Real Estate Glossary

The internet is full of varying definitions and interpretations of common Real Estate terms.  Within this glossary, you shall find terms that have been hand selected for individuals that are sellers and buyers of Real Estate and are designed to increase your knowledge of the selling and buying process.

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17 DAY CONTINGENCY The 17 day period that protects both the buyer and the seller.  It calls for the removal of 3 conditions at the end of the 17 days, at which point the Earnest Money Deposit becomes nonrefundable to the buyer for lack of performance.  It ensures that both parties are moving forward in a “best effort” to close escrow.   (a) Loan Contingency: The buyer must have full loan approval from the lender to remove this contingency.  (b) Appraisal Contingency: The home must appraise for the purchase price OR some other remedy must be agreed upon.  If there is a discrepancy between purchase price and appraised value, for lending purposes, the lender will only recognize the lesser of the appraised value or the purchase price to determine what 100% value of the property is. (c) Home Inspection: A home inspection shall be performed to check for issues such as mold, cracked slab, and other defects that will materially change the value of the property.  It is common practice to assign a value to the needed corrections and either fix it, or give the buyer a credit in form of a dollar value at escrow.


ACCEPTANCE A positive response to an offer or a counter-offer that creates a binding agreement between the parties. Acceptance may be conditional upon the occurrence of certain events.  Typically once the seller accepts the buyers offer, it is the “start” of the escrow process and escrow should be opened.


ACTION TO QUIET TITLE A legal proceeding begun for the purpose of settling competing claims to property and establishing clear legal title in one party.


ACTUAL AGE As opposed to effective age. The objective age in years of a building measured simply by the passage of time since it was constructed. Effective age is a subjective measurement of the condition of a building, influenced mostly by the maintenance and upkeep carried out on the building over the years.


ACTUAL AUTHORITY With reference to an agent or representative. The limits of the power the agent or representative has to bind her principal to an agreement or to a statement.


ACTUAL CASH VALUE An insurance term, the value of a building calculated by subtracting the decrease in value caused by age and wear and tear from the cost of replacing the building entirely.


ADDENDUM An addition to a document that forms part of it. Similar to a Schedule to an Agreement of Purchase and Sale. May be used to add specific and detailed information material to the contract or upon which contractual terms are based. Typically made to the Purchase Agreement, once noted by escrow, will become an “amendment” to escrow, and be accepted by all parties as part of the new contract.


ADJUSTED SALES PRICE The result of estimating the value of a property by comparison to comparable properties. Take the actual sale price of a property comparable to the subject property, then add the value of any extras which the subject property has but the comparable property did not, then subtract the value of any deficiencies in the subject property not shared by the comparable property.


ADJUSTMENTS Expenses like property taxes and utilities that have been prepaid by the seller and need to be pro-rated and charged to the purchaser.


AGENT A person empowered by a Principal to act on behalf of the Principal in dealings with third parties. The third party is entitled to rely upon the agreement, assurances or statements of the Agent as being binding on the Principal.


AGREEMENT OF PURCHASE AND SALE A document outlining the terms and conditions under which a property is offered for purchase and sale.


AMERICAN LAND TITLE ASSOC.   (ALTA)   Trade association of American title insurance companies, with a view to standardizing the policies nationwide. All properties will require title insurance when conveyed.  There is both “title” insurance as well as “owners” insurance.


AMORTIZATION PERIOD The number of years required for reducing a mortgage debt to zero.


AMORTIZATION SCHEDULE The printed table of the payments to be made on an amortized loan showing the date and amount of each payment, the amount of each payment which will be applied to interest and to principal and the balance of principal still outstanding on the loan after the payment is made.


AMORTIZATION The preparation of a payment plan for a loan which allows for equal payments to be made to the creditor at consistent intervals over the life of the loan (the amortization period). Each payment covers interest accrued over the interval period with the remainder of the payment being applied to reduce the principal owed. If every payment is made on time and in full over the amortization period, the loan will be completely repaid at the end of the amortization period.


