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REAL ESTATE TERMS A-Z Listing
The following are words you will hear and see throughout your transaction of selling your home. I have tried to explain them in simple terms. Please read over them. It is not necessary to learn them but having read them here will help you when they come up. You will know what people are talking about.
“With Knowledge you gain Control.”
Glossary of Real Estate Terms
Abstract of Title: A summary of all conveyances, such as deeds, or wills and legal proceedings, giving the names of the parties, the description of the land and agreements, arranged to show the continuity of ownership.
Abutment: Touching, or joining
Acceptance: The seller's written approval of a buyer's offer.
Addendum: An addition or change to an existing contract between two or more parties.
Adjustable Rate Mortgage (ARM): A loan that allows the lender to adjust the borrower’s interest rate and payments at prescribed times and sometimes with prescribed limits.
Agency: The relationship of trust that exists between sellers and buyers and their agents. The agency is usually formed through a written contract.
Agency Disclosure: Laws in most states require agents who act for buyers or sellers to disclose who represents whom in a real estate transaction. Laws vary widely by state but in Texas it is required at the first meeting when substantive matters about real estate are discussed.
Agent: A licensed person who represents buyers, sellers, or both in the sale or purchase of real estate property.
Allowance for Repairs: An amount negotiated within a contract that the seller agrees to pay toward buyer designated repairs.
Amortization: The act or process of extinguishing debt with equal payments at regular intervals over a specified period of time.
Amortized Loan: Loan with schedule of payments that establishes the amount of payment to be applied to the principal and the amount to be applied to interest, usually on a monthly basis, from the start of the loan to the end.
Annual Percentage Rate (APR): The total interest rate of a mortgage, including the original loan interest as well as any upfront interest paid in securing the loan. The APR will be different from the mortgage rate quoted because of inclusion of these items.
Appraisal: A professional estimate of value of any property such as real estate by a third party usually issued to the standards of FHA, VA, and FNMA. Recent comparable sales in the neighborhood are used and are the most important factor used in determining market value. Virtually all financed mortgages will require an appraisal.
Appreciation: An increase in the value of real estate, due to economic or related causes which may be either temporary or permanent.
Arbitration: A method of resolving a dispute in which a third party renders a decision.
Assessment: The dollar valuation placed upon property as determined by public tax assessor which is used to determine the basis of your property taxes.
Bill of Sale: Not a real estate term. An instrument which transfers title of personal property (chattels) from owner to buyer; would be used for a mobile home but not the land it sits on. A “Deed” transfers real property.
Broker: Broker has several meanings in different situations. Many REALTORS® are "agents" who work under a "broker." In this capacity the Broker is the ultimate responsible party providing an umbrella to the REALTORS® “agents” under them. Some agents are brokers as well, either working for themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but will broker loans to larger lenders or investors.
Buyer's Agent: A licensed Real Estate Agent that has entered an agreement to exclusively represent the buyer only, instead of the seller.
Closing: Point of a Real estate transaction when the seller transfers title to the buyer in exchange for the purchase price. Closing is the official process that administers the final transfer of the deed from the seller to the buyer, as well as finalize all aspects of the mortgage on the property, if any. The closing is handled in some locals by the title company and in others by real estate attorney.
Closing Costs: Expenses incurred in the closing of real estate or a mortgage transaction. Seller’s expenses normally include but are not limited to: attorney’s fees, termite inspection, any warranty policies as agreed to in contract, repairs as agreed to in contract, any purchaser’s closing costs if agreed to in contract. Purchasers expenses normally include but are not limited to: cost of title examination, premiums for title policies, survey, attorney’s fees, lender’s services fees (origination points/discount fees), pre-paids and recording fees. A good rule of thumb is that purchaser’s closing costs usually total from 3% to 5% of the sales price of the home.
Commission: Payment of money or other valuable consideration to a real estate broker for services performed by either the broker or their agents.
Comparable Market Analysis (CMA): A professionally done comparison of the closed sales of similar houses in the same general area. A CMA is used to help determine the fair market value of a property, whether a seller wants to sell or a buyer wants to buy.
