which
provides for a balloon payment at some specific time prior
to the expiration of that period of time.
BALLOON PAYMENT - The final
payment on a balloon mortgage.
BANKRUPTCY - A legal proceeding
wherein one is granted relief from debts due to the inability
to pay the debts.
BEQUEST - Personal property
received under a will.
BLANKET MORTGAGE - A mortgage
pledging more than one property as collateral for a loan.
BROKER - A person licensed
by the appropriate state regulatory authority to act on behalf
of another in the sale or purchase of real estate. In most
states, licensed salespeople must be licensed under a broker.
BUILDING CODES - Safety
and fire codes adopted by municipal bodies for the purpose
of establishing minimum construction criteria for buildings.
BUILDING LIMIT LINE OR SETBACK
- Distances from the ends and/or sides of the lot beyond
which construction may not extend.
BUY-DOWN - A payment required
by a lender at the time a loan is made to reduce the interest
rate.
BUYER’S BROKER - A licensed
real estate broker, together with his or her affiliated agents,
who represent buyers and owe their buyer clients certain fiduciary
duties.
BUYER’S MARKET - A real
estate market in which the supply exceeds the demand.
C
CAP - An upper limit on
the increase in the interest rate on an Adjustable Rate Mortgage
(ARM).
CAPITAL GAINS - The sale
price less sales costs, basis and capital improvements. Usually
subject to income tax at a rate less than ordinary income.
CAPITAL LOSS - Same as capital
gains except that a loss occurs rather than a gain.
CASH FLOW - The amount of
money remaining from an investment property when all operating
costs and loan costs are subtracted from the gross income.
CERTIFICATE OF TITLE - A
document prepared by an attorney or a title company certifying
that a property has good and marketable title. Not title insurance,
the certificate of title only covers title defects normally
evident in a title search.
CLOSING - (Sometimes referred
to as Settlement.) The process of formally and finally exchanging
all monies and documents as a result of terms defined in an
agreement of sale.
CLOSING COSTS - All the
expenses incurred by buyers and sellers in closing a real
estate transaction. (Not to be confused with prepaid items.)
CLOSING STATEMENT - (Sometimes
referred to as Settlement Statement.) A statement usually
prepared by an attorney or title company setting out all the
financial details concerning the costs of conveying property.
The closing statement is normally given at Closing.
CLOUD ON TITLE - A defect
in the title to property which prevents the title from being
good and marketable.
CO-SIGNER - A person who
signs a loan document along with the principal borrower and
thereby becomes legally liable for the debt also.
COLLATERAL - The property
pledged by a borrower to secure a loan.
COMMISSION - The money a
client pays their agent for services performed. Usually a
percentage of the sale price, however other methods of determining
the amount of money are frequently used, especially between
a buyer’s broker and his/her client.
COMPARABLES - Data about
properties recently sold, currently on the market, expired
listings, and pending sales which are similar to the property
whose value is being determined. Used most often in appraisal
reports and in competitive market analysis.
CONDEMNATION - The taking
of private property for public purposes. Condemnation can
take place when a building is unfit for habitation, or when
needed for a public use.
CONDOMINIUM - The ownership
in one unit of a building or buildings containing many units.
Ownership includes the unit itself and a share of the ownership
of common elements.
CONSTRUCTION LOAN - A temporary
loan used to pay construction costs during the construction
period. A construction loan is usually followed by a permanent
mortgage.
CONTINGENCY - A condition
in an agreement of sale specifying certain events that must
take place prior to closing.
CONTRACT - A legally binding
agreement made between two or more parties.
CONVENTIONAL LOAN - A mortgage
loan which is NOT insured by a government agency such as HUD
or FHA.
CONVEY - The act of transferring
title from one person to another.
(CO-OP) - An apartment building
owned by a group of people in which each person occupies one
of the apartments. While the group together owns all the units,
each individual has absolute rights to the occupation of a
single unit.