ANNUAL PERCENTAGE RATE        (APR) A rate designed to allow for the comparison of one type of loan to another. The annual cost of borrowing under a given form of loan (includes in the calculation compounded interest, cost of borrowing etc.). Required to be disclosed by the lender under the American Truth in Lending Act, Regulation Z.


APPRAISAL COSTS A specific category of quality control costs. Companies pay appraisal costs as part of the quality control process to ensure that their products and services meet customer expectations and regulatory requirements. These costs could include expenses for field tests and inspections.


APPRAISAL PRINCIPLES Elements to be considered by an appraiser in appraising the value of a property, such as competition, supply and demand.


APPRAISAL PROCESS A standardized approach to appraising a property, to allow for accuracy and consistency.


APPRAISAL REPORT Documentation to support an appraisal of a property. Varies in length but sets out elements considered, positive and negative aspects of property etc.


APPRAISED VALUE The estimated market value of a property on a given date, given by a qualified person as a result of an inspection of the property and a consideration of other market forces. FOR LENDING PURPOSES, LENDER WILL USE THE LOWER OF a) THE APPRAISED VALUE OR b) THE PURCHASE PRICE IN DETERMINING WHAT 100% OF THE VALUE OF THE PROPERTY IS.


APPRAISER A professional who has been trained to assess the value of property. Due to recent regulation, the mortgage broker may NOT have any contact with the appraiser.  Further, the appraiser cannot be coerced or pushed to change the material value of the property.  However, it is acceptable to point out upgrades (e.g. rare tile used or plantation shutters) to help support higher value.


APPRECIATION The increase over time in the value of a property caused by many factors: market conditions, inflation, changes to area around the property, etc.

 

APPROVED LENDER A lending institution approved by the government to grant mortgage loans under the terms of the National Housing Act.


ARM’S LENGTH TRANSACTION A colloquial description of a transaction where none of the parties are related to each other or have common interests — they have each other at “arm’s length”. An arms-length transaction is generally at fair market value; in a “non-arm’s-length” transaction, the relationship between the parties may cause one or the other to accept less than they are entitled or pay more than fair market value.


ARREARS Money which is not paid when due, under a payment plan or amortization schedule. Could lead to enforcement of loan agreement by lender through an “acceleration of the note”, or a Notice of Default (NOD)


ASKING PRICE The price at which a property is listed for sale.


ASSUMPTION AGREEMENT A buyer assumes responsibility of an original owners or builders mortgage.


B


BUSINESS DAY A standard day for conducting business. 9.00 A.M. to 5:00 P.M. Excludes weekends and public holidays.


C


 

CAPITAL GAIN The gain on the sale of a capital asset.


CAVEAT EMPTOR A Latin phrase for “let the buyer beware”, i.e.: the onus is on the buyer to be satisfied with any item before purchasing.


CERTIFICATE OF TITLE A description of a property with the name of the registered owner, encumbrances; e.g. mortgages or easements on the property. It must be produced by the vendor before the sale of the property


 

CHATTELS Chattels in a home are items that may be connected by pipes and wires, such as refrigerators, stoves, washers and dryers.


CLEAR TITLE A title that is free of or legal questions as to ownership of the property


CLOSING COSTS The expenses, over and above the price of the property that buyers and sellers normally incur to complete a real estate transaction. Costs incurred include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges.   Also known as “settlement costs.” Closing costs are separated into two categories: nonrecurring closing costs and prepaid costs. Nonrecurring costs are one-time costs associated with buying a property or obtaining a loan. Prepaid costs are those that recur over time, such as property taxes and homeowners’ insurance. These costs are estimated by the lender on what is called a “good-faith estimate”, which the lender must issue to the borrower within three days of a home loan application.


 

CLOSING DATE The date when the property changes hands.


 

 

COLLATERAL A property assigned as security for a loan.