Condominium: A form of property ownership providing for individual ownership of an apartment or other space, and undivided interest in land and common areas of the structure. Housing unit where the owner owns only the unit in which they live, from the interior walls inward, as well as a portion of the common area. Condominiums usually have monthly fees to offset the cost of upkeep of common areas and
insurance.
Contingencies: These are conditions written into Real Estate offers and contracts to protect a buyer or seller. An example would be a contingency to protect the buyer from being held to buy a house that proves to be unsatisfactory for the reasons stated in the contingency. Examples of contingencies are "This contract is subject to the buyer obtaining a satisfactory house inspection within 10 days." or "Subject to the buyer being able to obtain a mortgage within 7 days” or to “sell their present home within 30 days." It is always important to put a time frame in a contingency.
Conventional Mortgage: A mortgage securing a loan made by investors without government underwriting (i.e.: not FHA-insured or VA –guaranteed).
Convey: To deed or transfer title of property from one person to another.
Counteroffer: The result of changes to the original offer before acceptance. A new offer made as a result of another offer, which cancels the original offer.
Debt to Income Ratio: The ratio of a Purchaser’s (borrower’s) outstanding debt as a percentage of their complete total gross income. Good rule of thumb, house payment should not exceed ¼ of purchaser’s gross monthly income
Deed: A formal written legal instrument (document) that, when recorded with the local government, determines and records ownership of a property. The deed is transferred from seller to buyer at the closing. Also called “Conveyance”.
Deed of Trust: This is the legal instrument whereby real property is given as security usually for the mortgage debt. There are three parties to this instrument; the Mortgagor (borrower), the Trustee (A person who holds or controls property for the benefit of another in order to meet an obligation.) and the Mortgagee (Lender).
Disclosure Statement: A statement prepared for a potential buyer listing information relevant to a piece of property, such as the presence of radon, asbestos or lead paint, foundation cracks, plumbing problems etc…. Disclosure should be made available to buyer at time of showing.
Discount Points: Additional charges made by the lender at the time that the loan is originated with the lender. These additional interest charges are paid at the time the loan is closed to increase the rate of return to the lender so as to approximate the market level. Think of it as an incentive to investors to put up the money for mortgages. One point = 1%.
Down Payment: The portion of the purchase price of a home that the buyer pays in cash and does not finance. Usually plan on at least 10% many lenders require 20%.
Earnest Money: Also referred to as “Good Faith Money, is money that is submitted with an offer to purchase which indicates a buyer's good faith. Routinely, earnest money will need to be submitted at the time of the offer and remains in escrow until the time of closing, where it is then made a part of the down payment. Earnest money is usually applied to Buyer’s closing costs not down payment.
Easement: The right to use or enjoy certain privileges that appertain to the land of another by reason of an agreement to record with the owner of adjacent property (example: right of way) Public Utility (gas, water, sewer, electric) easements are granted at the time the development is first recorded.
Equity: The difference in dollars between the market value of a property and the total of any unpaid mortgages or existing loans taken out against it. You can figure out what you will have from the sale of your home by figuring out your equity and then subtracting expenses of your sale (closing costs, repairs, contract extras, cost of sale)
Escrow: Money that is held in reserve both prior to closing by a third party for delivery upon performance of certain conditions or the happening of certain contingencies and after closing by the mortgage holder to pay future real estate taxes and homeowners insurance.
Exclusive agency: An agreement to employ a particular broker. If another broker makes the sale, both are entitled to commissions.
Exclusive listing: A contract that gives an agent the exclusive right to market a property for a specific period of time.
Fannie Mae (FNMA): Nickname for The Federal National Mortgage Association, is a tax paying, shareholder-owned corporation created by Congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional home mortgages. It is the nation's largest supplier of affordable home mortgage funds.
Fee Simple: An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.
FHA Mortgage: A Home loan that is insured by the Federal Housing Administration (FHA). It is insured against default and requires a down payment of 20% to avoid a monthly insurance fee. Along with VA loans, an FHA loan will often be referred to as a government loan.
Fixed Rate Mortgage: A mortgage loan where the interest rate is determined at its beginning and is a fixed rate that doesn’t change and continues in force unchanged throughout the life of the loan.