COUNTER-OFFER - An offer
made in response to a person who has made an initial offer.
CREDIT REPORT - A report
from a company which specializes in keeping credit histories
on people. Lenders base the decision on an applicant’s credit
worthiness based on the information in a credit report. Credits
reports cannot be given except with the consent of the person
being reported on.
D
DEED - The legal document
used to convey title to real property. The deed is the strongest
evidence of legal title and therefore should be recorded by
the proper legal authority.
DEED OF TRUST - Very much
like a mortgage, a deed of trust pledges specific real estate
as collateral for a loan.
DEED RESTRICTION - A deed
carries with it the right to use property in any legal manner.
Deed restrictions are used by the seller to provide restrictions
over and above those imposed by law. Deed restrictions are
often imposed by developers to protect the value of the yet
undeveloped property and to provide protections for other
property owners in the development.
DEFICIENCY JUDGMENT - The
judgement against a person when they default on a mortgage
and the sale of the property does not fully satisfy the obligation.
The amount of the judgement is usually the unsatisfied portion
of the loan.
DELINQUENT LOAN - A loan
with payments that are past due.
DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT - (HUD) - A federal agency that helps homebuyers
by providing mortgage insurance on mortgage loans that might
otherwise be too high risk for the lender. HUD also has a
number of other programs designed to provide housing.
DEPOSIT - A sum of money
placed into an escrow account to bind a buyer to an agreement
of sale. The deposit becomes part of the purchase price at
closing. In the event the transaction fails to close, the
deposit is usually refunded unless the buyer defaults under
the terms of the agreement.
DEPRECIATION - A decrease
in the value of real property due to a number of causes such
as deterioration of the neighborhood.
DOWNPAYMENT - The amount
of money at time of purchase a buyer will invest in the purchase.
The down payment is the difference between the purchase price
and the mortgage amount.
DUE ON SALE CLAUSE - A mortgage
clause that specifies that a mortgage loan must be paid in
full when title to the mortgaged property is conveyed.
E
EARNEST MONEY - See DEPOSIT.
EASEMENT - A right granted
from a property owner to another for a specific use of a portion
of the owners land. Public utilities often use easements for
the purpose of installing their utility lines.
EMINENT DOMAIN - A governmental
right to acquire private property for public use provided
the owner is properly compensated. A number of court cases
exist which attempt to define acquisition of real property
and compensation.
ENCROACHMENT - When a part
of a building or other improvement from an adjoining property
reaches beyond the property line of another.
ENCUMBRANCE - A term used
to describe any claim to title such as a lien, mortgage, easement,
etc.
EQUITY - An amount of money
which is the fair market value less the amount of any liens
against the property.
ESCROW - Money being held
by an agent or another third party pending closing on the
property.
EXCLUSIVE AGENCY - The type
of agency relationship in which the broker represents either
the buyer or the seller, but not both in the same transaction.
EXCLUSIVE AGENCY LISTING -
A listing agreement between a broker and a seller in which
the broker is given the exclusive right to sell a property
with the sole exception that the seller reserves the right
to sell the property himself. In this type of listing, the
broker earns his fee unless the seller sells the property
himself.
EXCLUSIVE RIGHT TO SELL -
A listing agreement between a broker and a seller in which
the broker is given the exclusive right to sell the property.
In this type of listing, the broker earns his fee regardless
of who sells the property including the owner.
F
FAIR MARKET VALUE - The
price an informed buyer will pay an informed seller with neither
party being under duress.
FANNY MAE - Federal National
Mortgage Association.
FARMERS HOME ADMINISTRATION
(FmHA) - The government agency responsible for guaranteeing
mortgage loans on farms and rural homes.
FEDERAL HOME LOAN MORTGAGE CORPORATION
(FHLMC) - The federal agency which buys mortgage loans
from savings and loans and banks.
FEDERAL HOUSING ADMINISTRATION
(FHA) - The federal agency which insures mortgage loans.