 

 

COMMON ELEMENTS Refers to all the property of a condominium development except the units owned by individual parties.


 

 

CONDITIONAL AGREEMENT This is a legally binding contract, but it is subject to conditions being satisfied, usually by the purchaser. The conditions will be detailed in the agreement and may, for example, require that you are able to sell your existing home by a set date or to arrange finance by a certain date. Conditions can also be included by the purchaser that require the seller to do something by a specified date – for example, that settlement will take place only on the conditions that the house is painted, the windows repaired or that rubbish around the section is removed. Note: Purchasers’ conditions usually do not prevent the sale-taking place, but may allow the purchaser to delay settlement without penalty or claim damages if the conditions are not met in time.

CONDITIONAL OFFER In general, an agreement between a buyer and a seller that an offer will be made if a certain condition is met. In real estate transactions, conditions can include a home inspection or a mortgage application. Once the conditions are satisfied, the buyer or seller will then be obligated to purchase or sell the property. If the conditions are not met then the buyer or seller is not obligated to purchase or sell the property. The time frame of a conditional offer is often short, since the seller will not want to tie up the property for an extended period of time.


CONDOMINIUM                              A development where the land and all common elements of buildings are owned collectively by all unit owners and only a specific unit belongs to an individual owner.

 


CONTRACT OF SALE An agreement in wiring setting out the terms and conditions relating to the sale or purchase of a property. It is the purchase document signed at auction.

 


CONVENTIONAL MORTGAGE A first mortgage where the amount cannot be more than 75% of the appraised property value.

 


CONVERTIBLE MORTGAGE A short term mortgage that can at any time be converted into a longer-term closed mortgage without penalty.

 


CONVEYANCE The legal transfer of title to real estate property.

 


CORRESPONDENT LENDER A lender who delivers loans to a (usually larger) wholesale lender against prior price commitments the wholesaler has made to the correspondent.   The commitment protects the correspondent against pipeline risk.  The prices they deliver to borrowers are those of the wholesale lenders, plus a markup. When they lock a price for the borrower they simultaneously lock it with the wholesale lender, which locks in their markup.


 

CROSS QUALIFY The act of using a mortgage professional to help qualify parties making an offer on a property.  This significantly reduces the “fallout” that occurs due to loan eligibility requirements such as income, credit and asset requirements.


DEBT-SERVICE RATIO                     The difference between gross household income and total debt payments.


DEED                                                  A legal document conveying title to a property.


 

ISCHARGE OF MORTGAGE A document stating Discharge of Mortgage – A document stating that a mortgage loan has been paid in full.


 

DISCLOSURES All sellers are legally responsible to disclose ANY and ALL facts that will materially affect the value of the property.  This includes, but is not limited to (nor is this intended to be a template for what should be disclosed): mold, occupancy issues, litigation, HOA solvency, construction defect, unpermitted work, etc. The law holds that the seller is responsible for this disclosure and can be sued for up to ten (10) years past the point of the injured party becoming aware of the issue.

 


 

DRY CLOSING A type of real estate closing in which the entire closing requirements are fulfilled except the disbursement of funds. In a dry closing all involved parties agree that the closing can still happen and the funds are transferred as soon as possible following the closing. A real estate closing is the completion of a transaction involving the sale or exchange or real estate. In a traditional closing, the title to the property is transferred to the purchaser and all finances pertaining to the purchase are settled. A dry closing occurs usually when there has been some type of delay in the funding of the loan required for a real estate transaction. Usually funds have been approved and are fairly guaranteed. While a normal closing usually includes necessary paperwork and the exchange of funds, a dry closing is performed with no exchange of funds. This could take a couple days or even a couple weeks for the funds to be deposited.


EARNEST MONEY DEPOSIT          (EMD)   As defined in “17 day contingency”, this money is deposited into escrow as a good faith deposit of a buyer’s intention to move forward.  Once the contingencies have been removed, the EMD is said to be the property of the seller if the buyer does not perform.  Typical EMD’s range from 1% to 5%.