Fixture: Personal property that becomes real property when attached in a permanent manner to real estate. (sitting on a table a light is personal property attach to the wall or ceiling it is a fixture. A shelf hanging on a nail is personal property attach it with screws to studs and or the wall and it is a fixture) If any fixtures are to be removed after the sale they must be described in the contract.
Flood Insurance: Specialized Insurance that covers damage to physical property resulting from flooding. It is required by mortgage companies for homes in designated flood areas as shown on the Flood Map.
Foreclosure: The legal process by which a mortgage lender regains ownership of the property from a defaulting owner.
FREDDIE MAC (FHLMC): Nickname for the Federal Housing Loan Mortgage Corporation, a federally controlled and operated corporation to support the secondary mortgage market. It purchases and sells residential conventional home mortgages.
Good Faith Estimate: Written estimate of costs the borrower must pay at closing, provided by a lender within three days of a loan application.
Government National Mortgage Association (GNMA or Ginnie Mae): Government agency that provides funds for VA and FHA loans.
Gross Income: Total income before taxes or expenses are deducted.
Gross Monthly Income: The total amount earned by the borrower each month.
Hazard Insurance: Insurance coverage protecting homeowner in the event of physical damage to a property from fire, wind, vandalism, or other hazards.
Home Inspection: A professional inspection by a certified Inspector of the whole house under consideration for purchase which looks for defects in the property for a fee. Caveat´ these inspectors are not yet regulated.
Homeowner's Association: A group of homeowners (condominium, townhouse or single family) in a subdivision originally established by the developer, that decides upon general guidelines for the best interests of the community. HOA's usually have monthly or yearly fees.
Homeowner's Insurance: An insurance policy purchased by the homeowner that combines personal liability insurance, flood insurance (if necessary) and hazard insurance coverage for a dwelling and its contents. All Mortgage Companies require that the homeowner carry this insurance for the life of the loan.
Housing and Urban Development (HUD): A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.
HUD-I Settlement Statement: A form that itemizes the closing costs associated with purchasing a home.
Interest: Charged by lender to borrower for loan of money.
Interest Rate: The periodic charge, generally expressed as a percentage per annum of the outstanding balance, for use of credit.
Interest Rate Cap: A safeguard built into ARMs to prevent drastic changes in interest rates.
Joint Tenancy: Ownership of a property is shared equally by two or more parties with the right of survivorship.
Legal description: A specific way of identifying and locating a piece of real estate that is acceptable to a court.
Lien: A legal claim against a piece of real property by which the property is the security. A lien can prevent it from being sold unless the lien is satisfied by being paid in full. Liens known as Mechanics’ Liens can be filed by unpaid contractors or other debtors without the homeowners knowledge by a legal process so that they will be paid when a property is sold.
Listing: The agreement by which a real estate property for sale is offered to the public by a licensed Real Estate Broker firm and Agent.
Name given to property information on the MLS service.
Loan Officer: Also referred to by a variety of other terms, such as lender, loan "rep" representative, account executive, and others. The loan officer has various responsibilities: they coordinate the process of securing the mortgage, they solicit underwriters, they represent the lending institution, and they represent the borrower to the lending institution.
Loan Origination Fee: The fee charged by the lender payable at the time of closing for the work involved in the evaluation, preparation, and submission of a proposed mortgage loan.
Lock-in: A binding agreement by the lender to the buyer at the time of mortgage application or shortly thereafter, to honor the mortgage at a specific interest rate offered at the time of application, even if rates rise or fall before the date of closing. If rates are rising, it's wise to lock. If rates are falling, it may be best to wait. All lock-ins have specific expiration dates, such as 30, 60 or 90 days in the future.
Loan to Value Ratio (LTV): The ratio of the mortgage loan principal (amount borrowed) to the properties appraised value (contract price). i.e.: on a $100,000 appraised home, with a mortgage loan principal of $80,000, the loan ration is 80%.
Market Value: The highest price a buyer is ready, willing, and able to pay based on properties that have recently sold comparable to property being valued. Basis for “listing price” or “asking price” but not value seller is compelled to accept.