FEE SIMPLE TITLE - The normal
type of title to property. It means full and unrestricted
title.
FIRST MORTGAGE - A mortgage
recorded in first place on a property and having priority
over all other mortgages that follow.
FIXED RATE MORTGAGE - A
mortgage with a specified rate of interest which cannot be
changed throughout the entire term of the mortgage.
FORECLOSURE - The legal
act of a lender or lienholder seizing title to a property
when the obligation is in default
FORECLOSURE SALE - A sale
held for the purpose of liquidating a property in satisfaction
of a debt.
G
GENERAL WARRANTY DEED -
A deed in which the grantor grants all his rights, title and
interests, but also warrants the title of the property from
the beginning of its recorded history.
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (GNMA) - The government agency which provides
funding for all or parts of certain residential mortgage loans.
GRACE PERIOD - That period
of time from the due date of a payment until the payment is
recorded as late.
GRANTEE - The person named
in a deed who is the recipient of title.
GRANTOR - The person named
in a deed who surrenders title.
H
HAZARD INSURANCE - An insurance
policy that covers losses due to fires, windstorms, etc. This
type of policy is commonly referred to as a homeowner’s policy.
HUD - The United States
Department of Housing and Urban Development.
I
INCOME APPROACH - A technique
used in appraising property determines fair market value by
capitalizing net income.
INDEMNIFY - To reimburse
one as a result of any damages or losses they suffer.
INSOLVENCY - The result
of debts being equal to or greater than assets.
INSTALLMENT SALES CONTRACT -
A contract providing for a buyer to purchase a property by
making installment payments to a seller. Title remains vested
in the seller until the contracted purchase price is paid
in full.
INTEREST - The money a lender
earns for use of his money.
INSURANCE - A contract providing
for financial protection against a loss. For example, a homeowner’s
insurance policy provides for reimbursement if the owner suffers
a loss due to fire or a number of other causes.
J
JOINT TENANCY - When two
or more people hold equal undivided interest in title to a
property.
JUDGMENT - Court order which
results from one person suing another for money.
K
L
LEASE - A contract which
permits a person to occupy and use a property for a specific
time period in return for a specified sum of money.
LEASEBACK - The process
of selling a property and also entering into a lease to continue
using that property.
LESSEE - The tenant.
LESSOR - The landlord.
LIEN - A claim against a
property assuring the lienholder of their right to payment
in the event the property is sold.
LIFE ESTATE - A right granted
to a person to use a property for the rest of their life.
Upon the demise of the holder of the life estate, use of the
property reverts to the holder of legal title.
LIMITED PARTNER - A partner
in an investment property or properties who makes an investment,
expects a return, but cannot make management decisions.
LIMITED PARTNERSHIP - A
partnership comprised of limited partners who put up the cash
with which to purchase an investment property and one or more
general partners who manage and operate the investment property.
LIQUIDATED DAMAGES - The
damages a party suffers as a result of the breach of a contract
by the other party.
LISTING AGREEMENT - An agreement
which authorizes a broker to sell an owner’s property for
a certain price within a specific time period for which the
broker will be compensated a specific fee.
LOAN ORIGINATION FEE - A
flat fee a lender may charge for lending money. A fee which
may be in addition to points.
LOAN TO VALUE RATIO - The
percent of fair market value a lender will lend on the purchase
of a property.
M
MARGIN - The contractually
specified rate difference between an index and the rate of
a variable rate mortgage.
MARKETABLE TITLE - Typically
defined as such title that is insurable by a title company,
it is a title free of liens and defects.
MARKET APPROACH - A technique
used in appraising property which compares recently sold comparable
properties in arriving at a conclusion as to fair market value.
MARKET VALUE - The price
an informed buyer will pay an informed seller with neither
party being under duress.
MECHANIC’S LIEN - A lien
which usually results from a contractor or supplier not being
paid for services rendered or materials delivered in the construction,
remodeling, expansion, etc. of a building.