EASEMENT A right that someone has to use the land belonging to another, e.g. a water authority may have a sewerage easement across part of your property.


ENCUMBRANCE A LEGAL CLAIM AGAINST OF PROPERTY, A DEBTOR A MORTGAGE.


ESCROW Both the process and the location by which “escrow” takes place.  Escrow Officer is defined as a non-biased “third party” that acts as an impartial officer to help facilitate the loan.  No fiduciary relationship exists between escrow and any particular party, rather escrow’s fiduciary responsibility is to ALL parties to a transaction.  A good escrow company is central to any FSBO transaction.

 

 


FIRE & PROPERTY INSURANCE Evidence of such insurance is required by the lender and has to be arranged by the purchaser before closing.

 


FIXED RATE MORTGAGE The interest rate remains unchanged for the term of the mortgage.


FIXTURES Fixtures are items that have been attached and have become part of the property, such as built-in closets, carpeting and light fixtures. Also see “Chattels”.


FOR SALE BY OWNER (FSBO)   A method of selling property without the use of an agent or broker. By not using a real estate agent, the seller assumes all the responsibilities of completing the transaction.


HOME INSPECTION A thorough inspection that evaluates the structural and mechanical condition of a property.


LAND SURVEY A certificate of location indicating boundaries of a property.


LISTING AGREEMENT A written agreement between the seller and his agent.


LOAN TO VALUATION RATIO       (LTV) The amount of the loan financed as a proportion of the property value, expressed as a percentage


MARKET VALUE The price at which a seller is happy to sell and a buyer is willing to buy. This assumes that there is sufficient activity in the marketplace to generate enough buyers and sellers so that neither party controls the price. Establishing the market value is the objective of an appraisal.


MATURITY DATE The date on which the term of a mortgage ends.


MECHANIC’S LIEN A claim against a property by someone who’s provided materials and/or labor and hasn’t been paid.


MORTGAGE BROKER An individual or company that brings borrowers and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services. Usually paid by the Lender.


MORTGAGE INSURANCE By law, any mortgage for which the down payment is less than 25%, must be insured to protect the lender.


MORTGAGE LIFE INSURANCE Insurance that guarantees the mortgage will be paid in full if the borrower dies.


MORTGAGE PAYMENT Scheduled payments that include principal and interest.


MORTGAGEE                                    An individual or a financial institution lending money secured by a mortgage.


MORTGAGOR A borrower who gives title to his property as security for a mortgage loan.


MULITPLE LISTING SERVICE (MLS)     A service provided by a group of real estate brokers. They band together to create a Multiple Listing Service that allows each of them to list each other’s houses. Under this arrangement, the listing broker and the selling broker split the commission for each sale.


NEGATIVE AMORTIZATION When installment payment amounts are less than the interest rate on the mortgage. The principal increases and the borrower owes more than the original sum borrowed. .


NET WORTH Total assets minus total liabilities equal a person’s financial net worth,


OFFER OF PURCHASE A signed document outlining the terms under which a buyer agrees to purchase a property.


OFFER Conveyed intent by one party to form a contract, which may have conditions and stipulations, with another party.


OFFERS A process of calling for offers on the property, usually required by a certain date.


OPEN HOUSE A scheduled period of time in which a house or other dwelling is designated to be open for viewing for potential buyers. Open house can also refer to the real estate property itself. In either case, it applies to dwellings that are for sale by the owner.  Many open houses are held on weekends, with banners and other fanfare used for advertisement. The houses are cleaned and kept immaculate during this time to attract potential buyers. Some owners will also serve cocktails or hors d’oeurves at these events.


OPTION AGREEMENT A written agreement stating that for a specific deposit amount an individual has first rights to buy a property within a certain period of time.


PERFECT TITLE A title deed for real estate that does not have any liens attached to it. A perfect title becomes so after all liens or other defects have been removed. Perfect titles stand in contrast to quiet titles or cloud on titles. Perfect titles can also sometimes be referred to as “good titles.”