Marketable Title: Clear title with no undisclosed encumbrances. Title has no serious defects and will not expose buyer to litigation.
Mechanic's Lien: A statuary lien to secure payment for persons contributing labor and/or material toward improvement upon real property when the compensation was not paid in a timely manner.
Mortgage: Monies loaned to purchaser to buy property. Loan is Recorded as a lien or claim against property given by the Purchaser to the lender with property as security for repayment of the loan.
Mortgage Banker: A mortgage banker is generally assumed to originate and fund their own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae.
Mortgage Broker: A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.
Mortgage Note: A written agreement to repay a loan. The agreement is secured by a mortgage note and serves as proof of the indebtedness, and states the manner in which it shall be repaid. Also referred to as “Deed of Trust”. This note is recorded and becomes part of the public records.
Multiple Listing Service (MLS): A marketing tool available to members of this service to expose listed properties to potential buyers, providing a wider market base. A detailed listing usually in electronic form of all the properties for sale by Real Estate Brokerages or agents in a given geographical area. Recently this marketing tool has been made available to For Sale By Owner Sellers.
NAR (National Association of REALTORS®): A trade organization for real estate agents and brokers who become members by agreeing to abide by the organization's code of ethics. Members may call themselves REALTORS®. If you hire an agent make sure they have the REALTOR® affiliation.
NAR Code of Ethics: A formal code of ethics and standards of practice established by the National Association of REALTORS® (NAR) and by which its members must abide.
No Cost Loan: These are the loans that have caused so many problems in recent years and have contributed to the foreclosures we are seeing in today’s market. Many lenders offered these loans that you could obtain at "no cost. Like a "no-point" loan, the interest rate was higher than if you obtain a loan that has costs associated with it and people over spent buying homes they could not afford.
Notary Public: A public officer authorized to administer oaths to attest or certify types of documents, to take depositions and to perform certain other civil functions. It is advisable to have contract’s signors notarized. Notary Public can be found at your Bank also in phone book.
Private Mortgage Insurance (PMI): Insurance required generally on all conventional loans unless a 20% down payment is made. These payments for PMI are made a part of the mortgage payment and they are protection for the lender should the mortgagee (borrower) default on the loan. On FHA loans, this is called a MIP (Mortgage Insurance Premium) which is virtually the same thing.
Points: Paid for mortgage, 1 point is equal to one percent of the loan value, etc. Points can be loan origination fees otherwise known as discount points which reduce the interest rate of the loan. For example, when a lender quotes a rate of 7 1/2% with 1 + 1 points, 1 point is for the discount fee. and 1 point is for the origination fee.
Power of Attorney: A document authorizing a person (the attorney-in-fact) to act on behalf of another (the principal); to be directive in real estate, the power of attorney must be recorded.
Pre-approval: A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification. Many lenders give a pre-qualified letter and this should be requested from any purchaser submitting a contract.
Pre-payment Penalty: A fee charged by the Mortgagee (the Lender) for paying off the loan early (before it is due). You want a mortgage that does not have this penalty because it is probable that you will sell the home before you pay it off.
Prequalification: The first stage of a mortgage application process where the lender will run a basic credit report and determine your debt to income ratio in order to see how much mortgage money they would lend you should you decide to go forward with the loan. At this point usually nothing has been verified.
Pre-Paids: Payments made by purchaser in cash at the closing for such items as homeowners insurance for one year and real estate taxes for several months.
Principal: The total amount borrowed for a mortgage loan. The monthly mortgage payment will be applied to both the interest and the principal, note that the majority of the payment is applied to the interest portion for the first few years of the loan.
Principal Interest Taxes and Insurance (PITI): You will see this term PITI. Most residential payments include principal, interest, taxes and insurance.
Promissory Note: Once a lender agrees to make a loan, the borrower signs a note promising to repay the loan under designated terms.
Property Tax: Real estate taxes, generally an annual tax paid to one or more governmental jurisdictions based on the amount of the property assessment. Many Mortgages include this in the payment and set up an escrow account to make the payments, however some allow the homeowner to take care of the taxes. It is better to let the Mortgage Company handle the taxes because if they are not paid you could lose the property.