METES AND BOUNDS - A method
used in describing property which starts at an identifiable
starting point and then describes the succeeding sides by
their bearing (direction) and length (distance).
MORTGAGE - A document which
legally pledges a property or properties as collateral for
a loan.
MORTGAGE BANKER - A thrift
institution which makes mortgage loans.
MORTGAGE BROKER - A person
who matches buyers with lenders.
MORTGAGE COMPANY - A company
which makes mortgage loans.
MORTGAGE GUARANTY INSURANCE
CORPORATION - (MGIC) A company which insures private mortgages
against default.
MORTGAGE INSURANCE - Life
insurance on the borrower which will pay the mortgage loan
off in the event of the borrower’s demise.
MORTGAGEE - The lender in
a mortgage document.
MORTGAGOR - The person(s)
or company who has borrowed the money in a mortgage document.
MULTIPLE LISTING SERVICE -
(MLS) A service operated by a (sometimes privately operated)
by a board of REALTORS® in which members offer cooperation
and compensation to other brokers on their listed properties.
N
NATIONAL ASSOCIATION OF REALTORS®
- (NAR) The national trade association of real estate
practitioners. REALTORS® distinguish themselves from non-REALTOR®
practitioners by subscribing to a strict Code of Ethics.
NEGATIVE AMORTIZATION -
A condition which occurs when the interest due each period
exceeds the amount being paid thereby increasing the mortgage
balance.
NET LISTING - A listing
agreement which provide that the seller receive a specified
amount of money regardless how much is paid for the property.
In a net listing, it is anticipated the sale price will be
higher than the net and the broker will receive the difference.
This type of listing is illegal in some states.
NOTE - The document which
usually accompanies a mortgage and is the promise to re -
pay the loan.
O
OFFER TO PURCHASE - An offer
made in writing by a buyer to purchase a specific property
and establishing all the terms of the sale. When accepted
by the seller, it becomes the agreement of sale.
OPEN LISTING - A listing
agreement which provides that a broker will be paid if he
sells the property, but will not get paid if sold by another
including other brokers. Owners sometimes enter into multiple
open listings.
OPTION - A clause in a lease
agreement which allows the lessee the right to purchase the
leased property at a specified sale price and terms. An option
may also be granted absent a lease agreement.
ORIGINATION FEE - A fee
charged by a lender to cover costs associated with a new mortgage.
P
PITI - An acronym used to
describe the total sum paid each month for principal, interest,
taxes and insurance.
POINTS - A term used to
describe a fee charged by a lender based on the mortgage amount.
One point equals one percent of the mortgage amount. Points
are often charged in consideration of a lower interest rate.
POWER OF ATTORNEY - The
power one person or legal entity grants to another to act
on behalf of the person granting authority. The document granting
such power normally specifies exactly how much power the attorney-in-fact
(recipient of the power of attorney) will have.
PREPAYMENT PENALTY - A penalty
a lender may charge in the event a loan is paid prior to it
being due.
PRINCIPAL - The actual amount
of a loan or the actual amount paid to reduce the actual amount
of a loan.
PRIVATE MORTGAGE INSURANCE (PMI)
- Insurance guaranteeing the payment of a loan. This type
of mortgage insurance is normally charged when the loan exceeds
80% of the property value.
PROPERTY TAX - Taxes due
each year by various municipal bodies based on an assessed
value of the property.
PUBLIC RECORDS - Records
relating to ownership and liens on real estate. Usually kept
and maintained by the county government.
PURCHASE AGREEMENT - A contract
setting forth the parties, the property being conveyed, the
consideration (sale price) and other terms of the sale. In
many states, having a written agreement is required by law.
Q
QUITCLAIM DEED - A deed
in which the grantor surrenders title (if any) to a parcel
of property.
R
RATE LOCK - A guaranteed
rate of interest for a specific time frame on a mortgage loan.