PITI Principal, Interest,  Taxes and Insurance payments to be made on a regular basis, as outlined in the mortgage agreement. “PITI” usually represents the entire mortgage payment monthly.


PRE-QUALIFICATION The process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.


QUALIFIED BUYER A buyer who has satisfied a lender that he or she is financially able to qualify for a loan. Qualifying the buyer is one of the primary steps taken by the lender as part of the loan process.


QUITCLAIM DEED A deed releasing a person’s interest in a property without stating the nature of the person’s interest or rights, and with no warranties of ownership. While a quitclaim deed neither warrants nor professes that the grantor’s claim is valid, it does prevent the grantor from later claiming they have an interest in the property.  Since a quitclaim deed makes no assurance that the grantor actually has an ownership interest in a property – but merely states that if they do, they release those ownership rights – when accepting a quitclaim deed the buyer of a property accepts the risks that the grantor of the deed may not have a valid ownership interest and/or that there may be additional ownership interests in the property. Title insurance companies may be unwilling to issue title insurance based on a quitclaim deed.


REFINANCING Paying off an existing mortgage and arranging a new mortgage, often with a different lender.


REPRESENTATIONS AND WARRANTIES Legal clauses sometimes built into a buy/sell contract. Be sure to have them reviewed by your lawyer before signing the document.


RESERVE FUND Refers to that portion of condominium fees being collected and held by a condominium corporation to meet future repair and maintenance expenses.


RETAIL LENDER A lender who offers mortgage loans directly to the public – different from a wholesale lender who operates through mortgage brokers and correspondents.  Retail lenders perform all the loan origination functions themselves.  (Examples: Bank of America, Wells Fargo, etc)


REVERSE MORTGAGE Money borrowed by senior citizens using their home as collateral. This loan has to be repaid from the proceeds of the estate when the owner dies.


SECOND MORTGAGE A loan in addition to the first mortgage, usually at a higher interest rate.  Typically known as a “HELOC” or possibly a “HELOAN”, depending on whether it is a variable rate, or fixed.


USE AND OCCUPANCY (U&O) Refers to a type of permit required by some local governments whenever real property is transferred. Usually U&O regulations require the property seller to pay a fee of around $100 and allow a government official to inspect the property. The inspection’s purpose is to ensure that the property complies with local housing codes and ordinances and that all the necessary permits have been filed. It is also referred to as a “resale inspection,” an “occupancy permit,” and a “U&O certificate.” The U&O inspection must be completed within a limited timeframe, such as 30 days prior to closing, and a U&O certificate may only be valid for a limited time, such as 90 days.  In localities with no U&O requirement, buyers and sellers can make their own determinations about the condition in which they are willing to buy and sell the property and the transaction can proceed more quickly and smoothly. The buyer may purchase a private home inspection and may ask the seller to make repairs as a condition of closing the deal. The seller is free to agree to make the repairs, to negotiate for the buyer to perform a portion of the repairs, or to walk away from the transaction. When local government is involved, the seller is forced to spend time and money to fix anything the government deems necessary, without regard to the prospective buyer’s requirements.


VA “NON-ALLOWABLES” Fees and services a veteran CANNOT pay.  Any other party of interest can cover these fees for them.  Typical non-allowables run anywhere from 0.50 to 2.00% of the purchase price.  This is  why some sellers shy away from selling to a VA buyer.  In many cases the lender can cover most of these fees as well. If using preferred lender, said lender will cover up to 1.00% of loan amount.


VARIABLE-RATE MORTGAGE A mortgage where installment amounts remain constant. Interest rates fluctuate. If interest rates are low, more money goes towards payment of principal. The opposite if interest rates are high.


WHOLESALE LENDER A lender who provides loans through mortgage brokers or correspondents. The mortgage broker or correspondent initiates the transaction, takes the borrower’s application, and processes the loan.

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