Prorate: At closing to allocate between seller and buyer their proportionate share of an obligation paid or due. For example, prorate of real property taxes, fire insurance, or condominium fees.
Punch list: A list compiled by a buyer prior to a sale detailing items to be fixed before closing.
Purchase Agreement (Contract): An agreement between a seller and a buyer for the purchase of real estate that binds a buyer to purchase a piece of property for a set price, and also binds the seller to sell that property to the buyer..
Quitclaim deed: A deed that transfers property without warranty. Transfers whatever interest or title a grantor may have at the time the conveyance is made.
Real Property: Refers to the right to own land and improvements. Commonly used interchangeably with Real Estate and Realty.
Recording: The process of entering deed and/or mortgage instrument (Deed of Trust) into public record with the local government jurisdiction.
Registrar of Deeds: The public official who keeps records of transactions that affect real property in the area.
Right of first refusal: A provision in an agreement (contract) that requires the owner of a property to give purchaser (lessee) the first
opportunity to purchase or lease the property before he or she offers it for sale or lease to others. There should always be a time frame on this provision.
Right of Survivorship: Right to acquire the interest of a deceased joint owner. Distinguishing characteristic of a Joint Tenancy Deed.
Sale-Leaseback: A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.
Sales Contract: A contract by which buyer and seller agree to terms of a sale.
Settlement Statement: A document that provides a complete breakdown of costs involved in a real estate sale usually prepared by broker, escrow, closing agent, title company, or lender.
Specific Performance: A legal act to force the performance of a contract according to its terms.
Sweat equity: Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.
Survey: A drawing on a plat or map made by a licensed surveyor showing the precise legal boundaries of a property, the elevations, the
location of improvements, the improvements, easements, rights of way, encroachments, relationships to other surrounding tracts of land and other physical features. A survey is usually required by the lender to assure a building is actually sited on the land according to zoning laws, legal restrictions and its legal description.
Tenancy in Common: Ownership shared by two or more parties
without right of survivorship (does not pass to others in the event of death), interests need not be equal.
Tenancy at Sufferance: A tenancy which arises when a tenant holds over after the termination of a lease without consent.
Tenancy at Will: A tenancy for an indefinite period which may be terminated at the will of either the lessee or the lessor.
Time is of the Essence: A clause in a contract contemplating performance by a specified date and time.
Title Insurance: Protects the title to the property along with your ownership rights from claims arising from defects in the Title (accumulation of all rights in property held by owner). Title insurance is paid at closing and may be the responsibility of the buyer, the seller, or both, depending on what is traditional in your locality.
Underwriting: The process in which lenders evaluate the risks posed by a particular borrower and set appropriate conditions for the loan.
Underwriting fee: A fee charged to the borrower (purchaser) by the lender to verify information on the loan application, authenticate the property's worth as collateral, and make a final determination about whether to grant a loan to the applicant.
VA Mortgage: A mortgage that is guaranteed to be paid by the Department of Veterans Affairs (VA) in the event that the mortgagor (borrower) defaults on the loan. Available only to qualified Veterans.
Walk-through: A buyer's final inspection of the home to determine if
conditions in the purchase agreement have been satisfied done prior to closing, usually the day before.
Warranty: Covers either most of the house in a newly constructed home, or selected items such as a/c or heating systems in a used home. Warranties can be different depending on certain factors and are optional in used homes paid for by either the buyer or the seller.
Warranty Deed: Instrument for Conveyance of title that contains certain assurances and guarantees by the grantor that the deed conveys a good and unencumbered title.
Zoning: Government regulation of land use; Laws that regulate
specifically how an area of real estate can be used by owner. Example of restriction would pertain to height, bulk and use of buildings or use of land intended to accomplish desirable ends. For example, a property may be zoned for single family residential, commercial or retail, or a mix of two or more uses.
The above terms should help you get a better understanding of the process of Sale of real estate. They are words you will see and hear as you go through the selling process.
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Copyright©Oct 1, 2009 forsalebyownerhow2 abef Blake Enterprises
Information deemed to be reliable although not guaranteed
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