RATE OF RETURN - The rate
at which an investor recaptures his investment in income -
producing property.
REAL ESTATE - Land and its
appurtenances (attachments such as buildings or other structures
or improvements)
REAL ESTATE BROKER - A person
licensed by his/her particular state to charge a fee for bringing
a buyer and a seller together to purchase real estate.
REALTOR® - A real estate
licensee who is a member of the National Association of REALTORS®.
RECORDING - The act of placing
a document on the public records (usually the county records).
Recording is usually done to give public notice of a conveyance
or the placement of a lien.
RELEASE OF LIEN - A legal
and recordable document which serves notice that a lienholder
has released his lien.
RELEASE OF MORTGAGE - Same
as Release of Lien, except that it is granted by a mortgagee
to release a mortgage.
RESTRICTIVE COVENANTS -
Provisions included in a deed which limits the grantee in
the use of the conveyed property. Most of these type covenants
expire at a date certain, are binding on all subsequent grantees,
and are most frequently created by a developer in a development
project to protect the quality of the development.
RIGHT OF WAY - A right granted
by a property owner to another to build, maintain and use
a road, utility line or similar improvement over his property.
S
SALE-LEASEBACK - The act
of selling property and then leasing the property from the
buyer. Owners of commercial property often do this to liquidate
assets to be invested for other purposes.
SALES COMPARABLES - A sale
of another property which may be used to indicate the value
of a property. Comparable sales are normally similar in condition,
style, size, location and utility to the property being evaluated.
SECOND MORTGAGE - A mortgage
placed on a property after the first mortgage and subordinate
to the first mortgage. People often take a second mortgage
on a residential property to recapture some of their gain
and/or appreciation to be used for other investments or expenses.
SELLER’S MARKET - A market
in which the demand for housing exceeds the supply.
SEPTIC TANK - A tank (usually
concrete) on a property into which raw sewage is discharged.
The sewage stays in the septic tank long enough for all solids
to decay and liquid is drained off to an attached leach bed
for the purpose of purifying the liquid.
SHERIFF’S DEED - A sale
of property ordered by the court and carried out by the sheriff.
A sheriff sale is most common with mortgage foreclosures or
in sales of property resulting from delinquent taxes.
SPECIAL WARRANTY DEED -
The most common kind of deed used in conveying title to property.
In a special warranty deed, the grantor warrants the title
for the period of time in which he held title, but does not
warrant it with regard to previous owners.
STRAIGHT-LINE DEPRECIATION -
An accounting method in which a depreciable asset is depreciated
by a like amount each year over a specified period of time.
SUBDIVISION - The act of
legally dividing a parcel of land into two or more smaller
parcels. In most areas, subdividing land requires the approval
of a governmental body.
SURVEY - An accurate graphic
depiction of the boundaries of a property. At the least, a
survey will show the metes and bounds of all property lines.
It can also show buildings, other improvements, topographic
features, utility lines, etc.
T
TAX LIEN - A kind of lien
placed on property by a taxing authority when real estate
taxes have not been paid.
TERM - An agreed upon length
of time in which a loan is to be repaid.
TIME-SHARE - Title in a
property held by several owners, each entitled to the use
of the property for specified time periods each year. Common
in resort areas.
TITLE - Evidence of ownership
of real property. A properly executed deed is generally deemed
to be adequate evidence of title.
TITLE DEFECT - Any title
problem which “clouds” the property’s title. A title defect
can be a lien, a person or entity who may have had interest
in the property and never surrendered it, or any number of
other situations making title less than perfect.
TITLE INSURANCE - An insurance
policy issued for the protection of all parties against any
unresolved title defects.
TITLE SEARCH - A search
of all public records to determine if any title defects or
liens exist.
U
V
V.A. MORTGAGE - A mortgage
given by a conventional lending institution, but guaranteed
by the U.S. Veterans Administration.
W
